Thursday, January 03, 2008

Xtra's Midwestern Holiday Trip

Your loyal correspondent recently returned from a brief trip to Minneapolis and Iowa, mainly Iowa. Before I get into some of the finer policy discussions held and other observations I must first issue a public service announcement for Minnesota drivers:

MOVE OVER, THE LEFT LANE IS A PASSING LANE.

Outside of the passive driving of Minnesotans (who by the way are always polite drivers even if they are obscenely slow) I had a wonderful stay in the heartland. It was tremendous to be in Iowa so close to the caucuses. I spent much of the time attempting to shame Iowans into caucasing and stalking my future father-in-law to dissuade anybody he tried to convince to caucus for John Edwards from doing so. Barack Obama, yes; Hillary Clinton, maybe; John Edwards, HELL NO!

While in Iowa I had the good fortune to meet up the PeP founder himself, Piedpieper. We had a very engaging discussion of pensions and health care, though mostly pensions. In some degree our conversation was illustrative of our conservative and liberal priors. Pied, prefers defined benefit to some degree, I prefer defined contribution. While our conclusions differed our assessment of the underlying facts was near identical. Our assessment of the pros and cons of each defined benefit (traditional pension plans) and defined contribution (401-k, IRA, TSP) is as follows:

1. A well managed defined benefit plan will get better returns for the common worker than they would likely manage on their own

2. Workers are not terribly good at managing their own investments, key example, they keep company's matching stock contributions in company stock (see Enron for the risks of doing so) or entirely to passive (i.e. invest in cash or bonds at excessive ratios)

3. A defined benefit plan is not well adapted to the modern economy where a worker jumps from job to job, company to company

4. Companies that have defined benefit plans (and for that matter governments, especially governments) have been rather poor in meeting their end of the bargain (Auto, Steel, Aviation, Muncipal and State Governments)

5. People don't necessarily invest at all in a defined contribution system as it is optional, whereas a defined benefit is not

6. Defined benefit plans have reinsurance in the form of the Pension Benefit Guaranty Coropration (PBGC)

7. the PBGC is bleeding money and headed towards insolvency


Coming away from the conversation we were in total agreement about the underlying facts of both defined contribution and defined benefit pensions. Pied still favored a defined benefit program even as he conceded it was ill suited to today's economy and I still favored the defined contribution in spite of its inefficiencies. I think some of the defects of a defined contribution plan can be remedied through regulation such as prohibiting the employer match in the form of stocks, increasing diversification ratios, and decreasing the vesting period. However, a defined benefit program will always hold the worker hostage on two levels: 1. if the worker leaves he loses his pension; 2. there is no guarantee that the employer will fully meet his end of the bargain (and in fact across many industries the employer is failing to do so and egregiously so). Anyhow, this conversation occurred at a party and we bored the shit out of everybody in a five mile radius.

Later in the week I had the good fortune to see Bill Clinton in the flesh. He was stumping for Hillary at a local gymnasium. Iowans are truly spoiled. The venue could hold maybe 200 people. I was in the last row and was maybe 30 feet away. Anyhow, he was as charismatic, charming, self-aggrandizing and as slippery as ever.

My favorite moment was a particularly disingenous praise he heaped on ethanol. I mean it was truly remarkable. He goes on to explain in the span of a paragraph how great ethanol is because since it can't be transported in pipelines a bunch of factories will have to be built to process the stuff and this will create jobs in processing and the supply chain and then because of its positive impact on global warming that there will be less illegal immigration. Now, in fact the truer version would follow something like this: Ethanol is so damn inefficient that we will have to build a crap load of factories to process it in small batches so it could never be competitive on price save for generous subsidies, which in turn will drive up the price of corn thus putting more land into production which will require more illegal immigration, all the while having a negligible to negative impact on global warming while making us all poorer in the process. A great policy indeed. Sadly, while ethanol is horrible policy it makes for great retail politics. Iowans, truly lovely folks, I doubt there are nicer folks in the union, they love them some ethanol, or more specifically the federal monies that come along with it. I really struggle to think of two aspects of our domestic policy that are more pernicious and perverse than ethanol and agriculture subsidies (and I don't mean the structure but their very existence), however, to be viable in Iowa you have to throw yourself to the altar of Agri/Energy subsidies.

One other bit from the Bill Clinton speech that I found absolutely appalling was his discussion of education. I admire the Clintons for their intellect, which is formidable. However, I was really surprised at how little attention he gave to education in his speech and how paltry the content was. He did the standard ditty on why NCLB is bad. I think NCLB has things positively ass backwards. The feds should be coming up with a standard test and the states should figure out how best to meet the content not the other way around and then the tests should track students in a longitudinal fashion instead of taking annual snapshots of each class to assess progress. Anyhow, his basic policy prescription was for the Department of Education to come up with best practices and make sure they are uniformly applied across the country. Totally underwhelming not to mention stupid as well. In a nation as diverse and large as ours the challenges from state to state and within each state, nay, within each county are so varied. It is doubtful indeed that any one practice or pedagogy will adequately meet the needs of our students.

And this is one area, education policy, that always confuses me. One of the benefits of federalism is that it allows states to adapt policies to the needs of their population but also it allows for experimation which can be adopted at the federal level (such as how the Wisconsin Works program became the basis for Welfare reform). We never discuss Iowa in the context of education. Iowa excels at education, though, you would never think it would. It is by no means a rich state. Why don't we look to Iowa for some tricks as to improve our educational system. Now it may very well be that there isn't much to translate, strong communities and strong families make for good schools. That might be hard to replicate in Anacostia or East LA. Anyhow, that's all for the moment. Stay Classy Iowa.

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