Brewtown Gumshoe: May 2011

Saturday, May 14, 2011

Social Security

A Social Security primer from Ezra Klein:

"1) Over the next 75 years, Social Security’s shortfall is equal to about 0.7 percent of GDP. Source(PDF).

2) For the average 65-year-old retiring in 2010, Social Security replaced about 40 percent of working-age earnings. That “replacement rate” is scheduled to fall to 31 percent in the coming decades. Source.

3) Social Security’s replacement rate puts it 26th among 30 Organization for Economic Cooperation and Development nations for workers with average earnings. Source.

4) Without Social Security, 45 percent of seniors would be under the poverty line. With Social Security, 10 percent of seniors are under the poverty line. Source.

5) People can start receiving Social Security benefits at age 62. But the longer they wait, up until age 70, the larger their checks. Waiting to 66 means checks that are 33 percent larger. Waiting to 70 means checks that are 76 percent larger. But most people start claiming benefits at 62, and 95 percent start by 66. Source.

6) Raising the retirement age by one year amounts to roughly a 6.66 percent cut in benefits. Source.

7) In 1935, a white male at age 60 could expect to live to 75. Today, a white male at age 60 can expect to live to 80. Source.

8) In 1972, a 60-year-old male worker in the bottom half of the income distribution had a life expectancy of 78 years. Today, it’s around 80 years. Male workers in the top half of the income distribution, by contrast, have gone from 79 years to 85 years. Source.

The conclusions I draw from these numbers are:

1) Social Security’s 75-year shortfall is manageable. In fact, it’d be almost completely erased by applying the payroll tax to income over $106,000. Source (PDF).

2) Most opinion elites — Simpson being one good example, and the U.S. Senate being another — show a very strong preference for working as long as possible. Most Americans show a very strong preference for retiring as early as possible. Elites who enjoy their jobs need to be very careful about generalizing their experience to people who don’t enjoy their jobs. More bluntly: Raising the retirement age is the worst of all possible options for reforming Social Security. It’s not only regressive, but it also falls most heavily on those with the worst jobs. Means-testing would be much better.

3) Social Security is fairly stingy and getting stingier. We also know most 401(k)s are underfunded, and the same goes for many defined-benefit pension systems, both public and private. We need to be very careful not to “solve” the Social Security problem by worsening a broad retirement-security problem, and that requires approaching Social Security as part of our retirement-security infrastructure rather than simply as a budgetary question. Here are some ideas on how to do that."

Under-Taxed Americans

A litany of tax facts from a great article by Kevin G. Hall:

Revenues plunged to around 15 percent of the economy in 2009 and 2010...and dipped further this year, to 14.4 percent, the lowest level since 1950.
Federal spending this year was 25.3 percent of GDP.
The federal budget deficit: $1.6 trillion.
Americans across all income classes paid lower effective tax rates in 2007 than they did in 2000.
The top 1 percent paid 39.5 percent of all U.S. income taxes in 2007 - but taxes take a smaller share of their wealth today than historic post-World War II norms.
Americans on average saw 17.3 percent of their income go to federal taxes in 2009 and 2010. The last time the percentage was this low was 1975, and during the late 1960s.

Voucher Villainy

As Ruth Conniff writes, Scott Walker plans on "lifting the income caps for vouchers, so rich people can go to private schools on the taxpayers' tab."

Republican Senate President Mike Ellis told the Journal-Sentinel's Jason Stein, “We have problems with the elimination of the income threshold because the idea behind this program was to help poverty-stricken students who don’t have the wherewithal to go to private school. This is a complete blowing up of that concept. Throw this (new proposal) in and I have to do some serious thinking about the rest of this.”

Balanced Budget

Insight from Dean Baker, "If we got the unemployment rate back down below 5% (where it was before the onset of the recession), we would get most of the way back to a balanced budget - even with no additional changes to the budget."

Sunday, May 8, 2011

Water Hub Hallucinations

It seems the Journal Sentinel is really doubling down on the "Milwaukee as water hub" agenda. John Schmid has written a glowing piece about Richard Meeusen, Badger Meter CEO, and his role in pushing this water hub idea.

The article repeats many of the same talking-points that have hovered around this water hub fantasy. The focal point being - Milwaukee has a stable of water-related companies that are prime for investment, jobs, and growth.

Any investment we can attract to Wisconsin companies is appreciated. But that effort should be proportional to the historical imprint and current market capitalization of the targeted industry. To simply decide water is the industry for us because a water company CEO and a few others are aggressively pushing such doesn't meet the usual criteria for such an investment and strategic economic decision.

And, the simple fact that certain companies are located here does not imply that we have a comparative advantage in those industries. Meeusen and others are making quite a logical leap to conclude their water hub strategy is a no-brainer and a can't miss catalyst for growth in the region. If it was, why isn't the private sector already pumping money into this endeavor?

Even the article notes that Badger Meter is 45th (of 50) on the Goldman Sachs list of biggest water technology companies. Badger Meter's market capitalization is dwarfed by Siemens (Germany), Suez (France), and numerous other U.S. companies.

For the definitive take-down of the water hub hallucination read The False Promise of the Entrepreneurial University. Excerpts:

"Employment trends in recent years at the two companies spearheading the Milwaukee water campaign – A.O. Smith and Badger Meter—hardly provide grounds for thinking that water companies will drive job growth in the Milwaukee region. A.O. Smith employs a mere 110 staff at its “world” headquarters in Milwaukee. Moreover, the headquarters of A.O. Smith water products are not even in the self-proclaimed Milwaukee water “hub;” they are in Ashland City, Tennessee, outside of Nashville, where approximately 1,600 are employed at the headquarters and in “the world’s largest water heater manufacturing plant” (A.O. Smith Corporation, 2003). "

"Similarly discouraging employment trends are evident at Badger Meter, a manufacturer of meters and other devices that measure and control the flow of liquids. Richard Meeusen, the CEO of Badger Meter, is co-chair of the M-7 Water Council and, by far, the most conspicuous corporate face of the Milwaukee water “hub” campaign. Employment at Badger Meter’s suburban Milwaukee headquarters rests at 500, including around 210 production workers; and total Milwaukee employment at Badger Meter has declined by around 10 percent since the mid-1990s. In the meantime, the company has expanded outside Milwaukee, beginning in the 1970s when it built a preNAFTA “maquiladora” plant in Nogales, Mexico, in search of cheap labor (Fauber and Norman, 1991; Fauber, 1991). In 2008, post-NAFTA Badger Meter opened a second, $8.5 million plant in Nogales; all told the company now employs about 600 in Mexico (Rovito, 2009a)."