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Policy matters, but it's not the only thing that matters

Policy wonks, as you might imagine, like to argue about which policies produce the best outcomes. But when you're looking to confirm or debunk policy preferences, you can exaggerate their centrality to outcomes. That's what Matt Yglesias is getting at it in this post, and it's also what you're seeing debunked in Robert Irwin's paper showing that state budget deficits are the result of unemployment rather than differing policy decisions. Policy is important, but it's just one factor.

You see this sort of thing a lot when people are looking at demographic consequences for various welfare states. A pension program that has to deal with a generation in which a larger-than-average number of people retire is considered in crisis, and its crisis is taken as evidence of what a bad idea it was. But before those people retired, they were paying taxes and building up surpluses, so it was a pretty good idea. And if there had been no pension program there to catch the elderly, you'd have enormous problems with elderly poverty, higher-than-optimal savings rates, families that suddenly have to pull someone out of the workforce to care for a parent, etc.

So there's not just the question of the pension program, but the question of what problems would exist in the program's absence. And that's because the underlying issue -- a "bulge" generation retiring -- would exist either way.

By Ezra Klein  |  June 22, 2010; 11:56 AM ET
 
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Comments

"But before those people retired, they were paying taxes and building up surpluses, so it was a pretty good idea"

The problem is that these surpluses were spent, so they are nonexistent.The huge bulge of baby boomers paid (and are still paying) for the rather nice retirements of their parents. So, the baby boomers, who have paid into these various entitlement programs for their entire working lives will most likely be having their retirement benefits trimmed and subjected to means testing (which isn't necessarily bad).

Posted by: Beagle1 | June 22, 2010 12:15 PM | Report abuse

There's a (not so) subtle fallacy in blaming unemployment for budget deficit. The fact that nobody is available to pay for spending isn't the fault of the unavailable nobody; rather, the controllable factor is the spending and the planning thereof.

If I hand out a dollar each day, hoping to receive a dollar each day, obviously everything is fine up to and until the day when I don't receive the dollar I had hoped for. Had I planned ahead a bit better and handed out only half a dollar each day, while collecting a whole dollar, I might be able to endure the days without receipts. The blame for shortfall rests with the collector and spender, not the mystical ether supplying the dollars: likewise, state budget shortfalls rest with their tax-and-spend governments, not the unemployed taxpayers no longer able to feed the beasts.

Whatever happened to rainy-day funds?

Posted by: rmgregory | June 22, 2010 12:33 PM | Report abuse

I believe you are complicating things unnecessarily. It is a simple question of making 'pension program' and our 'welfare entitlements' SUSTAINABLE so that it is workable even when our demographic distribution changes.

Today we are ignoring that.

Posted by: umesh409 | June 22, 2010 12:34 PM | Report abuse

"You'd have enormous problems with elderly poverty."

I don't think this is obviously true. When Social Security was created, elderly poverty was a problem but remember the U.S. had a tiny economy back in the 1930s - on a per capita basis we were as poor as China is today. When per captia income is only $6,000, it is very hard for most people to find room to put a little extra aside. When per capita income is $46,000 the difficulty fades somewhat.

With absolutely no government interference, sure you'd have people that wouldn't save and have miserable retirements - they'd have to depend on private charity.

If you're worried about the spendthrift people, you could replace FICA with forced savings, and have the government insure the real value of contributions, so that the lower bound for returns is zero. Or do a forced savings program and 'top off' people who's savings buy them an annuity that's below the poverty line.

"higher-than-optimal savings rates"

Compared to what? What is the 'optimal' savings rate? I thought one of America's biggest problems was that saving has been 'too low' the past few decades. Under most economic models, more savings = lower cost of capital = higher investment = greater economic growth = richer country. So if the 'bulge' generation had been saving rather than sending a large portion of their incomes each year in a transfer to their parents, today we'd have a larger economy and we'd have a better ability to manage this bulge.

Posted by: justin84 | June 22, 2010 12:36 PM | Report abuse

Irwin's paper is about the current fiscal situation. The pension question is a matter of the long-term fiscal situation. States have underfunded their pension systems, and that is why their long-term fiscal outlook is bleak. And that IS about policy.

Posted by: BobN1 | June 22, 2010 12:38 PM | Report abuse

i agree that this post mixes the current recession with long term budgetary failures (such as the contribution and unrealistic assumptions behind Calpers etc). while the current recession has of course devestated state budgets (to which unrealisitic budget growth and lack of rainy day funds have contributed), the rise in spending and longterm unfunded pension costs will be and is becoming a killer problem in certain states (for example, see: Public Budgeting & Finance, Vol. 30, Issue 1, pp. 105-129, Spring 2010 (chronciling IL's poor budgetary decisions made over the last decade).

although you might want to cast pension systems in a positive light, it seems to me to be ignoring realities of a burgeoning entitlement commitments in the face of slowing economic growth. this isn't a new story, it was rather foreseeable and it's much more apt to frame it as politicians buying votes with future taxpayer money. that's the real story of asset/liability mismatch. i can tell you that a responsible alternative certainly would have been a defined benefit plan mostly characterizing the troubles.

Posted by: stantheman21 | June 22, 2010 12:57 PM | Report abuse

*wouldn't have been.

Posted by: stantheman21 | June 22, 2010 12:59 PM | Report abuse


you know, this post and your earlier post about state budget shortfalls and the distribution of bailout they received raises an interesting question: In the same way people (rightly) said that the financial sector proceeded as if it were too big to fail and bailouts a foregone conclusion in the event of disaster; can the same argument be made that states proceeded that way with deficits? In the case of states, the pathos argument is strong with teachers and social workers (as in, surely the feds won't let state x lose 1000 teachers or close a university) and there's maybe a chance some states found themselves in such dire straits they just threw up their hands and said eff it, I'll wait for the feds to bail us out.

Posted by: ThomasEN | June 22, 2010 1:02 PM | Report abuse

"In the case of states, the pathos argument is strong with teachers and social workers (as in, surely the feds won't let state x lose 1000 teachers or close a university) and there's maybe a chance some states found themselves in such dire straits they just threw up their hands and said eff it, I'll wait for the feds to bail us out."

I actually live in a state, and I suspect that others here (you included) do so as well. So, having watched my own state government for many years, I have accumulated a reasonable amount of empirical observation about this question, at least for my own state.

And I can say without reservation that NO, the state politicians were not thinking "eff it, I'll wait for the feds to bail us out."

Instead what happened here is that even during the best revenue years, my state runs a rather lean operation in terms of funding vital services like education, infrastructure maintenance, law enforcement, and social services for the needy, thanks to a prevailing anti-tax mood. So when hit with the revenue drop that was created by the worst recession since the Great Depression, my state has been forced to make huge cuts in primary services. Teachers are being laid off, tuition is skyrocketing at the public colleges and universities, hiring and pay at all state agencies is frozen, prisons are closing and so are our state parks.

The suggestion that states like mine had in any way overbuilt the basic services they provide in the expectation of a bail-out -"the pathos argument is strong with teachers and social workers (as in, surely the feds won't let state x lose 1000 teachers or close a university)"- is completely untethered from reality. State budgets have always been at the mercy of the business cycle, and in times of deep prolonged recession and unemployment, a genuine crisis is the predicatble result...this is not the result of states relying on "too big to fail."

The real challenge now for our federal system is to create some sort of meaningful "automatic stabilizers" for state governments that can assure they can at least maintain basic obligations during lengthy economic downturns, and not contribute further to economic decline in the private sector by "anti-stimulus" contraction on the public sector side.

Posted by: Patrick_M | June 22, 2010 2:01 PM | Report abuse

In 2007, state governments spent $1.18 trillion and local governments spent $1.49 trillion. That amount is estimated to have increased to $1.49 trillion and $1.74 trillion, respectively (I don't think actual figures are available, but plausible given how much gets spent on health and education), an increase of over 15% over 2 years. This is over 20% of our GDP. State and local governments combined spend more than the total output of countries like France and Britain. Think about it - the entire nation of France working the whole year cannot produce enough goods and services to buy our state and local government services. These are not lean operations.

The pathos argument is completely tethered to reality at the level of public employees unions (if not city hall and state legislatures). You cannot read the news on a given day without seeing new stories of teachers demanding annual raises (don't they read Krugman who tells us there is no inflation), teachers pulling in $80,000 and complaining about pay, teacher unions who prefer to let dozens of teachers get laid off rather than accept a 3% across the board salary cut, etc. They keep fighting and fighting for money that isn't there.

State and local governments could have automatic stabilizers - they should spend less money. They should run surpluses when unemployment is below 6% and then spending those savings when unemployment rises above 6%. Under this type of approach states would have tons of money to draw upon, since unemployment was below 6% from 1994-2008 outside of several months in 2003.

Posted by: justin84 | June 22, 2010 2:56 PM | Report abuse

justin84,

Your analysis of the "pathos argument" ignores what the "pathos argument" said. It said nothing about public employee union demands, it instead theorized that state lawmakers were making bloated budgets based upon the expectation of a federal bailout during a crash, ala the "too big to fail" financial institutions.

The "France" analogy means little too me. What is important to me in determining what the right level of revenue for state governments are issues like teacher-to-student ratios and the quality of facilities at the K-12 level, affordable tuition for higher education, the right level of support for a state's justice system (cops, child protective services, courts, and prisons), adequate upkeep of the roads and bridges, etc. And I simply don't see any evidence during all the decades that I have resided in my state that there has been significant over-spending in any of those areas. I don't know anyone who wants fewer state patrolmen, more potholes in the roads, or bigger class sizes in the schools.

My state managed to accumulate a small surplus going in to the recession, but the anti-tax crusaders had derided the Governor for holding any surplus rather than lowering taxes. If states are going to prepare for recessions by squirreling away extra funds, people will need to accept the notion of tax-and-NOT-spend, and I don't see acceptance of that idea on the horizon.

I know that it is fashionable to deride public school teachers and to portray the NEA as all-powerful. In truth, teacher strikes over compensation have almost completely vanished nation-wide in recent years, and most teachers' unions accept contracts with salary increases that do not keep up with the cost of living while their workloads continue to expand. Your $80k teacher is probably at the end of a long and succesful teaching career; where I live a teacher with 5 years experience and a Master's Degree and National Board Certification will make barely $50k and will concede a lot of that salary for employee contributions toward health and retirement. And let's not forget that public employees also return a lot of what they earn to the government through the taxes they pay.

I know that there are mismanaged pension funds in many states and that public employee unions exercise greater political influence in a few states than they do in most. But overall, I can't agree that there is inordinate "fat" in state budgets, even during prosperous times.

Posted by: Patrick_M | June 22, 2010 3:38 PM | Report abuse

Patrick,

My analysis of the pathos argument refers to ThomasEN's post in which he states and you quote: "the pathos argument is strong with teachers and social workers (as in, surely the feds won't let state x lose 1000 teachers or close a university)". One part of that is state legislators are letting bloated budgets run wild. But what motivates them to spend?

We have unions who try to force higher revenues, believing that local/state voters or the Feds will step in with more funding. You see this all the time in their ads, which always warn of how the "children" will suffer. But it is never about the children - it is always about inflating public sector compensation. State legislators wouldn't be throwing up their hands and throwing away money if there wasn't significant public employee compensation pressure to begin with.

The France analogy is that we're putting more resources into just state and local government than can be produced by a highly productive developed economy with 65 million people. You go on to talk about student teacher ratios, but very different amounts of money can buy the same student teacher ratios. If teachers salaries were cut 10% across the board, you could make a significant improvement to both ratios and funding troubles. Yes, some of the best teachers might leave (for what? i thought there were no jobs), but then you also have a lot of bright 54 year olds with 30 years of work experience who might love to spend 8-10 years in teaching, and would be estatic to be making $45,000/yr with health benefits instead of getting unemployment. Or you might decide that paying a great teacher $80,000 to teach 30 kids per class might be better than paying a mediocre teacher $40,000 to teach 15 kids - but right now we are basically spending $80,000 to teach 15 kids.

I'm sorry your state's rainy day fund got attacked by people who forget rainy days do occur, and I agree people have trouble accepting tax and not spend, but it's an uphill battle these days to deficit spend and bailout as well. Why advocate for a second best solution? Hopefully, this episode will be fresh in peoples' minds for the next decade or two, and we should be able to appeal to the 2008 recession when forming rainy day funds.

Posted by: justin84 | June 22, 2010 4:38 PM | Report abuse


Well it might not be an question of fat so much as a question of mismanagement. States have lost just as much (depending on how you crunch the numbers) as the financial sector but there are relatively fewer burning effigies of state treasurers and state's ways and means committees. Have they dodged this bullet because of the pathos argument? If Delaware and Bank of America each need $1 billion to survive, I think there's an argument that because Delaware's billion will pay for foster care and teachers that the court of public opinion is less likely to rake them over the coals for their comparable financial mismanagement.

Don't get me wrong, I LIKE foster care, teachers, and social workers, but I think the services provided don't excuse financial mismanagement.

Posted by: ThomasEN | June 22, 2010 5:02 PM | Report abuse

justin84,

One day I must visit your state and see the educational system where the average teacher makes $80k per year to teach a class of 15 students. Where is that again?

You again distort that pathos/too big to fail argument. When the Superintendent of your school district signs off on a new collective bargaining agreement with the union local, does the Superindent agree to salaries that are beyond the District's budget, thinking to him or herself, our District's revenues won't cover this, but ""eff it, I'll wait for the feds to bail us out?" I doubt it, but that's what you need to believe in order for the "too big to fail" explanation of state budget shortfalls to be tethered to reality.

Your solution of the hypothetical army of "bright 54 year olds with 30 years of work experience who might love to spend 8-10 years in teaching, and would be estatic to be making $45,000/yr with health benefits instead of getting unemployment" shows no understanding or respect for teacher qualifications in the 21st century. There are educational and certification requirements, and specialized skills for preparation of curriculum and teaching to local and state standards. Teaching is not an amateur activity, and if you believe otherwise, try taking over a classroom of 25 second graders from diverse ethnic and socio-economic backgrounds over the course of a year. See how you fare, and see how you feel about fair compensation after you have been through that experience.

While we are it, let's not forget that you will also want to cut the pay of your first responders, prison guards, social workers, and so many others, because, hey, some inexperienced 54 year old laid-off construction worker is anxious to take those jobs too.

And sure, we can say that collecting surplus revenues in the future from taxpayers is an admirable goal. I think that my dating Scarlett Johansson would be an admirable goal as well, but neither will happen in my lifetime.

Posted by: Patrick_M | June 22, 2010 5:36 PM | Report abuse

"Well it might not be an question of fat so much as a question of mismanagement. States have lost just as much (depending on how you crunch the numbers) as the financial sector but there are relatively fewer burning effigies of state treasurers and state's ways and means committees."


This argument becomes increasingly strange.

Government is not a profit and loss operation. A state government is responsible to provide certain essential services. It sets rates of taxation that will provide the revenues needed to meet its obligations during average economic conditions. When the bottom drops out of the economy, revenues fall, and the states are forced to cut spending, raise taxes, or some combination of both. The effect of state and local layoffs and spending cuts further supresses demand in the local private economy, creating a self-reinforcing downward spiral. You might argue that it is "mismanagement" fror states not to have huge operating surpluses in good times that are held in savings for bad times, but that would be an argument for mismanagement by the voters, because the people will not abide paying substantially higher taxes for any reason, let alone to allow the states to have fat rainy day piggy banks

This situation does not equate to profit-driven financial institutions on Wall Street gambling on risky over-leveraged financial instruments on the expectation that they are "too big to fail," in order to pad profits for the shareholders and obscene bonuses for the executives.

Your state government is not guilty of selling securitized bad loans and murky derivatives and credit default swaps, or of causing the collapse of the national economy. Of course nobody will "burn them in effigy," and there is no analogy to be made between your state capitol and Goldman Sachs or AIG (if you understand the operations of either one, that is).

Posted by: Patrick_M | June 22, 2010 6:05 PM | Report abuse

um, patrick m, state and muncipalities are certainly guilty of entering into interest rate swaps and cdos that terribly backfired, not to mention pension fund investments in overlevered, poorly thought out deals etc...

but that's beside the fact that it is indeed budgetary mismangagment to 1. not budget based on scenario analysis (which CA is famous for doing) and 2. not budget efficiently in the face of competing goals, even when these goals are laudible. even given your propensity to spend other people's money (for "essential services"), you should at least admit that efficient allocation of tax resources is a good thing, and that there might have been truly inefficient allocations, such as pouring money into things like teacher student ratios which have very little correlative power to improved performance compared to other alternatives, or even worse, buying support/votes from public sector unions.

Posted by: stantheman21 | June 22, 2010 6:50 PM | Report abuse

stantheman21,

Straw men on parade, two parts.

Part One:

"...even given your propensity to spend other people's money (for "essential services")..."

I don't spend other people's money. I do accept the fact that in a democratic society, we have elected state legislators that are charged with the responsibility of providing generally accepted (and often constitutionally mandated) essential services, and to collect the needed revenues to provide for those services. Unless you are an anarchist, I assume you "admit" that there are baseline services that the states are called upon to provide, and that you support the repair of a bride on the highway you use every day, patrol officers that arrest the bad guys and prisons to keep them in, an opportunity for every child to receive a decent public education, etc.

"...you should at least admit that efficient allocation of tax resources is a good thing..."

Oh I "admit" that without the slightest hesitation. In fact, where a state program has clear waste or fraud, or simply provides a service that is of marginal value, I am the first to complain. I never said otherwise,and I don't know why you would imply that I did.

What I did say is simply that it is absurd to claim that state lawmakers have been frittering away money on bloated budgetary expenditures on the expectation that "eff it," the feds would always bail them out because state budgets are "too big to fail" and that the "pathos" of laid-off teachers and social workers would guarantee the magical appearance of funds.

(to be continued...)

Posted by: Patrick_M | June 22, 2010 7:29 PM | Report abuse

stantheman21,

Straw men on parade, two parts.

Part Two:


"...and that there might have been truly inefficient allocations, such as pouring money into things like teacher student ratios which have very little correlative power to improved performance compared to other alternatives, or even worse, buying support/votes from public sector unions."


Where to begin?

If your state has been "pouring money" into "things" like student teacher ratios and if you think there is data after such an educational experiment in your state that there is no improvement in performance with reasonable ratios, I hope you'll share the data. Using my example of the second grade class with a diverse set of kids from various ethnic and socio-economic backgrounds, likely to include a few with special needs and/or behavioral problems, just how many kids do we stuff into that room before performance suffers and we burn out the teacher... 40?, 60?

In the private sector (say your favorite restaurant), do you think there is no correlation between the staff-to-customer ratio and the quality of the customer experience? If you can "admit" that the food and service at the restaurant will not be as good if the same kitchen and wait staff is serving twice the number of patrons it is designed to serve, do you really believe that the challenge of learning is somehow less this way than in the restaurant business? Please.

And as for "buying" support/votes from those evil unions, I'm with you, Stanley. Let's have publicly funded campaigns at every level, so that office holders won't be beholden to wealthy business interests, labor unions, or to any interest group other than the constituents in their districts.

Of course, that change will require raising your taxes.

Posted by: Patrick_M | June 22, 2010 7:30 PM | Report abuse

Patrick,

"One day I must visit your state and see the educational system where the average teacher makes $80k per year to teach a class of 15 students. Where is that again?"

This is from visionbrkr's state, but it'll do. It's not even so much the average (although I'm guessing it's close), but in this school system many teachers are making $90k+ a year in salary, before even getting into healthcare and pensions. One of the teachers on this list was making $87k and had the nerve to complain about it to Chris Christie – predictably she got smacked down.
http://www.rutherfordschools.org/boardofed/boardofed/minutes/minutes2009/MT071309.min.pdf

And let's not forget that these highest salaries denote the oldest teachers - nothing else. They just made it through tenure and got onto the gravy train. By the way, they get extra stipends for more work (which means if there is no money, teachers can't add new extracurricular activities, as the union disapproves).

My point in general is that if you capped salaries - for this school district, say, at $75,000 - you'd have enough extra cash to hire a few more teachers and improve your ratios, if that really is an important metric. Even in expensive locations, two teachers getting married would combined top out at $150,000/yr plus great benefits. By Obama's standards, that's knocking on the door of rich. Or you could pay younger teachers more to get more people who would otherwise choose teaching but instead choose finance because the low starting salary + college debt burden scares them off.

Posted by: justin84 | June 22, 2010 8:15 PM | Report abuse

"Your solution of the hypothetical army of "bright 54 year olds with 30 years of work experience who might love to spend 8-10 years in teaching, and would be estatic to be making $45,000/yr with health benefits instead of getting unemployment" shows no understanding or respect for teacher qualifications in the 21st century. There are educational and certification requirements, and specialized skills for preparation of curriculum and teaching to local and state standards."

You’re correct that I don’t respect certification very much. Lots of that certification is a waste of time. Education schools at universities churn out tons of 4.0 GPA degrees and it's not because only geniuses go into education. The pay scale rewards master degrees in education that add virtually no value to actual classroom teaching ability. Certification and degrees are ways to limit the supply of teachers (good for unions) and give politicians something to talk about when the topic of improving school quality comes up. Some certification/training is needed, but it’s almost certainly overdone today. By the way, that hypothetical army is very visible in the unemployment rate statistics and all the concerns about 'age discrimination'. There is a reserve army of the unemployed. I don't see how my plan of cutting the highest salaries and replacing quitters with older unemployed workers is any more of a fantasyland proposal than any of the stimulus programs that have been put into effect.

I'm not against teachers - I'm only against the excessively paid top tier with union protected jobs and salaries that are a good part of the state budget crisis.

Posted by: justin84 | June 22, 2010 8:27 PM | Report abuse

"Teaching is not an amateur activity, and if you believe otherwise, try taking over a classroom of 25 second graders from diverse ethnic and socio-economic backgrounds over the course of a year. See how you fare, and see how you feel about fair compensation after you have been through that experience."

I know a lot of teachers and I know they spend a lot of time and put a lot of effort into their work. I also think that if the military can make someone a soldier after 9 weeks in basic combat training, you could teach a 50 year old banker or software engineer quite a lot about the trenches of a classroom over a few months. Yeah they'd still have stuff to learn but presumably they would stay on the job for many years (as their savings probably got hit over their unemployment + lack of other available jobs) and get better with experience. I think they'd be at least comparable to a jaded older tenured teacher who'd bail if the money wasn't good enough.

Posted by: justin84 | June 22, 2010 8:42 PM | Report abuse

As for fair compensation, I’m not against teachers earning $50,000 or $60,000/yr – even with summer vacation, even considering their benefits are worth easily another $10,000+/yr. It's an important job. It’s the ones who are making $90,000 and complaining that it’s not enough. Who won't take a pay freeze and watch their young colleagues - making $45,000 and straddled with college debt - take the fall. Who could just take a small hit and it would do a lot of good towards balancing state budgets while maintaining services. Services are being cut because the top dogs are getting their raises and staying on, while the younger teachers are outright eliminated to pay for those raises. If the most outrageous compensation levels were moderated a long time ago, that would be years of savings that could have been plowed back into keeping programs afloat now. Instead it went towards the BMW 528i payments of those $95,000/yr teachers.

Anyway, in terms of the $45,000 salary I mentioned think it is a great deal for someone who is in their fifites, been laid off for a year and is surviving on their 401k and unemployment extensions.
“While we are it, let's not forget that you will also want to cut the pay of your first responders, prison guards, social workers, and so many others, because, hey, some inexperienced 54 year old laid-off construction worker is anxious to take those jobs too.”
Yes. Slice, slice, slice those salaries! In particular, go after the most egregious cases – you can probably get away with slashing pay and keeping the original worker. But if an overpaid prison guard gets replaced by a construction worker, all fine and well with me. By the way, let’s end the drug war and that should keep a lot of dollars at a safe distance from the correctional system. In Yonkers, New York, you’ve got a first responder who retired at 44 with a pension of $101,333/yr. His pay when he retired was $74,000/yr. 3,700 retired workers are getting $100,000/yr in pension benefits in NY state. Two points: I’m afraid to ask how many are making over $75,000 in pensions alone, and if you cut the $100,000+ club down to $50,000, you’d save about $200,000,000/yr just for them. Let them sue.
http://www.nytimes.com/2010/05/21/business/economy/21pension.html

Posted by: justin84 | June 22, 2010 8:43 PM | Report abuse

“And sure, we can say that collecting surplus revenues in the future from taxpayers is an admirable goal. I think that my dating Scarlett Johansson would be an admirable goal as well, but neither will happen in my lifetime.”

Yeah it is a bit into fantasy land (as depressing as that is for us both in terms of your second goal), but all these states who aren’t supposed to cut spending have balanced budget amendments – it’s a bit into the realm of fantasy to expect that they won’t be cutting spending. Obama isn’t going to be able to get the hundreds of billions needed to prop them up. Neither will the states themselves. The political winds are blowing the other way. If our choices are to fantasize about running surpluses in good times to pay for bad times or deficit spending in bad times only, why not pick the former?

"Government is not a profit and loss operation. A state government is responsible to provide certain essential services. It sets rates of taxation that will provide the revenues needed to meet its obligations during average economic conditions."

But this condition doesn't make sense. A government which balances the budget in average times (e.g. when the economy is expanding) will perpetually fall deeper into debt with each recession. There aren't any 'negative recessions' where unemployment falls sharply from, say, 5% to 2%, and allows us to rapidly repay debt/acquire a rainy day fund when the budget is set so as to be balanced at 5%. The ‘solution’ is to go into (manageable) debt during the mild recessions and high amounts of debt in big recessions. Or enact balanced budget amendments and pray that Obama and Barney Frank are around during the big recessions.

Posted by: justin84 | June 22, 2010 8:46 PM | Report abuse

Justin84,

New Jersey is an extreme example which of course is why you chose it over your state, my state, or any representative state. You cite a single anecdote about one well-paid teacher complaining to the New Jersey Governor, . You say on one hand that you think her salary is near average, and you say later that the most experienced teachers receive the highest salaries, as though an administrative assistant in a private corporation would not also logically expect to earn considerably more in the latter phase of her or his career than would a new hire in the same position.

You argue in favor of a hard cap on teacher salaries, but then offer that any resulting savings might be applied to attracting untested graduates that would otherwise go into finance, as though a public service profession that caps compensation at $75k will compete with Wall Street.

You cite the fact that some teachers can earn minor stipends for additional activities, but overlook the fact that virtually all teachers work many uncompensated hours in the classroom and at home, and regularly dole out their own money for classroom and activity materials.

You belittle educational and certification requirements, but admit that "some" unspecified level of certification and training is needed.

"Even in expensive locations, two teachers getting married would combined top out at $150,000/yr plus great benefits." I believe the standard Obama line for the wealthy is income earned above $250k. And again, where I live, which I expect is far more typical of most states, a teacher with a MA and national board certification plus over 5 years of experience with stellar performance will barely clear $50k per year, much of which is taken away by employee contributions to health and retirement, and much of what remains comes right back to the government in taxes paid.

Bottom line: you feel most teachers are over-compensated and that the nature of the work should require less training and certification. I could not disagree more.

This discussion has becoming circular and off topic (topic being the "too big to fail" - pathos theory), so I will wish you a good evening and leave it here.

Posted by: Patrick_M | June 22, 2010 9:16 PM | Report abuse

Oy...I just saw the third posting, so here is a brief reply:

"Obama isn’t going to be able to get the hundreds of billions needed to prop them up. Neither will the states themselves. The political winds are blowing the other way. If our choices are to fantasize about running surpluses in good times to pay for bad times or deficit spending in bad times only, why not pick the former?"

I will fight to the death for your freedom to indulge any fantasy you wish, but until that magical unicorn appears in your garden, I shall remain skeptical that it is en route.

"But this condition doesn't make sense. A government which balances the budget in average times (e.g. when the economy is expanding) will perpetually fall deeper into debt with each recession. There aren't any 'negative recessions' where unemployment falls sharply from, say, 5% to 2%, and allows us to rapidly repay debt/acquire a rainy day fund when the budget is set so as to be balanced at 5%. The ‘solution’ is to go into (manageable) debt during the mild recessions and high amounts of debt in big recessions. Or enact balanced budget amendments and pray that Obama and Barney Frank are around during the big recessions."

I confess that I can't follow what you are arguing here. I talked about the fact that the states (that must balance their budgets) have their fortunes tied to the business cycle. They tend to set rates of taxation based upon average times, reap minor windfalls (which generally turn into tax cuts or one-time infrastructure investments) during booms, and they suffer in bad times...suffering terribly during the rare very bad times of sustained recession, such as we are experiencing now. I think that states provide the services that people most value (no trillion dollar wars of choice here), and which are largely "stimulative" and important to a robust economy in the long term. So unless and until King Justin can persuade the population that paying for ample rainy day funds is prudent policy, I'd humbly suggest that maintaining vital state programs at least always be considered first in line for any federal stimulus spending that may or may not become available.

G'night.

Posted by: Patrick_M | June 22, 2010 10:05 PM | Report abuse

Patrick, although we've reached well beyond budgeting discussion here, here's a good survey re class size:

http://edpro.stanford.edu/hanushek/admin/pages/files/uploads/evidence.size.mayer-peterson.pdf

http://edpro.stanford.edu/Hanushek/admin/pages/files/uploads/teachers.econometrica.pdf (Noting the "results suggest that the effects of a costly ten student reduction in class size are smaller than the benefit of moving one standard deviation up the teacher quality distribution, highlighting the importance of teacher effectiveness" over class size)

it's not that class size doesn't matter; it's just really expensive for the benefits...

and i understand that you think your job is really important and that you are underpaid as a teacher. both might be true; the teacher being important part certainly is....

but countercyclical budgeting requirements is a smart philosophy (see capital requirements for banks and new Basel accords). at a very minimum, state and local govs shouldn't spend like it's gonna be a boom forever, because of the "sticky" nature of government essential services and government employee salaries. this is what many states and cities have done (spending in NYC; SF; CA; IL for example, especially with funding requirements and assumptions for pensions). that's all i was trying to point out; i wasn't arguing that the economic bust isn't the main factor (b/c of course it is...)

Posted by: stantheman21 | June 23, 2010 12:23 AM | Report abuse

Finally, here's a cool paper coming forthcoming in the stanford law review about the AMT and automatic stabilizers

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1590466

Posted by: stantheman21 | June 23, 2010 12:33 AM | Report abuse

stantheman21,

"and i understand that you think your job is really important and that you are underpaid as a teacher. both might be true; the teacher being important part certainly is...."

PAY ATTENTION TO WHAT IS SAID. I am NOT a teacher. I am not a public employee. I have never been a member of any union. I own my own business. I have always been in the private sector. I have raised a family, I happen to care about the importance of schools, and I value the work and the skills of public school teachers, and I think they are under-valued in this society. Please do not presume facts that are not in evidence.

Your study highlights the benefits of teacher effectiveness compared with lower than average class sizes. That is yet another straw man. I am not arguing here that all states should strive for very low student-to-teacher ratios. My concern is with the possibility that educational systems will be forced into larger than acceptable class sizes due to budget constraints and teacher layoffs. Your study does not show that class sizes are infinitely elastic, with no decline in quality.

"but countercyclical budgeting requirements is [sic] a smart philosophy (see capital requirements for banks and new Basel accords). at a very minimum, state and local govs shouldn't , because of the "sticky" nature of government essential services and government employee salaries."

Straw men on the march. I have not argued that states should "spend like it's gonna be a boom forever," I have argued that most state expenditures have been prudent and well within the needs and expectations of the citizenry, and that these budgets have not been based upon a "too big to fail" mindset (as was argued by another commenter).

Posted by: Patrick_M | June 23, 2010 12:20 PM | Report abuse

fine patrick, what you consider (uncharitably i might add) as "straw" arguments, i consider more of narrowing down our differences.

i orginally argued that poor budgeting decisions (full of unrealistic expectations) have been and are real problems, counter to your implied assertion that by budgeting to "meet its obligations during average economic conditions," this means that government shortfalls are purely cyclical and not (partly) due to inefficient and unrealistic practices.

second, im sorry i misread "using my example of the second grade class" by reading out the example. my fault. I don't see why you chose to call this out so forcefully; i didn't call you out in all caps for your lack of knowledge of municipal finance arrangements.

third, you commented "If your state has been "pouring money" into "things" like student teacher ratios" (pre-crisis have you when such budgeting was relevant) "and if you think there is data after such an educational experiment in your state that there is no improvement in performance with reasonable ratios, I hope you'll share the data." i was trying to offer that the drive to lower the ratios might have been a waste of many pre-crisis and that with finite resources, efficient allocations (say increasing class size) was probably a much better alternative than to respond how school have been responding (with senority layoffs), and indeed, might be a misuse of potential "bailout" funds. if i did not communicate that clearly, well i apologize. of course classes sizes aren't infinitevly elastic: yet, to keep you "facts in evidence" metaphor going, a study tending to show weak response to class size is certainly probative of the argument over class size effects, decreasing and increasing. (Rule 401 of FRE).

Lastly,

CA pension plans as evidence of moral hazard: http://seekingalpha.com/article/168780-california-pension-plan-too-big-to-fail-and-acting-like-it

And yes, because public union pension requirements are treated as vested contracts in CA, just behind k-12 education in the constitutional payout structure, there is all kinds of moral hazard reasons to underfund the pensions (see david crane's work here).

Finally, although time doesn't allow for me to flesh out the argument, i've certainly seen research that the marvelous growth in teacher population in certain areas (doubling increases in student enrollment if i remember correctly) has indeed relied on that presumption that politicians won't touch education spending. while they were obviously wrong, and it isn't the same as fed/state moral hazard, i do think that line of argument is at least interesting, and ill try to drag up some articles.

Posted by: stantheman21 | June 23, 2010 1:37 PM | Report abuse

stantheman21,

I will not argue that many states have poorly managed the pension funds for their public employees.

I would urge you not to Google up more articles or studies, and I would urge Justin84 not to base conclusions on news anecdotes about one well-paid teacher voicing a complaint to the Governor of New Jersey.

Instead I would repectfully urge you to take a genuine interest in the operations of the school district in which you reside. Find out what the average teacher salary is where you live. Find out the condition of the facilities. Find out the class sizes. Talk to living, breathing elementary school teachers about the challenges in their classrooms. Talk to a high school AP Calculus teacher about how he or she is succeeding with the brightest college bound students. Take the time to actually understand the demanding and skilled nature of the teaching profession, the actual level of teacher compensation in your district, and the limited budget that your local school board and district administrators are working with.

Posted by: Patrick_M | June 23, 2010 2:19 PM | Report abuse

Patrick,

I'll make this one quick, but you can find dozens of such stories all over the internet. Rhode Island school teachers all being fired because they couldn't come to a deal (average salaries there ~$75k). Illinois unions busing in people to protest and chant 'raise my taxes'. Retired teachers in California with >$100,000 pensions. Firefighers in Ohio letting the newest guys get laid off rather than lose a pay increase for those who would remain.

Okay, enough anecdotes. Per the BEA, government spending on primary/secondary education grew from $263.4 billion in 1995 to $543.5 billion in 2008, a growth rate of 5.73%/yr. Enrollment, per the NCES, grew 0.69%/yr. Inflation didn't average 5.04%. The CPI measures annual inflation of 2.69%/yr from 1995-2008. Spending per student grew about 2.3%/yr after inflation (33% over 13 years). The vast majority of this went into teacher compensation. Yet I don't think anyone believes that schools went from being cesspools of incompetence to universally excellent with this increase of 33.6% real resources per child. Some schools were/are good, some were/are bad. I don't think throwing money at the problem makes a huge difference. Like health care, America spends a lot on education without 'okay' results.

I respect teachers and I don't think they should get paid lower middle class wages (and while I can probably name 2-3 teachers that had a big impact on me, most of them I liked as long as they let me do homework for other classes in their class rather than at home). But it just kills me when you have states out of money, and the solution always becomes to save the salary increases of the oldest teachers and to fire the young teachers (this would apply equally to firefighters, police officers, etc). It's all fine and well to want to pay people a lot to teach, but when the money is tight the solution is to cut salaries, not bodies - and not to worsen the problem by increasing spending. I say higher spending or lower services is a false choice.

Posted by: justin84 | June 23, 2010 5:39 PM | Report abuse

meant to say "with" okay results.

Posted by: justin84 | June 23, 2010 5:40 PM | Report abuse

"...you can find dozens of such stories all over the internet. Rhode Island school teachers all being fired because they couldn't come to a deal (average salaries there ~$75k). Illinois unions busing in people to protest and chant 'raise my taxes'. Retired teachers in California with >$100,000 pensions. Firefighers in Ohio letting the newest guys get laid off rather than lose a pay increase for those who would remain."

Yes, and I can also find stories about Bigfoot sightings all over the Internet. But Bigfoot is not sighted in most places.

Again, I told you what a well-qualified and highly experienced teacher earns where I live. As I suggested to stantheman21 (and as I would suggest to anyone who expresses an opinion on funding for public schools), I would suggest that you do a little investigating about the salaries in the school district where you live, the budget that the district administration administers, and learn a little about the challenges and demands that K-12 teachers are faced with. If you then feel that all teachers should accept a 10% pay cut, and/or accept a lifetime salary cap of $75k, or that your local district in some other way could make do with less, then present that argument to your local school board and perhaps they will bragain for just such an outcome when the current teachers' contract expires. You cite an anecdote about "Rhode Island school teachers all being fired because they couldn't come to a deal," so obviously some districts do make exactly that decision.

It is easy to make the kind of arguments that are made here when you are looking at statistical data and anecdotes from the news. I find that people who have actually interacted with their own local school system to some meaningful degree tend to see the funding of our educational system and teacher salaries in a different light than those who view it in the abstract, based upon bits of information gathered here and there.

Have a good evening, everyone-

Posted by: Patrick_M | June 23, 2010 6:08 PM | Report abuse

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