Pennsylvania, like many other states, is facing a huge unfunded pension deficit in its defined benefit plans: a $70 billion shortfall in two large plans for teachers and other state employees. Unlike most states, Pennsylvania in early June passed — with widespread bipartisan support — major legislation “to get real meaningful pension reform,” as Gov. Tom Wolf was quoted saying.
Indeed, the recent Pennsylvania law is a significant step in the right direction. However, the financial projections for the legislation show how long it takes, given the legal and political constraints, for this approach to pension reform to meaningfully reduce the burden on state budgets.
Here is the background. In 2001, Pennsylvania reported a $20 billion surplus in its two big defined benefit plans – the Public School Employees’ Retirement System and the State Employees’ Retirement System. But then state legislators boosted benefits for current state workers without increasing contributions to these plans, and even extended this giveaway to already retired public employees. In 2003, legislators compounded the state’s funding challenge by taking a “pension holiday” — decreasing pension contributions to allocate revenue to other state priorities.
These actions contributed to a giant shortfall during the global financial crisis, when the value of the state’s pension portfolios plummeted. In response, state legislators in 2010 reduced pension benefits — only for newly hired state workers — to pre-2001 levels. Nevertheless, because of growing obligations to current and retired workers, the state’s contributions to its pension plans ballooned to $6 billion in the 2018 fiscal year from $1 billion in the 2011 fiscal year.
What is gold? Is it the essential bedrock of fiscal prudence? Is it a political football, with fortunes and importance determined by far greater forces? Or is it a mere distraction at the margins of the global financial system — attracting a disproportionate number of scams and oddball political characters?
Gold in the American economic system has been all of these and in that order. James Ledbetter weaves a highly readable tale, literally from the origins of the republic to the dubious sponsors of Glenn Beck on Fox News (a brilliant concluding chapter). Too often, this kind of economic history becomes dry and even soporific. But Ledbetter — the editor of Inc. magazine — has a fine eye for personality and ideas; each of the 12 chapters puts you on the spot at a critical moment on the American journey with gold, with anecdotes nicely blended to create the broader historical context.
You can read it in chronological order or you can dip a toe in at any point, almost the ideal summer reading. Or — my favorite for this kind of tale — watch the story unfold backwards; start with the modern and familiar, and see how far you need to go back in time before it feels like you are watching something straight out of Marvel Comics, with big characters and motivations that now seem strange. The most compelling material explains how President Franklin D. Roosevelt reluctantly yet effectively — and with very good reason — ended the way gold had operated over the previous half century. But Operation Goldfinger is also highly entertaining — a 1960s public policy escapade, inspired by the James Bond movie.
The broader plot line is this. The American republic was initially bankrupt, a point that the hit musical Hamilton made more effectively than any middle school history lesson. A monetary system subsequently modeled on that of Britain included gold as an anchor of value for paper money and bank deposits. This system provided sufficient stability in good times — along with plenty of opportunity for financial speculation and shenanigans — and could also be suspended when circumstances dictated, most notably during the Civil War.
As philanthropy becomes a common source of finance for poverty-fighting programmes, it is natural for donors to want data about their impact on the people they want to help.
Yet measuring the benefits of philanthropy is surprisingly hard. How can we define and measure “income” in a village of subsistence farmers? Can we ask a street kid enrolled in a violence-prevention programme about his illegal activities? How do we know if a change in nutritional outcomes was the result of a social programme and not some other variable, like a change in food prices? How can we measure non-quantitative or non-monetary outcomes, like women’s empowerment or entrepreneurial motivation?
For many years, aid impact studies were based on anecdotal evidence or fragments of data. Over the past decade, searching for a more rigorous approach, development researchers have applied the “gold standard” of medical research: randomised controlled trials. In an RCT, researchers allocate an intervention, such as a microfinance loan, to a randomly selected test group of people and compare their outcomes with a control group. Read More »
Senate Republicans last week agreed on a budget resolution allowing a $1.5 trillion increase in the federal deficit over the next 10 years from tax legislation. This resolution paves the way for 51 Republican Senators to enact mammoth tax cuts by September 30, 2018.
As the centerpiece of these tax cuts, President Donald Trump has proposed to lower the corporate tax rate to 15% from 35%. However, despite the deficit cushion of $1.5 trillion allowed by last week’s budget resolution, a 15% rate is totally unrealistic.
Cutting the corporate tax rate to 15% would cost the U.S. Treasury $3.7 trillion over 10 years. But that cost cannot come close to being offset by repealing existing tax preferences, which all will be fiercely defended by special interests. A realistic legislative target would be a corporate tax rate of 25%. And under Senate rules this rate would have to expire after 10 years because it creates future budget deficits.
Let’s do the math on corporate and individual rates, together with optimistic assumptions about limiting existing tax preferences. The numbers are based on dynamic estimates from the nonpartisan Tax Policy Center, unless noted otherwise.
The survival of any organization depends on its ability to outperform competitors and marketplaces in attracting and rewarding talent, ideas and capital. As communication and transaction costs have drastically declined because of the internet, new platforms have emerged, delivering goods and services at a speed and efficiency previously unimaginable. These new digital players took advantage of the changes in the underlying technology to challenge established business models and rethink pre-existing value chains. The ones that succeeded did so because they achieved a level of efficiency that their brick and mortar counterparts had trouble replicating. Through online reputation and feedback systems, digital players were able to create global marketplaces where individuals, products and services could be matched more effectively than ever before. By providing curation and ensuring the safety of transactions, these new types of intermediaries were able to reap the returns of this first wave of digitization.
A similar transformation is about to happen as blockchain technology and cryptocurrencies mature and mainstream applications emerge. Under this new wave of technological change, intermediaries will still be able to add value to transactions, but thenature of intermediation will fundamentally change. Whereas some established players will be able to use this opportunity to further scale their operations, others will be challenged by new entrants proposing entirely new approaches to value creation and value capture.