McCaleb: Public pensions in some ways mirror Madoff’s Ponzi scheme

“In a world full of lies, the most dangerous ones are those we tell ourselves.” 

― Diana B. Henriques

HBO debuted its original movie on Ponzi-schemer Bernie Madoff over the weekend. Based on Henriques’ book “The Wizard of Lies,” the film (and book) tells the chilling tale of Madoff’s fraudulent investment scheme in which more than 2,200 people lost almost $20 billion in retirement savings.

That is a lot of victims losing a lot of money.

But it’s peanuts compared to what public pensioners – in Illinois, Pennsylvania, New Jersey and elsewhere – stand to lose if drastic reform measures aren’t taken soon. More on this in a moment.

A Ponzi scheme is a form of fraud in which early investors see quality returns, not because their money was invested wisely as the investors are led to believe, but because new investors fund the payouts. The cycle perpetuates itself – more and more new investors are needed to continue to fund previous investors’ returns at an unbeknownst higher risk to themselves – until it inevitably collapses.

In Madoff’s case, the collapse occurred in 2008, after almost 30 years, when the housing bubble burst and the economy was sent into the Great Recession. Simplistically, far fewer new investors could be found, and prior investors, many hurting because of the turn in the economy, asked for their full investments back.

Madoff was sentenced to 150 years in prison after pleading guilty to multiple counts of fraud. His victims suffered untold losses.

What’s the point of my Madoff history lesson?

A strong case can be made that public pensions are eerily similar to a Ponzi scheme, and that a similar collapse in some of the most underfunded systems in the country might be inevitable. That would mean an untold number of new victims that would make the Madoff case seem relatively minor by comparison.

The difference between a Madoff-like Ponzi scheme and the public pension crisis is that government is complicit in the latter, and that dedicated public servants, state retirees and taxpayers are the ones at risk.

I think we all can agree that taxpayers and state workers who have spent their careers serving residents, teachers included, don’t deserve that.

Doubt that will happen? Let’s start with Puerto Rico.

The U.S. territory in the eastern Caribbean declared a form of bankruptcy (after Congressional approval) earlier this month because of massive debt that included $50 billion in underfunded pensions. In a story headlined “In Puerto Rico, pension fund works like a Ponzi scheme,” the New York Times reported the following:

“Puerto Rico, where the money to pay teachers’ pensions is expected to run out next year, has become a particularly extreme example of a problem facing states including Illinois, New Jersey and Pennsylvania: As teachers’ pension costs keep rising, young teachers are being squeezed — sometimes hard. One study found that more than three-fourths of all American teachers hired at age 25 will end up paying more into pension plans than they ever get back.”

For pensioners in Puerto Rico, where a recovery plan is still being devised, it could mean pennies of the dollar of what they were promised.

For current and future public pensioners, a similar fate awaits if drastic reforms don’t happen.

Take Illinois, whose five state pension funds are now underfunded by more than $130 billion, worst in the nation. At that deficit, the pension funds have in hand just about 37 cents of every dollar they will owe to current and future pensioners.

But it actually could be much worse than that.

Money set aside to fund pensions – from taxpayers and public employees – is invested to grow the dollar pool. But most pension systems have over-estimated the rate of returns on these investments. As recently as 2014, Illinois’ Teachers Retirement System projected an inflated 8 percent annual return rate. That projection was dropped to 7.5 percent three years ago. Just last year, Illinois’ State Employees Retirement System downgraded its rate of return estimate to 7 percent. Each of these downgrades cost Illinois taxpayers hundreds of millions of dollars annually because the taxpayers are legally required to make up the difference.

What’s worse is that many investment professionals and ratings agencies say a more realistic rate of return is in the 3 to 4 percent range. If that’s the case, Illinois’ already staggering pension debt would balloon by tens of billions of dollars more. That could be devastating to younger state employees who still have decades to go before they retire. A younger teacher who is funding current retirees’ bloated pensions faces a potential collapse in the system, risking much or all of her retirement nest egg.

And as return estimates continue to drop, taxpayers are forced to pick up the ever-growing tab.

There is a partial solution.

Illinois state Sen. Dale Righter has filed legislation that would place all new state employees, including teachers, in a 401(k)-style defined contribution plan. State employees would contribute 8 percent of their salaries into the private investment account, and the state (taxpayers) would contribute an additional 7 percent.

While Righter’s plan wouldn’t solve Illinois’ $130 billion (likely more because of the overstated return on investments) pension deficit, it would relieve new hires of any concerns of a pension collapse and it would drastically slow Illinois’ ever-growing pension obligations. More action, particularly other structural reforms that will improve Illinois’ overall economy and increase its tax base, are needed to chip away at the deficit.

States that have adopted similar plans to Righter’s already are seeing fiscal improvements.

Unfortunately, many in the Illinois General Assembly continue to think that higher taxes are a major part of the solution. But we’ve been there and done that, and it hasn’t worked. It’s led to a stagnant economy and a mass exodus of Illinoisans to other states.

States such as Illinois and and their employees need drastic pension reform measures if they are to stave off a Madoff-like collapse.

It’s time we stop telling ourselves dangerous lies and get these reforms done.

By Dan McCaleb | From Watchdog.org.

Time for a New “Hiatus” in Warming, or Time for an Accelerated Warming Trend?


As you can tell from our blog volume, there’s been a blizzard of new and significant climate findings being published in the refereed literature, and here’s some things You Ought to Have a Look at concerning the recent “hiatus” in warming and what might happen to our (now) post-El Niño climate.

With President Trump still deciding on U.S. participation in the Paris Climate Agreement, new research suggests the Earth’s global mean surface temperature (GMST) will blow past the so-called 1.5°C Paris target in the next decade. But before making that ominous prediction, Henley and King (2017) provide us with a good history lesson on a taboo topic in climate science circles: the recent global warming “hiatus” or “pause” from 1998-2014. One could be forgiven for thinking the hiatus was “settled science” since it featured prominently in the 2013 IPCC AR5 assessment report. But a concerted effort has been made in recent years to discount the hiatus as an insignificant statistical artifact perhaps based upon bad observational data, or a conspiracy theory to distract the public and climate policymakers. Even acknowledging the existence of the “hiatus” is sufficient to be labeled as a climate change denier.

Social scientists, psychologists, and theologians of all stripes feared that widespread community acknowledgement of the hiatus would wither support for climate policy at such a pivotal juncture.

In a 2014 Nature Commentary (Boykoff Media discourse on the climate slowdown) saw the rise of the terms “hiatus and pause” in the media in 2013 as a “wasted opportunity” to highlight the conclusions of the IPCC AR5 report, which in itself ironically struggled with explaining the hiatus/pause (IPCC: Despite hiatus, climate change here to stay. Nature September 27, 2013). Amazingly, in a Nature interview a week prior to AR5’s release, assessment co-chair Thomas Stocker said this:
Comparing short-term observations with long-term model projections is inappropriate. We know that there is a lot of natural fluctuation in the climate system. A 15-year hiatus is not so unusual even though the jury is out as to what exactly may have caused the pause.
Claims that there might be something fundamentally wrong with climate models are “unjustified unless temperature were to remain constant for the next 20 years,” he said.

Except there was something fundamentally wrong with the climate models: they missed the pause! The IPCC was caught flat footed and their dodgy explanations were woefully inadequate and fueled continued questions about the credibility of future warming forecasts based exactly on those deficient climate models. What’s going on with this hiatus? A cacophony of explanations has filled the literature and media with several dominant themes: do not believe your lyin’ eyes – the data is wrong – and even if it is not, you are using it wrong. Karl et al. 2015 fixed the SST and buoy data, and (erroneously) claimed to have gotten rid of it. Cherry picking! The heat is sequestered in the depths of the ocean or the aerosols covered up the greenhouse gas signal. It’s enough to make you think climate “science” might not know what it is talking about!

Only a few years since the last (2013) UN climate report, there is now a strong scientific consensus on the cause of the recent global warming hiatus as well as the previous “big hiatus” from 1950s-1970s: a mode of natural variability called the Interdecadal Pacific Oscillation (IPO) which could be colloquially called El Niño’s uncle. The mode operates on longer time scales than El Niño but it is intimately related as a driver of Pacific Ocean heat exchange with the atmosphere and therefore a dominant modulator of global temperature. In a March 2016 Nature Climate Change commentary (Fyfe et al.), eleven authors including climate scientists Benjamin Santer and Michael Mann persuasively “make sense of the early-2000s warming slowdown.” Their article provides evidence that directly contradicts claims that the hiatus was a conspiracy, or scientifically unfounded fiction. Several important points are made that deserve mentioning:

The recent hiatus occurred during a period of much higher greenhouse gas [GHG] forcing e.g. CO2 almost 100 ppm higher than the previous “big hiatus” slowdown in the 1950s-1970s. The authors rightly raise the question if the climate system is less sensitive to GHG forcing that previously thought or global temperatures will undergo a major warming “surge” once internal natural variability (e.g. IPO) flips sign.

The observed trends in global surface temperature warming were not consistent with climate modeling simulations. Indeed, using a baseline of 1972-2001, climate models failed to reproduce the slowdown during the early twenty-first century even as GHG forcing increased. The hiatus was neither an artifact of faulty data nor statistical cherry-picking – it was a physical change in the climate system that was measured across multiple independent observation types.

Climate scientists still need to know how variability (natural and anthropogenic) in the climate system works to attempt to model its changes through time regardless of political inconvenience.

Now back to the Henley and King (2017) piece that predicts a flip in the Interdecadal Pacific Oscillation to a positive phase will lead to almost 0.5°C increase in global temperature by 2030. Based upon the RCP8.5 high emission scenarios (which are likely to be too high themselves), those same climate models that did not adequately predict the early 21st century hiatus are used to generate so-called warming trajectories.

Image adapted from Henley and King (2017)

Image adapted from Henley and King (2017)

How plausible is this extreme warming scenario? Regardless of the phase of the IPO, the model projections suggest an acceleration in the warming rates considerably above the hiatus period of the last 15-years. The authors allow for 0.1°C of warming from the recent strong El Niño as the offset for the “new” starting period, but that estimate is probably too low. We calculated the daily temperature anomaly from the JRA-55 reanalysis product—a new and probably more reliable temperature record–and apply a 30-day centered mean to highlight the enormous warming step with the 2015-2016 El Niño. Only an eyeball is necessary to see at least a 0.30°C upward step now into May 2017. Note that this is not carbon dioxide warming, and if we had a strong La Niña (the cold opposite of El Niño), we would expect a step down.

Is this warming now baked in (double entendre intended) to the climate system or will we descend to a lower level during the next year or two thanks to a La Niña? In other words, will the hiatus return, another one begin, or will the upward trajectory accelerate? Oh, and did we mention that we know of no climate model that warms the earth in jump-steps followed by long “hiatuses” after big El Niños?



I’m Not a Terrible Person, I Just Believe in Freedom

I see the look in my best friend’s eyes when I talk to her about free markets. She looks at me like she doesn’t know me. As if the friend that she has laughed and cried with, that she trusts, has been invaded by an inhuman body-snatcher.

But I only told her that developing countries have experienced great successes in their private schools (especially compared to public schools which cost three times as much for the same or worse results), that perhaps alternatives to failing public schools aren’t a bad thing, and that we need to guard against giving away our power because one day it might end up in the hands of a monster.

It makes sense to me, but I can tell she thinks that I no longer care about the experiences of minorities in America, the LGBT community, or women’s rights.

Not so! I must not be explaining myself to her accurately. Allow me an attempt to do so now.

E Pluribus Unum

I truly care about the people who live in our society. True, I am a white, middle-class, heterosexual woman who lives in the southern United States. Also true, I feel a strong connection with the disenfranchised people who are struggling to get by and to be accepted in the land of the free and abroad.

I don’t believe in freedom and capitalism because of some careless idea about pulling oneself up by the bootstraps. I know that some people don’t have boots to stand in. And that is a shame. I feel for those people. I know how easily that could have been me, and still could be.

These are my people.

I think about the ways that we are the same. There are kind people in every group, who feel when strangers are hurting, who love animals and the environment, and who care about the lives of everyday Joes and Josephines. My people, the human race, all over the globe, they feel the power of music. They smile at babies, share meals, embrace. They’re innovators and explorers; long ago, they took to the seas, the mountains, and the moon. Scattered all over the planet, they look up at the same stars. They hope and dream.

I want more than prosperity for these people. I want opportunities. I certainly don’t want all of us to be equally screwed.

I acknowledge that I am privileged by experiences over which I have no control and that have nothing to do with the person that I am. For example, if I speak and write with “correct” grammar, no one calls me a credit to my race. If I am nonviolent, career-driven, or pursue an education, I am not labeled as ‘one of the good ones’. If I buy nude pantyhose, the nylon will actually resemble the color of my skin.

Like you, I have no control over the place of my birth or to what family I was born. The world is not just and we all fear the power of others to make us small. To make us disappear.

There are people a plane ride away from me who confront this reality daily. I’ve seen pictures of cities reduced to rubble and of kids who have only lived through war.

A majority of humanity wants the same things, to feel safe in the world, in our homes, on the street. It’s nice to be nice and what stops us? Nothing.

Power and Freedom

I’m not so naïve as to deny the impact of historical horrors and people with iron fists, whose amplified voices have moved feet and toppled innocents. As a people, we have flung salt at each other, thrown up walls, and tossed over exploding bombs. But every day we have an opportunity to be better than yesterday.

We give away our power so easily, out of fear and hate and hope. I want opportunity for you, just like I want opportunity for me. I also want your freedom, and mine.

The question of policy will always be: where do we draw the line?

I like to imagine my ideal government as a metal fence post. It has clearly defined geometry, a solid foundation, and within its structure, it stands strong. Society and people's lives twine around the post like vines, occupying the negative space, growing, flowering, reaching for the sun. The fence post doesn’t show favoritism, it doesn’t suppress or give one vine a boost. It is functional and useful and it stops right there.

We are at liberty to add love, multiply our empathy, and forget to divide. But I believe the solution to our concerns is subtraction of power from the grasp of people who will take it.

Freedom as a life philosophy and free-market economics are about civil rights and allowing the people who need it most to build wealth. They are not about stepping on the poor or ignoring women’s and minority rights. There can be a balance between protecting people and allowing society to progress through spontaneous order.

According to Vox, 3.3 million women marched down US streets last Saturday. They did not do so by the grace of government. Individuals made choices; they used their agency and their civil rights to assemble, use speech, and protest. What will stop passionate people from fighting against injustice?

Politicians can only play catch-up. Culture, which you and I contribute to at every moment of our lives, defines what our society looks like and how people are treated. We don’t need Government to save Gotham. We have us.

Marianne March

Marianne March
Marianne is a recent graduate of Georgia State University, where she majored in Public Policy, with a minor in Economics. Follow her on twitter @mari_tweets.
This article was originally published on FEE.org. Read the original article.

Horrifying Video From Abortion Conference Shows Utter Disregard for Human Life

Lawyers for Center for Medical Progress founder David Daleiden released a new video on Thursday that exposed horrifying statements from leaders within the abortion industry.The video footage was obtained at National Abortion Federation conventions that took place in California in 2014 and 2015.

The National Abortion Federation describes itself as “the professional association of abortion providers.” It “exhibits and presents at numerous conferences … about topics related to abortion care.”

The video notes that “Planned Parenthood makes up about 50 percent of [the National Abortion Federation’s] members and leadership.”

The video opens with a Planned Parenthood medical director speaking on a panel about “heads that get stuck” and the “hemorrhages that we manage.”

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She is later seen telling a panel: “Given that we might actually both agree that there’s violence in here, ask me why I come to work every day. Let’s just give them all the violence, it’s a person, it’s killing, let’s just give them all that.”

A Planned Parenthood abortionist then complains about how an unborn child “is a tough little object” and is “very difficult” to take apart.

A lawyer from the American Civil Liberties Union is heard remarking, “When the skull is broken, that’s really sharp!” as the crowd laughs about the difficulty of “getting that skull out.”

Another Planned Parenthood official is seen speaking on a panel recalling that an “eyeball just fell down into my lap, and that is gross!” as the crowd laughs.

A procurement manager from StemExpress is seen commenting that there are “a lot of clinics that we work with that, I mean, it helps them out significantly.”

A Planned Parenthood official later says that “[t]he truth is that some might want to do it … to increase their revenues. And we can’t stop them.”

One would think the state of California would be concerned about what was said at these conferences.

But instead of looking into potential illegal profits from the transfer of fetal tissue, California is charging Center for Medical Progress journalists with 15 felonies for bringing these troubling questions to light in the first place.

California argues that the Center for Medical Progress unlawfully recorded the subjects of undercover videos without their consent.

When the charges were announced, Casey Mattox, senior counsel at Alliance Defending Freedom, told The Daily Signal that even in two-party consent states like California, “It’s well understood as a matter of First Amendment law that people have a right to be able to record their own conversations.”

He added:
These were publicly recorded conversations, they were recorded in restaurants and other places where Planned Parenthood officials should not have expected they had any privacy at all. I find it fascinating that the state of California is apparently very concerned about the privacy of Planned Parenthood officials, and much less concerned about getting to the truth of Planned Parenthood actually engaging in violations of the law by selling baby body parts.
As this concerning case makes its way through court, Americans should remember that Planned Parenthood receives over half a billion dollars from taxpayers each year.

Today’s video once again demonstrates the urgent need for policymakers to end taxpayer funding for Planned Parenthood, its affiliates, and other abortion providers once and for all.

Funding could instead be redirected to centers that provide health care for women without entanglement in on-demand abortion.

Congress has the opportunity to deny Planned Parenthood certain federal funds in the upcoming budget reconciliation bill to repeal Obamacare by ensuring the language includes a provision (just as the 2015 version of the bill did) that would disqualify Planned Parenthood affiliates from receiving Medicaid reimbursements for one year after the enactment of the bill.

Ultimately, Congress should send the No Taxpayer Funding for Abortion Act, which passed in the House of Representatives in January, to President Donald Trump’s desk for signature.

Commentary by Melanie Israel. Originally published at The Daily Signal.

Climate Budget Cuts Are Smart Management, Not an Attack on Science

It’s been described as a “slap in the face,” “slaughter,” “a punitive … assault on science, the environment, and indeed the planet.”

Aside from being inappropriate and irresponsible, these remarks are how some in the policy world and media have depicted cuts to global warming spending in President Donald Trump’s first budget proposal.

People seem to have forgotten—or perhaps never noticed—just how much the government spends on direct climate programs.

Trump’s budget proposal does in fact eliminate or cut a number of climate programs. But you don’t have to scratch too far beneath the surface to realize there are legitimate justifications for doing so.

Even if the federal budget won’t be balanced on the back of eliminated climate programs, there are a number of basic problems with government climate spending.

1. Quite simply, there are a lot of global warming programs.

For all the Obama administration’s emphasis on global warming as an issue, the Government Accountability Office’s December 2016 assessment found only partial improvement in program management and could not yet determine if government standards showed whether programs were being effective, as they had only just been implemented.

The Government Accountability Office noted in 2009 that “the federal government’s emerging adaptation activities were carried out in an ad hoc manner and were not well coordinated across federal agencies, let alone with state and local governments.”

At least 18 federal agencies administer climate change activities, costing at least $77 billion between fiscal years 2008 and 2013, according to the Congressional Research Service.

2. Most of the money goes to green tech rather than science.    

If these technologies are economically viable, there will be plenty of private sector capital available to develop them. Hardworking taxpayers shouldn’t have to dump money into speculative or failing technology companies or pad the bottom lines of successful ones.

The Department of Energy is notorious for spending on research, development, demonstration, and commercialization of technologies like wind, solar, geothermal, electric vehicles, biofuels, coal carbon capture and sequestration, small nuclear, and batteries.

This has been particularly true in more recent years as a result of the Obama administration’s failed stimulus package, which funneled billions of dollars into energy technologies.

According to the Government Accountability Office, the bulk of federal climate spending has gone to technology development rather than science, wildlife, or international aid.

3. There’s a lot of wasteful spending.

While the Navy’s price per gallon may appear cheap, the actual total cost to the government is much higher.

Despite clear direction from Congress that fuels be cost-competitive, the executive branch camouflaged the costs of the Navy’s biofuel program by subsidizing it through the U.S. Department of Agriculture’s Commodity Credit Corporation program and the Department of Energy.

There are other much larger boondoggles, too. The Navy spent hundreds of millions of dollars on biofuels to meet a political objective to “jumpstart” a domestic biofuel economy with no strategic advantage for military capabilities.

There are many other equally ridiculous examples, such as an Environmental Protection Agency grant for “green” nail salon concepts in California.

As just one example of wasteful spending, Office of Budget and Management Director Mick Mulvaney highlighted the National Science Foundation’s grant for a global warming musical. (The nearly $700,000 grant was awarded in 2010.)

4. International climate initiatives are fatally flawed.

There are a number of problems with America’s continued participation in the U.N. Framework Convention on Climate Change, the body that has produced international global warming agreements and, most recently, the Paris Protocol.

One would think that an international climate conference aimed at reducing greenhouse gas emissions would be the perfect opportunity to have a teleconference to show some good faith. But instead, government officials from around the world fly to lavish venues while telling you to buy hybrids and eat less meat.

Each year, the result is the same: symbolic commitments that shame industrialization and the use of fossil fuels with little to no actual impact on the climate.

Furthermore, the Palestinian Authority’s participation in the Paris Protocol should be cause enough to halt funding as Congress has stipulated under current law.

As the Trump budget proposes, the U.S. should also end funding to the quasi-scientific body behind the Paris Protocol—the Intergovernmental Panel on Climate Change. This panel’s studies have been subject to bias, manipula­tion, and poor data.

5. There are major problems and gaps in climate science.

The fact is, climate modeling is at this point an inexact science. Models have proven to be inaccurate, and regulatory cost-benefit accounting metrics based on them are indefensible.

It is thus no surprise that massive government policies like the Paris Protocol and Clean Power Plan are demonstrably ineffective in addressing global temperatures.

There are many areas of disagreement and uncertainty among climate scientists, not to mention biologists, meteorologists, oceanographers, economists, and others with relevant expertise.

Exacerbating this is the role the federal government has played in toxifying the scientific debate on global warming. Rather than fostering scientific discovery in a field that is a mere few decades old, the federal government appears to have expressed bias in funding science that supports federal climate policies.

Science that challenges the current narrative is pilloried in the press and labeled “denialism,” whereas an intellectually honest approach would seek to understand and improve the science.

The debate is not improved by demands for RICO investigations or anti-science statements castigating those with different opinions as part of the “flat earth society” with their “heads in the sand,” and encouraging people to “find the deniers near you—and call them out today.”

We don’t need more spending on iterative studies telling us that coffee could be more expensive and snakes bigger thanks to global warming. We need better modeling, better understanding of basic science, more data, and a better, transparent discussion on climate science and climate policies.

Even after the president’s proposed cuts, there is plenty of money left in the federal budget to study and model the climate.

For instance, the Office of Oceanic and Atmospheric Research, a division that includes many climate programs within the National Oceanic and Atmospheric Administration, would be cut by more than $150 million, but still retain a hefty $324 million.

Let’s also not forget the role that universities, nonprofits, and international organizations play in studying the global climate.

Eliminating wasteful spending, some of which has nothing to do with studying the science at all, is smart management, not an attack on science.

It’s time to end the boondoggles and hold the federal government’s climate science activities to the same standards of rationality and cost effectiveness as other government spending.

Commentary by Katie Tubb and Nicolas Loris. Originally published at The Daily Caller.