Archive for January, 2010

In Other News, Chavez Nationalizes Unsupported Objects For Falling

Via the Wall Street Journal:

President Hugo Chavez ordered Sunday the seizure of a French-owned retail chain on accusations that it raised prices after Venezuela devalued the currency by half.

“Until when are we going to allow this to happen?” Mr. Chavez asked during his Sunday television program in reference to the alleged price hike by Almacenes Exito SA, headquartered in Colombia and controlled by French retailer Casino Guichard-Perrachon S.A.

The Venezuelan leader said that new law may need to be approved to carry out the nationalization. “I’m waiting for the new law to begin the expropriation process,” he said. “There’s no going back,” he added.

Almacenes Exito saw some of its stores closed this week by government authorities on accusations that it was increasing prices regardless of Mr. Chavez’s orders that retailers were not to adjust prices after he devalued the currency to 4.3 bolivars per dollar from the previous rate of 2.15 bolivars.

When inflation kicks in here, no doubt we’ll be hearing about Ford’s morally unacceptable price-gouging, too.  Not to mention blaming the banks for high interest rates.

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The Denver Post is reporting that negotiators are nearing a deal on PERA, the generous defined-benefit plan that most state workers have benefited from over the years:

The major changes to the Public Employees’ Retirement Association include increasing employee and employer contributions by 2 percent and reducing cost-of-living increases for current retirees from 3.5 percent this year, capping them at 2 percent….

Several issues remain to be resolved, most revolving around age of retirement and years of service needed to get full benefits, but both men said those issues could be resolved by the time lawmakers convene for their 120-day session next week….

So let’s assume that accounting for the government worked the same as accounting for a private pension.  In fact, in this case, there’s no good reason why it shouldn’t.   Basically, the plan has assets and obligations, but both of those change over time.   So the inputs to the model are 1) Actuarial Assessments, and 2) Interest Rate Assessments.

Actuarial assessments include things like Years of Service, Age of Retirement, Years of Benefits, Salary Increases (due to seniority), Benefit Increases (due to age).   Interest rate assessments include benefit inflation, health care inflation, discount rate, and return on plan assets.

The things that can be adjusted generally fall into Actuarial Assessments, and that’s where the article focuses.  Retirement age and years of service all fall into this category.  What’s critical is the stuff that’s left out.  We have no idea what the plan’s assumed rate of inflation, discount rate, rate of benefit inflation or health care inflation are, or what the assumed return on investment is.  We don’t know what they’ve assumed them to be in the past.  If those numbers are unrealistic, or even aggressive, we’ll likely find ourselves right back in the same place a few years from now.

Consider a simple scenario, where the plan assumes a constant 8% real return on plan assets.  Historically, this might be reasonable.  But if the bulk of the return is in the out years, the plan will have depleted its assets before those returns can catch up, and will run out of money.  (Cool graphs on this topic here.)  If you could forecast how returns would change over time, you’d have a more accurate model, but the fact is, as we’ve seen time and again, it’s impossible to make those sorts of predicts 5 years out, never mind 25 years out.  Which means that the solvency of any defined-benefit plan is mostly guesswork.  Promises of long-term solvency are simply mirages.

Maintaining a defined-benefit for incoming and even current employees  is not realistic (promises made to those already retired must be honored).  The only fair way to move forward is to transition to a defined-contribution plan, which has only assets, and by definitions, no liabilities.  Unfortunately, the political will for this move doesn’t seem to exist.

UPDATE: According to the actuarial projections accompanying PERA’s legislative recommendations, they are indeed projecting a constant 8.0% return for the next 30 years.  This strikes me as aggressive.  But they key point to remember is that these returns are never constant, and that the shape of that returns curve strongly affects the ending balance.  There is simply no way for even the best prognosticators to get that right, and worse, no acknowledgment in the docs that it even matters.

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Ritter Withdraws

Governor Bill Ritter will not seek re-election.  The stead dripdripdrip of bad news seems to have driven him from the race.

It seems as though at least two of these stories are connected, with the possibility that Ritter was using his personal cellphone for state business, and then shielding that usage from public scrutiny in order to hide his affair.  Of course, it could also be that he’s not enjoying the job, isn’t very good at it, and has had enough.  We’ll know more tomorrow.

From the Republican side, the assumption is that CoDA has already named his successor in the race, and that it will be either for House Speaker Andrew Romanoff or Denver Mayor John Hickenlooper, both of whom have fairly high positives and a campaign base to draw from in heavily-Democrat Denver.  Ross Kaminsky analyzes the options here.  It’s a good piece, but I think he gives Romanoff too little credit, and Hickenlooper too much.

Romanoff is already a statewide figure, with connections on the western slope and down south that Hickenlooper doesn’t really have.  He was in the process of running a statewide race, and now won’t have the sitgma of attacking a sitting Democrat.  On the other hand, he’s been running to Bennet’s left in this race, and now owns those positions, which might undermine his reputation as a moderate consensus-builder.  And he was the father of the failed Amendment 59, which would have gutted the Taxpayer Bill of Rights to fund the Teachers Unions.

Hickenlooper, on the other hand, has a Denver handicap that Romanoff has already overcome.  Denver doesn’t scale well to the rest of the state.  It bears roughly the same relationship to the eastern plains, the high country, and the western slope that NYC has to upstate and Long Island – people don’t much trust Denver.  They may well vote against a Denver mayor more quickly.  There’s a reason that Colorado governors come from the legislature, and not from the Denver mayor’s office.

Denver mayors have more power than Colorado governors when it comes to budgeting, which might actually strengthen the argument for a fiscally conservative Republican legislature, in a year when there are any number of already-vulnerable Dems.  Denver isn’t a basket-case, to be sure.  But it has benefitted greatly from the Democrats’ car tax in order to stay sane.  If Hickenlooper is the nominee, Republican City Councilman Jeanne Fatz will probably become veyr popular very quickly as a speaker on hidden lunacy in Denver’s budget.  And Denver’s share of the Stimulus Money will also come under closer scrutiny.

There’s an assumption that either Romanoff or Hickenlooper would make things harder on a Denver Republican party struggling to recover from years of decline.  But if Hickenlooper is the nominee, the focus on his record from the McInnis campaign may actually end up helping us out.

So my money’s on CoDA nominating their old bag man, Romanoff.

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Could Israeli Airport Security Work Here?

Allison Kaplan Sommer and Michael Totten both have thoughts on why theirs works better than ours, and whether or not we can adopt some elements of the Israel approach.


Israelis won’t settle for “a fair chance.” But traditionally, in Israel, when it comes to the inevitable tension between civil liberties and national security, it’s security that wins out, and legal challenges to airport profiling have been generally unsuccessful in changing the reality on the ground. This could change following Israel’s Association for Civil Rights petitioning the Supreme Court to outlaw “racist, humiliating airport checks against Arab citizens” — but the odds are slim.

The question is whether the time has come when a large and powerful democracy like the U.S. must take a page from the playbook of the small and vulnerable Israel.

Resistance to adopting the Israeli model in the U.S. is understandable. The idea of subjecting profiled airline passengers to Israeli-style intensive questioning in the U.S. may not seem pretty.

But then again, the idea of every airline passenger in the U.S. being physically searched as a potential crotch bomber is even more unappealing. Taking account of our footwear before flying is one thing. Being forced to contemplate our choice of underwear is quite another.

And Totten, who, because he interviews Hezbollah-types, has been on the short end of the stick going through Ben-Gurion:

The United States need not and should not import the Israeli system. It’s labor intensive, slow, and at times incredibly aggravating. Americans wouldn’t put up with it, and it wouldn’t scale well. The one thing we can and should learn from the Israelis, though, is that we need to pay as much attention to who gets on airplanes as to what they’re bringing on board.

The TSA’s whole mindset is wrong. Its agents confiscate things, even harmless things, and they apply additional scrutiny to things carried by people selected at random. If they were also tasked with looking for dangerous people, they would rightly ease up on grandmothers and senators, and they’d have a competently compiled list in the computer of those who are known to be dangerous. And if some kind of broad profiling means I’ll have to suffer the indignity of being frisked while the nun in line behind me does not, it’s no worse, really, than the embarrassment and contempt I’ll feel if the nun gets frisked instead.

There’s another problem with the sort of profiling in the US.  At least one of the would-be bombers in the US this summer, the one who wanted to blow up a Federal building in Indiana, was a convert.  Indeed, converts to Islam seem to comprise a vastly disproportionate number of radicals in the West.  And since converts can come from any race, and we don’t ask people about their religions, profiling would be much harder here in a nation of nations.

Read ’em both, though.

Still, Libertarians and isolationists (and there’s more overlap there than is comfortable) should consider that the less aggressive we are overseas, the more invasive we’ll have to be here at home.

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