AEI » Latest Content http://www.aei.org American Enterprise Institute: Freedom, Opportunity, Enterprise Thu, 18 Dec 2014 14:09:26 +0000 en-US hourly 1 Slashing IRS budget carries a heavy pricehttp://www.aei.org/publication/slashing-irs-budget-carries-heavy-price/ http://www.aei.org/publication/slashing-irs-budget-carries-heavy-price/#comments Thu, 18 Dec 2014 14:09:26 +0000 http://www.aei.org/?post_type=publication&p=825346 The “Cromnibus” that was enacted last week has received its share of brickbats, mostly over the Citigroup-written and Rep. Kevin Yoder-instigated provision giving banks taxpayer protection for derivatives trading. Also for the campaign-finance provision blowing up most of what was left of campaign contribution limits, pushed by Mitch McConnell but also apparently crafted by Democratic campaign lawyer Mark Elias. Another awful provision got much less attention but is deeply destructive—the successful move by Republicans, including Sen. Ron Johnson and Rep. Ander Crenshaw, to cut $350 million from the IRS budget, following other cuts this year totaling $1 billion or more that have forced the IRS to cut 13,000 employees while it faces a much heavier workload from 7 million additional taxpayers.

Why these moves? One part is strategic—another in the series of guerrilla actions by congressional Republicans to destroy the Affordable Care Act while avoiding the once-standard tactic of working to improve the law’s policies or coming up with an alternative. Another part is just punitive, trying to cause deep pain to an agency that, in the eyes of GOP lawmakers, took off after conservative groups trying to register as 501(c)(4) nonprofits, and held a few expensive conferences. As Rep. Peter Roskam, who should know better, said to Politico, “This is an agency that [had the] wherewithal to make mock videos and to have lavish gatherings…. I don’t think it’s credible for them to say they don’t have enough.”

Take out the “lavish gatherings,” and you can save, what—$2 million? $10 million? Great reason to cut $1.35 billion! Here is the reality. Cutting the Internal Revenue Service will result in a serious drop in revenue—fewer audits, less oversight, with many studies showing that additional funding for the agency has always resulted in a sixfold or greater increase in federal revenues without changing the law to increase taxes. That will worsen our federal budget deficits. At the same time, fewer personnel will mean many fewer taxpayers reaching the IRS to get answers to questions, more delays in processing returns and refunds, a much rougher tax season, and lots of pain for individuals.

It would be easy to see this as a plot by radical antigovernment nihilists to create even more anger at government, with the IRS as a perennial punching bag reaching new heights as a target. Or maybe this is a conspiracy to benefit the richest among us, who already have the advantage of being able to hire the best and brightest lawyers and accountants to find ways to evade taxes—and now will encounter even less resistance to their schemes and many fewer problems with audits.

But let’s be more generous, and say that the perpetrators are lashing out at an agency run by one of the best and most respected administrators to grace government in decades, John Koskinen, without fully appreciating the ramifications.

The Partnership for Public Service recently came out with its annual rankings of government employees’ satisfaction by department, agency, and bureau. The ratings overall are down (more about that below). The IRS ranks 163rd among sub-components of agencies and departments (it is a unit in the Treasury Department). Why? Here are a few reasons: A stressed and undermanned staff of accountants and tax attorneys who have to do battle with private counterparts who make three, 10, or 100 times what they do, who know that tax collectors are never popular, now have to face deeper budget cuts, more strain, more politically driven attacks, more pay freezes, and no ability to keep up with advances in their field because any conferences or meetings will be ripped in “oversight” hearings by Roskam, Crenshaw, and Johnson, among others.

The partnership survey shows growing dissatisfaction across most federal agencies. That is coupled with another grim reality, highlighted earlier this week by Lisa Rein in The Washington Post, in a story headlined, “Millennials Exit the Federal Workforce as Government Jobs Lose Their Allure.” The problem here is not just the budget cuts, budget uncertainty, sequester pain, and shutdown threats and reality; it is also a continuing, broken recruitment process that takes smart, talented young people motivated to try public service and throws obstacle after obstacle in their way. Some of this is built into the law, while much comes from failures in the executive branch to streamline and modernize recruitment and retention.

The problem is not just getting young people to come into the government or to stay, but also replacing the most important senior managers in the Senior Executive Service, who are overwhelmingly baby boomers on the verge of retirement. These government service crises have broad and deep implications.

Except for the hardiest nihilists in Congress (of whom there are more than a few), there has to be some recognition that protecting against cyberattacks, combating terrorists, protecting our borders, thwarting Ebola or other potential epidemics, doing vital medical research to combat Alzheimer’s and cancer, and collecting the revenue that pays for these tasks among other vital ones requires having talented people staffing the agencies responsible for them. But with the current zeal to blow up government, drain its coffers, thwart President Obama at every turn, and use the budget process to wreak havoc on efforts to manage federal agencies and plan ahead, the perpetrators of this approach are damaging all of government, including the departments and agencies that most of us would see as vital.

There used to be a web of Democrats and Republicans who understood these issues and provided some safety net against the most mindless attacks. But with John Warner and Tom Davis retired and Frank Wolf soon to join them, the Republicans who care about government employees and see them in the context outlined above are nearly all outside of Congress looking in. The lawmakers in the anti-IRS squad will no doubt get kudos from their colleagues and their constituents; there is no price to be paid beating up on the tax collectors. But at some point, we will all pay a heavy price for the government-bashing.

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Can Arab states take the next step against ISIS?http://www.aei.org/publication/can-arab-states-take-next-step-isis/ http://www.aei.org/publication/can-arab-states-take-next-step-isis/#comments Thu, 18 Dec 2014 13:20:47 +0000 http://www.aei.org/?post_type=publication&p=825317 Following a visit to Jordan last month, Rep. Rob Wittman (R-VA) argued the campaign against the Islamic State (ISIS) “needs an Arab face.” Saudi Foreign Minister Saud Al-Faisal agreed, declaring success “requires the presence of combat troops on the ground.” It is a notion shared by Jordan’s King Abdullah as well. During an interview with PBS’s Charlie Rose, Abdullah said, “We, as Arab and Muslim countries…need to take ownership of this.”

Rhetoric comes easily, but implementation does not. When pressed by Rose about deploying Jordanian troops the King demurred, noting “at the end of the day, whether it’s in Iraq or in Syria, it has to be done by the local populations themselves.” Here lie the limits of the anti-ISIS coalition: US partners in the region are unable or unwilling to do more.

Key reasons for this reticence include limited capability, Iraq’s uninterest in foreign troops, regional tensions, and fear of domestic blowback. US allies in the region invest heavily in air power, but their conventional land forces remain limited (Saudi Arabia, UAE, Qatar, and Bahrain), or outdated (Jordan). The coalition’s contribution to date is limited: of 1,219 air strikes conducted in Iraq and Syria since August, coalition partners contributed 208.

Second, Iraq’s leaders have dismissed the idea of foreign troops. Saudi Arabia has stationed 30,000 troops along the Saudi-Iraq border since July and reports from September hinted at possible Jordanian deployment, but Iraqi Prime Minister Haider al-Abadi has emphasized “Not only is it not necessary,” he said, “We don’t want them. We won’t allow them. Full stop.”

Third, existing regional tensions make a cohesive coalition unlikely. While Qatar and the United Arab Emirates (UAE) both joined NATO operations in Libya in 2011, they are now on opposite sides of a regional proxy war, with Qatar backing the parliament in Tripoli, while the UAE, other Gulf states, and Egypt back the parliament based in the eastern Libyan city of Tobruk. Qatar supports Egypt’s Muslim Brotherhood, while Saudi Arabia backs Abdel Fattah al-Sisi’s regime. Amid these competing regional rivalries, even the backdrop of a growing ISIS threat may not be sufficient to create unity among Arab League or GCC members.

Finally, the potential for domestic blowback concerns regional leaders. Most ISIS fighters appear to be Iraqi or Syrian, yet the top three states of origin for foreign fighters joining ISIS are Tunisia and Saudi Arabia, followed closely by Jordan. ISIS’s continued advance threatens neighboring states, and returning fighters could destabilize regional governments, but with many citizens distrustful of US policy in the region further participation in the coalition could spark domestic protest as well.

Could the coalition ever overcome these challenges? It is difficult to imagine how. Short of an about-face by Iraq’s leadership, or a sudden thawing of tension in the Gulf, the dysfunction will likely continue. Overt US pressure on regional partners might backfire, yet in absence of broader participation from the coalition, the United States should plan to assume much of the operational burden going forward.

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Will China join the fight against ISIS in 2015?http://www.aei.org/publication/will-china-join-fight-isis-2015/ http://www.aei.org/publication/will-china-join-fight-isis-2015/#comments Thu, 18 Dec 2014 13:15:26 +0000 http://www.aei.org/?post_type=publication&p=825309 In an interview with Financial Times this week, Iraqi foreign minister Ibrahim Jafari revealed China has offered to provide support for Iraqi airstrikes against ISIS. It’s unclear whether Beijing plans to follow through on this proposition, but potential Chinese-Iraqi cooperation could include weapons sales, intelligence sharing, and military training.

Strategically, it makes sense for Beijing to combat ISIS. China has enormous economic interests at stake in the region. Currently, China receives 10% of its oil imports from Iraq. Chinese state-owned energy companies have invested billions in infrastructure, pipelines, and roads across the country. During ISIS’s summer offensive into Iraq, over 10,000 Chinese workers were forced to evacuate to safety.

Beijing is also concerned that ISIS elements threaten the Chinese homeland. In early July, Abu Bakr Al-Baghdadi, the self-proclaimed caliph of ISIS, explicitly referred to the Chinese government as a persecutor of Muslims, making China a legitimate ISIS target. Over 300 Uighur Chinese fighters have flocked to ISIS’s ranks. The Chinese government is concerned that battle- hardened extremists with Chinese passports could reenter the country. Unorganized Uighur separatists already carry out increasingly frequent bombings and knife attacks in Xinjiang province, on China’s western border, and elsewhere in the country. The influx of well-trained ISIS affiliates would further threaten China’s domestic stability.

Beijing’s offer to assist the Iraqi government reveals a gradual, but important, shift in Chinese foreign policy. In 1953, Prime Minister Zhou Enlai established the “principal of non-interference” as a corner stone of Chinese foreign policy, according to which China (in theory) refused to meddle in the internal affairs of other nations. The principle of non-interference resonated in China during its economic infancy, as the nation focused on domestic growth and remained wary of foreign intervention. Now, however, China has turned outward to invest overseas and secure natural resources. China’s national interests are increasingly out of step with its principle of non-interference. This dissonance between China’s rhetoric and actions is what we are observing in Iraq today.

China’s proposed assistance to the Iraqi government signals a change in Beijing’s strategic calculus. The Chinese leadership no longer believes it can afford to count on America to provide stability in the Persian Gulf and thus protect China’s economic interests.

As multinational military operations against ISIS continue into 2015, look for China to take small steps in contributing to the fight. Will the People’s Liberation Army coordinate with the US coalition or the Iranians? Would Chinese military involvement affect Iraq’s tenuous political situation? The answer to these questions will determine whether Iraq becomes an area for Sino-American cooperation or competition.

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Jeb and the Common Corehttp://www.aei.org/publication/jeb-common-core/ http://www.aei.org/publication/jeb-common-core/#comments Wed, 17 Dec 2014 21:19:48 +0000 http://www.aei.org/?post_type=publication&p=825290 Yesterday, Jeb Bush announced that he was maybe kinda sorta thinking of running for president. Politicos and wonks wasted little time before handicapping his assorted strengths and weaknesses vis-a-vis the rest of the field, with many arguing that his positions on immigration and the Common Core would be non-starters among the most conservative Republican voters.

Over at Vox, Libby Nelson disagreed, laying out three compelling reasons why Bush’s support for the Common Core wouldn’t torpedo his run to the presidency:

1. Bush isn’t the only possible Republican candidate supporting Common Core

2. The president can’t do much about Common Core

3. Education is a second-tier issue at the federal level

Five Thirty-Eight’s Nate Silver did some ‘splainin as well, digging into some public opinion data on Common Core to argue that Bush’s support would not be as big a liability as many think. As Silver points out, an Associated Press/NORC poll found that 44% of Republicans think Common Core will improve schools and just 13% say it would decrease educational quality. Even among strong Republicans (which Silver points out are the most likely to turn out in primaries), attitudes were somewhat more positive than negative, with 29% believing Common Core would improve schools, 22% the opposite. Thirty percent of the strongest partisans were undecided.

It strikes us that Nelson and Silver’s logic is spot-on when it comes to a general election. Education typically ranks outside of the most pressing issues, in part because K-12 education is still largely a local issue and the federal role is circumscribed. What’s more, many rank and file Republicans have yet to make up their mind when it comes to the Common Core, possibly leaving room for a Core-supporting Republican to inform those opinions in a general election.

But before he can get to the general, Jeb has to navigate a small group of Republican voters: the primary electorates in Iowa, New Hampshire, and South Carolina. How Bush’s outspoken support for the Common Core will play with this segment of the public—which typically contains the most informed and ideologically consistent partisans—is an entirely different question. This is especially true when it comes to the hurdle Bush faces right out of the gate: the first in the nation Iowa Caucuses. Political scientists Chris Karpowitz and Jeremy Pope have shown that caucuses tend to attract a more ideologically consistent group than even primary elections. And while Republican opinion on Common Core has been more positive than negative, a recent poll from Education Next shows that opposition among Republican voters is growing. From 2013 and 2014, opposition more than doubled (from 16% to 37%), while support fell from 57% to 43%.

It’s also true that each of these early primary states has been a flashpoint in the Common Core debate, meaning the most die-hard Republican activists are likely clued in to the controversy.

In Iowa, Governor Terry Branstad is one of the few Republican governors to maintain his support for the Core. This has been a point of contention amongst many Iowa Republicans.  In response to Conservative activists pushing to withdraw Iowa from the Common Core altogether, Branstad issued an executive order in October of 2013 maintaining Iowa’s independence in setting its own standards. He also created an independent panel to review the state’s membership in one of the two multi-state consortia designing the tests for the standards (the Smarter Balanced Assessment Consortium, or SBAC). In August of 2014, acting on the advice of that panel, Branstad withdrew Iowa from SBAC. But that has done little to move Branstad off the hot seat; this summer he told a group of governors that the standards are still “radioactive.”

New Hampshire is also still signed onto the Common Core, but Republicans are doing their darndest to change that. In 2014’s legislative session, they pushed five separate bills aimed to curtail the Common Core or withdraw New Hampshire from the effort entirely.  The withdrawal bill saw 135 Republicans vote for it and only 16 vote against.  Many of those same Republican lawmakers are the delegates that Republican candidates will be wooing come January 2016.

South Carolina will be problematic as well.  The Palmetto State has been ground zero for Common Core opposition. Pushback amongst Republican activists began to bubble up all the way back in 2012, when lawmakers first introduced a bill to withdraw from the Common Core. After a few iterations, and with the support of Governor Nikki Haley, that bill eventually passed the house 80 to 26 and the Senate 42 to 0. Haley signed the bill into law in late May 2014, making South Carolina one of only three states to drop out of the Common Core after adopting it.

While it’s certainly an overreaction to argue that Bush’s support for Common Core is a poison pill before the first ballot is cast, the tea leaves suggest an uphill climb in the key states that will make or break Republican nominees.

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What can Scandinavia teach America about modernizing its safety net?http://www.aei.org/publication/can-scandinavia-teach-america-modernizing-safety-net/ http://www.aei.org/publication/can-scandinavia-teach-america-modernizing-safety-net/#comments Wed, 17 Dec 2014 20:03:42 +0000 http://www.aei.org/?post_type=publication&p=825267 In The New York Times, reporter Neil Irwin wonder what lessons America can learn from Scandinavia in creating a pro-work safety net:

In short, more people may work when countries offer public services that directly make working easier, such as subsidized care for children and the old; generous sick leave policies; and cheap and accessible transportation. If the goal is to get more people working, what’s important about a social welfare plan may be more about what the money is spent on than how much is spent.

If correct, it could have broad implications for how the United States might better use its social safety net to encourage Americans to work. In particular, it could mean that more direct aid to the working poor could help coax Americans into the labor force more effectively than the tax credits that have been a mainstay for compromise between Republicans and Democrats for the last generation.

So what sorts of policies are we talking about? Among them: heavily subsidized child care, more expansive leave for sick children or maternity; heavily subsidized transportation, free or inexpensive education. So how about that, center-right wonks?

But even conservatives can see some useful lessons in the Scandinavian system. “I’ve advocated expanding transportation options for low-income workers in order to help them get to work, and I think everybody agrees that we could do better with education,” said Michael Strain, a resident scholar at the American Enterprise Institute. “I think the Scandinavian countries do those things well, and there are certainly things we can learn.”

But that outlook changes, he argues, when looking at subsidized child care. In effect, the United States’ system of tax credits for the working poor allows people to make their own choices over how to use the money, whether for child care, food or clothing. “I’m more in favor of the child tax credit,” Mr. Strain said. “You can spend the child tax credit on child care if you want to, or spend it on whatever else you need. Do we effectively want government subsidizing the child care industry for middle-class parents?

As far as tax credits go, the Earned Income Tax Credit is an effective one, lifting, for instance, nearly 7 million people out of poverty back in 2009 and increasing the reward work. It, like the CTC, should be expanded. But as Strain points, care should be taken not to turn income supports into a cronyist subsidy for business. This gets back to my recent blog post about the wisdom of “free college for all.” Doing so “makes no demands on the higher education industry to improve affordability and value. Just open the spigot of taxpayer money to full blast.” It would just cuts checks with not reform at the taxpayers expense.

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The Cuban people will pay the price for Obama’s careless concessionshttp://www.aei.org/publication/obamas-indefensible-move-toward-cuba/ http://www.aei.org/publication/obamas-indefensible-move-toward-cuba/#comments Wed, 17 Dec 2014 19:51:52 +0000 http://www.aei.org/?post_type=publication&p=825263 ...]]]> The Cuban regime’s decision to release American hostage Alan Gross to celebrate Hanukkah with his family is long overdue, welcome news. Gross is free today; 11 million Cubans are not. President Obama’s decision to move toward normalizing diplomatic relations with the Castro regime resuscitates a gasping dictatorship without even asking for anything in return.

The Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of 1996, signed by President Clinton after the downing of American rescue planes over international waters, codified the economic embargo on the totalitarian dictatorship of Fidel and Raúl Castro. (Incidentally, Gerardo Hernández, one of the Cuban spies to which Obama referred in his speech today, was found guilty of murder in US federal court for his complicity in the 1996 shoot-down.)

The LIBERTAD Act stipulates that the restoration of normal commercial ties should be used as leverage with a post-Castro transition to ensure that economic and political reforms will be deep, broad, and irreversible. The US law did not speak to the issue of diplomatic relations, which Congress recognized as wholly within the president’s authority. However, again, conferring such political recognition on the Castro regime gives it legitimacy for doing absolutely nothing but releasing a wrongly imprisoned American hostage.

In recent years, President Obama has found himself cornered by virtually every government in the region insisting that Cuba attend the Summit of the Americas scheduled for Panama in April. Although US diplomats have protested weakly that Cuba’s dictatorship has no place at the table, they have done nothing to challenge regional governments to defend democracy and human rights in Cuba. As a result of this listless diplomacy, Obama had to choose between sitting down as an equal with the dictator Raúl Castro or boycotting the summit.

In his dramatic statement on Wednesday afternoon, President Obama referred to the “Inter-American Charter.” There is no such thing. The 2001 document signed by every regional government (except Cuba) — recognizing the “right to democracy” and obligating governments to “promote and defend it” — is called the “Inter-American Democratic Charter.” Let’s hope that was an innocent mistake.

There is a strong bipartisan consensus in Congress that normal economic relations with Cuba should be reserved for a regime that is making demonstrated moves toward democracy.  Even outgoing Senate Majority Leader Harry Reid (D-NV) and Democratic National Committee chair Rep. Debbie Wasserman Shultz (D-FL) have stood by the embargo for years. The idea that a lame duck president can force a Republican-controlled Congress to change its position based on a token gesture by the Castro regime is wishful thinking.

On the diplomatic front, the president has to put in some work to make good on his lofty rhetoric. Beginning now, before the April summit, the United States and others should challenge every regional government to take steps that will genuinely help the Cuban people — and put the Castro regime on the spot to demonstrate that it is open to change.

At the very least, regional governments should insist that the Cuban regime:

•   Free all political prisoners;
•   Allow all Cubans to exercise their political liberties, as detailed in the Inter-American Democratic Charter;
•   Commit to organizing free elections as soon as possible;
•   End the ban on the importation of books, allow unfettered access to the Internet, and stop the electronic jamming of international news broadcasts;
•   Permit Cubans to travel to and from their island without restrictions;
•   Allow independent journalists — both Cuban and international — to practice their profession openly and freely;
•   Allow the Inter-American Human Rights Commission to make its first visit to Cuba and to establish a permanent office to monitor conditions in that country; and,
•   Give the International Committee of the Red Cross access to inspect Cuban prisons and jails.

President Obama’s bold concessions to the Castro dictatorship were entirely predictable. He must be pressed strongly by Congress and the American people to follow up with vigorous diplomacy so that the Cuban people do not pay the price for his careless decision to appease an implacable foe in Havana.

The author was US ambassador to the Organization of American States and assistant secretary of State for Western Hemisphere affairs in the administration of President George W. Bush from 2001 to 2005. He is a visiting fellow at the American Enterprise Institute. His firm, Vision Americas LLC, represents US and foreign clients.

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A costly lesson paid for by Pakistan’s childrenhttp://www.aei.org/publication/costly-lesson-paid-pakistans-children/ http://www.aei.org/publication/costly-lesson-paid-pakistans-children/#comments Wed, 17 Dec 2014 18:20:58 +0000 http://www.aei.org/?post_type=publication&p=825261 Can Pakistan learn from tragedy? As horrific details continue to emerge of Tuesday’s massacre in a Peshawar army-run school—at least 148 persons killed, 132 of them children—this is the central question facing the troubled country.

If Pakistan’s powerful generals use this moment to rethink their long-standing support for Islamist militancy, then the country has a hope of emerging as a better place for its 180 million people. But if the generals view the atrocity as merely an excuse for vengeance against the Pakistan Taliban, then the country will likely continue sinking into a violent morass of its own making.

In a narrow sense, the Pakistani army is battling a particularly virulent strain of Islamist terrorism under the banner of the Tehreek-e-Taliban (TTP), a group that operates apart from the better-known Afghan Taliban but shares its desire to implement Shariah law. In June the army launched an assault on the TTP’s stronghold in North Waziristan, a so-called tribal area bordering Afghanistan. The TTP spokesman who claimed credit for Tuesday’s attack called it retaliation for losses suffered by its fighters’ families in army operations. He also promised that the violence was “just the trailer” for more to come.

The full text of this article will be posted to AEI.org on Monday, December 22, 2014. 

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The pension mailbaghttp://www.aei.org/publication/pension-mailbag/ http://www.aei.org/publication/pension-mailbag/#comments Wed, 17 Dec 2014 17:20:17 +0000 http://www.aei.org/?post_type=publication&p=825248 In a letter to the editor of The Wall Street Journal, Hank Kim of the National Conference on Public Employee Retirement Systems responds to my recent Journal article arguing that state and local government pensions are taking excessive investment risk. His points, which surely will become a standard response in the pension community, are worth dissecting. Kim’s letter is quoted below, followed by my comments.

“The vast majority of American workers have little or no investment savvy—a big minus for the effectiveness of 401(k) plans—while pension-plan investments are professionally managed and overseen by boards of trustees under the jurisdiction of state and local governments.”

Kim is right that many individuals aren’t good investors. But he ignores changes to 401(k) plans that address this problem. Today, 41% of employees invest their 401(k) plans in “target date” funds, more than double the rate of 2006. Target date funds handle asset allocation automatically, by shifting from stocks to bonds as the worker nears retirement. And a recent study from Vanguard showed that, for the 5-year period ending in 2012, individual investors holding target date funds earned the same return as public plans.

“The administrative costs of pension plans are minuscule compared with the hidden costs individuals must pay with 401(k) plan investments.”

According to the Center for Retirement Research at Boston College, state and local pension have an average administrative cost of 0.43% of assets, or 43 “basis points.” According to a recent study by the Investment Company Institute based on federal regulatory data, large 401(k) plans have an average administrative cost of just 28 basis points. There is no reason a defined contribution plan cannot compete on costs.

“We aren’t sure how Mr. Biggs arrived at 62 for the typical age of a Calpers participant. Taking school employees as an example, the median age for active participants is about 45. Even applying Mr. Biggs’s outdated, debunked ‘100 minus your age’ rule, Calpers’ asset allocation appears just about right.”

Kim forgets that pensions invest on behalf both of active employees and retired workers. For CalPERS, the average age of all participants is about 62. So I properly based my asset allocation guidelines on that age.

But let’s break things apart to look at active employees alone. CalPERS has stated that an appropriate investment portfolio for retired workers is about 60% bonds and 40% stocks and other risky assets. Let’s assume that CalPERS invests that way on behalf of its retired employees. What does this imply about CalPERS’s remaining investments for its active employees, who are about age 45? The answer (which involves data on how CalPERS total liabilities are split between active employees and retirees, plus a little algebra) is that CalPERS implicit portfolio for active workers consists of about 125% stocks and negative 25% bonds, which is like buying stocks on margin. Now, some rules of thumb for individuals recommend more stocks than the 100-minus-age rule, others recommend less. As I said in the Journal, it’s a rough guideline. But no investment rule, or any other rational theory, recommends the kinds of risks public pensions are taking.

“The truth is that the vast majority of public pensions are well funded and are growing stronger as the economy continues to recover.”

The typical public plan today is around 73% funded, using accounting rules that are far more lax than are required of private sector pensions or of public employee plans in other countries. Using accounting standards that most economists believe make sense, including those at the CBO, Federal Reserve and the Bureau of Economic Analysis, most public pensions aren’t well-funded.

And yet, while one would expect that pension funding would be growing stronger as the economy recovers – it is, after all seven years since the financial crisis – that doesn’t appear to be the case. According to Wilshire Consulting, the average pension funding ratio of 73% in 2013 was down from 74% in 2012, 76% in 2011, 77% in 2010 and – well, you get the drift.

“Calpers, for example, has higher assets today than it did in 2007, a year before the Great Recession devastated the economy and the markets.”

Yes, public pensions today have higher assets than in 2007. About 5% higher, according to Federal Reserve data. Unfortunately, pension liabilities today are about 42% higher than in 2007, according to the Fed. So assets have still got a long way to go. The much-maligned 401(k) plans, by contrast, today hold 37% more assets than their pre-recession peak. You be the judge.

“The biggest challenge public pensions face is receiving the timely and full payments of annual required contributions by state and local governments. The public pension plans in trouble today are typically the plans whose legislatures have failed to fund them, even in boom economic times.”

Kim is right in one sense: as I showed in this recent Journal of Retirement article, a plan that always receives its full contribution has almost no chance of going broke. But, as I showed in the Journal last year, the combination of larger plans and riskier investments means that full required contributions can be larger and more volatile today than in the past. In other words, a big reason state and local governments don’t make their full pension contributions is that they can’t make their full pension contributions, and one reason they can’t is that plans are taking much more investment risk today than in the past.

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Obama moves to normalize Cuba relations: Noriega on CNBC’s ‘Squawk on the Street’http://www.aei.org/press/obama-moves-normalize-cuba-relations-noriega-cnbcs-squawk-street/ http://www.aei.org/press/obama-moves-normalize-cuba-relations-noriega-cnbcs-squawk-street/#comments Wed, 17 Dec 2014 17:07:53 +0000 http://www.aei.org/?post_type=press&p=825244 http://www.aei.org/press/obama-moves-normalize-cuba-relations-noriega-cnbcs-squawk-street/feed/ 0 The Ukrainian revolution, one year later: A conversation with US Assistant Secretary of State for European and Eurasian Affairs Victoria Nulandhttp://www.aei.org/events/ukrainian-revolution-one-year-later-conversation-us-assistant-secretary-state-european-eurasian-affairs-victoria-nuland/ http://www.aei.org/events/ukrainian-revolution-one-year-later-conversation-us-assistant-secretary-state-european-eurasian-affairs-victoria-nuland/#comments Mon, 17 Nov 2014 17:51:18 +0000 http://www.aei.org/?post_type=event&p=821326 ...]]]> Event Summary

According to Victoria Nuland, US secretary of state for European and Eurasian affairs, it is in America’s best interests that Ukraine succeed in becoming democratic, more prosperous, more unified, and more European and beat the “cancer of corruption” that has plagued it for so long. On Wednesday, AEI’s Leon Aron discussed with Nuland key issues affecting US foreign policy in her region of focus.

Nuland first dispelled rumors circulated by Russian propaganda outlets that she was somehow orchestrating Ukrainian domestic politics, but reiterated that the United States has a keen interest in providing Ukraine with the support it needs to defend its sovereign territory, reform its economy, and progress on a path toward European integration. She added that the Ukraine Freedom Support Act, which Congress unanimously passed last week, illustrates the depth of bipartisan support for Ukraine in the United States.

Turning to US-Russian relations, she acknowledged the role of Western sanctions in contributing to Russia’s current economic crisis, but argued that the country’s central economic problem lies in the political regime’s failure to lessen the economy’s reliance on hydrocarbons. Finally, she stressed that the US diplomatic position toward Russia has not changed, but emphasized that if Russia were to fully implement the terms of the Minsk agreement, then sanctions could be quickly lifted. She implored Russian leadership to prioritize the well-being of its people over its imperial ambition.
–Joe Gates

Event Description

On November 21, 2013, protests erupted in Kiev’s Independence Square against then–Ukrainian President Viktor Yanukovych’s decision to effectively block his country’s path toward European integration. One year later, Yanukovych has fled the country, and the Ukrainian people have replaced him with moderate, pro-Europe parties in the October 26 parliamentary elections. What does the future hold for the Ukrainian revolution?

Please join us at AEI for a conversation with Victoria Nuland, US assistant secretary of state for European and Eurasian affairs, on what the United States should do to help consolidate and defend a Europe-bound, democratic Ukraine in the face of a severe economic crisis and the renewed threat of Russian military aggression.

We welcome you to follow the speech and comment on Twitter with #NulandatAEI.

If you are unable to attend, we welcome you to watch the event live on this page. Full video will be posted within 24 hours.

If you have trouble registering, please contact conferences@aei.org.

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Chinese carbon emissions factshttp://www.aei.org/publication/china-carbon-emissions-facts/ http://www.aei.org/publication/china-carbon-emissions-facts/#comments Wed, 17 Dec 2014 15:25:27 +0000 http://www.aei.org/?post_type=publication&p=825200 You may be tired of reading commentary on the US-China climate deal struck last month. We thankfully didn’t hear as much about a minor international agreement reached in Peru a couple of days ago. And all this is prelude to what is supposed to be the culminating global meeting in Paris in 2015.

It may be surprising that there are facts available about Chinese behavior, not just endless assertions. The Netherlands Environmental Assessment Agency, which seems like it should be a fairly unbiased source, just released its 2013 carbon emissions estimates. Here’s what they say (the numbers are also close to those from the Global Carbon Project):

China carbon emissions

Chinese emissions are now 95% higher than American. Except for 2007, the pattern in Chinese emissions data shows a one-year lag from official GDP growth. First, official GDP changes speed, then emissions change speed a year later.

There are many possible data problems here but it will surprise no one that economic trends are what drive Chinese emissions. Emissions growth has come down recently because the Chinese economy has been weakening.

This makes Chinese commitments to slowing and eventually zero emissions growth much more credible. Beijing has rushed to adopt the phrase “the new normal” in describing the economic trajectory. Translation of the new normal: considerably slower. So the Chinese side of the Sino-American climate trade is to assent to something happening already and likely to continue.

There are, of course, still problems. China is far from rich and understandably still seeks fast economic gains. Better policies could sustain or accelerate expansion past the time — “around 2030” – when the PRC promises to cap emissions. It is not reasonable to expect China to sacrifice economic growth, if such is achievable, for the sake of a non-binding agreement.

Another hitch is highlighted by the new data:  whose figures will be used to evaluate PRC and US compliance? Will China get to present its own emissions levels, the way it would like to present its own pollution levels? What about coal, where Chinese data has been unreliable? What are President Obama’s successors to do if Chinese and international numbers clash?

The bilateral agreement is somewhat silly. However, it is likely that the Chinese economy will evidence more slowing in 2014 and 2015. This could cut, a year later, annual emissions growth to close to 2% (and coal consumption growth to near-zero). These are the facts for American policy-makers to consider over the next few years.

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