Why Taxpayers, and Not Just Public Workers, Likely Contribute to Public Worker Pensions

Posted by Jeffrey Brown on Mar 15, 2011

Filed Under (Retirement Policy, U.S. Fiscal Policy)

David Cay Johnston of Tax.com wrote a piece that appears to have gone viral on Facebook.  In it, he makes a well-reasoned case that public workers in Wisconsin have paid for their own benefits by accepting lower wages.

The key to his argument is this statement:

“The fact is that all of the money going into these plans belongs to the workers because it is part of the compensation of the state workers. The fact is that the state workers negotiate their total compensation, which they then divvy up between cash wages, paid vacations, health insurance and, yes, pensions. Since the Wisconsin government workers collectively bargained for their compensation, all of the compensation they have bargained for is part of their pay and thus only the workers contribute to the pension plan. This is an indisputable fact.”

This argument is one that economists clearly understand.  In fact, I agree that this view is the right starting point for analysis.  But that does not mean it is the right ending point.  In this case, I think Mr. Johnston has over-played his hand.  Indeed, there are compelling reasons to think that taxpayers do pay for part of these pensions – although not for the naïve reasons that Mr. Johnston blasts the press and politicians for touting.

As background, let me explain how economists like me tend to think about these things by starting with the case of a simple per-unit tax on a good.  One of the first lessons of public finance is that it generally does not matter whether this tax is levied on the buyers of the good or the sellers.  Why?  Because in a competitive market, prices will adjust so that the net-of-tax prices paid by the buyer and received by the seller are the same under either scenario.  We refer to this as the “economic incidence” of the tax (i.e., who really pays the tax in the sense of bearing the economic burden of the tax).  This is separate from the “statutory incidence” of the tax (i.e., who is responsible for writing the check to pay the tax authorities).  This is a key lesson from the economics of taxation and it has broad implications.

An example of this is the Social Security payroll tax.  Up to a cap, individuals pay a 6.2% tax to support Social Security, and their employer pays another 6.2%.  But most economists who have studied the issue believe that, given the characteristics of the labor market in the U.S., it is likely the workers who bear most of (perhaps the entire) 12.4% payroll tax burden.

An example helps.  Suppose you earn $100,000 and you and your employer each pay $6,200 to the government.  If the entire 12.4% tax was shifted onto the worker, and the employer did not have to pay any at all, the idea is that in a competitive market, your salary would rise so that your after-tax income would be unchanged.

In a similar vein, Mr. Johnston is making the observation that public employees negotiate over pension benefits as part of an overall compensation package, and that, therefore, every dollar (in present value) of future pension benefits requires that an individual worker give up a dollar of salary today.

As I noted above, this is the natural starting place for any economist when thinking about labor markets.  Indeed, I have made similar points myself in this blog when discussing changes to the Illinois pension system.

Thus, if Mr. Johnston wrote this piece for my undergraduate economics class, he would receive an A.  However, if Mr. Johnston wrote this piece for an advanced course in economics, he would probably get a C for massively overstating his case and extrapolating beyond what evidence suggests.

My main concern is his claim that “only the workers contribute to the pension plan. This is an indisputable fact.”  Because despite everything I have said so far, this claim IS disputable.

How?

The theory above works well in a competitive labor market in which all of the actors are operating with perfect information.  It implicitly assumes that public workers value the pension benefit at its full cost, and that politicians and union leaders are negotiating a deal that approximates a market outcome.

There are many problems with this.

For starters, there IS evidence that workers tend to under-value future pension benefits (or at least discount future benefits at a rate far surpassing market rates, which has the same effect: see, for example, Warner and Pleeter 2001).  Indeed a recent study by Fitzpatrick (2011) using the DB plan of Illinois teachers provides evidence that teachers value future pension benefits (at least on the margin) at only about 18 cents on the dollar of present value!  How can this be?

For one thing, the federal tax preference for pensions relative to wages creates an incentive to provide compensation in the form of tax-preferred pension benefits even if they are valued less than dollar-for-dollar.  If someone is in, say, a 25% marginal tax bracket, they might prefer pensions over wages even if they value the pension at only 80 cents on the dollar.

But even this cannot explain the entire discrepancy.  More likely, we are observing the fact that union leaders and legislators are not operating in a perfectly competitive market environment.  This is not a case of employees negotiating with employers over a pool of profits, in which the employers are accountable to shareholders through the board.  This is a case in which unions help elect the officials with whom they are negotiating.  And they are not bargaining over profits, they are bargaining over tax revenue, which the government can require a third party – the taxpayer – to pay.  Now, of course, the non-public-employee taxpayers can theoretically hold the legislature accountable, but this is easy to circumvent by a) pushing the real cost of the increased pensions onto future taxpayers and b) hiding behind government accounting rules that disguise the true cost of providing the pensions.  So Mr. Johnston is holding the size of the overall compensation package fixed in his analysis – when in reality the size of the compensation package may be inflated by the bargaining process that is partially protected from market forces.

In sum, there are legitimate reasons to think that public employees may not have paid for their entire pension.  If so, then in Mr. Johnston’s own words, this could be considered a “serious crime” because it is “the gift of public funds rather than payment for services.”

Unfortunately, we really do not know the extent of this “crime” because we lack a careful empirical study of the Wisconsin situation.  But if I were a betting man, I think the odds are quite good that taxpayers have borne (or perhaps more accurately, future taxpayers will bear) at least a sizable part of the cost of public pensions.

32 Responses to “Why Taxpayers, and Not Just Public Workers, Likely Contribute to Public Worker Pensions”

  • Thank you for the kind words on undergraduate level thinking, but I would file your critique under “straw man” and not thinking through the issues fully.

    I explicitly said, for example, that HOW MUCH public employees are paid is a matter of tax burdens, but that how the money is divvied up is not. And I explicitly took no position on whether the total compensation was too much or too little.

    The point of my column was that none of the compensation is a gift, but is all earned (with which you seem to agree, but later do not). The governor’s remarks, accepted uncritically by some of our best journalists as well as all the lesser ones whose work I read or heard, created the impression of a gift.

    No market is perfect. And all markets have rules. And any rule runs into the Second Best Choice problem.

    Government (which in a democratic society means us, via our elected proxies) sets those rules. I write about (and in my best-selling books defend) competitive markets in the real world, not as abstract theory on paper.

    Your critique, which I welcome because it requires me to reexamine my thoughts and think more deeply, is based on unstated assumptions and assertions lacking in fact.

    One is that when workers bargain collectively this is somehow inferior to when the lone job seeker bargains with that huge enterprise known as the State of Wisconsin. Could there be a more asymmetrical market in terms of both bargaining power and knowledge? (Well, yes, the federal government….) And as I am sure you know, our Supreme Court’s legal standard for a market involves knowledge as one of its base conditions.

    You believe workers undervalue pensions. That’s simplistic. First, there is lots of evidence that overall young people discount the future, while not all workers are young.

    Empirical evidence (contracts) and research shows that government workers value pensions more than workers generally.

    I have not seen any research on this for top executives, but the empirical evidence on their pay and the money spent on designing executive compensation plans, — on which I have written pieces that significantly informed public understanding and changed how these are disclosed and how they are reported on by journalists — suggests they value pension arrangements even more highly than bureaucrats. More below on this.

    That said, state of mind is not relevant.

    An analogy: someone of sound mind writes a check to a charity and says, “I have no charitable intent, I just want to reduce my taxes.” Making the gift is indisputable evidence of charitable intent, but more importantly the handing over of the money is charitable and qualifies for the tax benefit.

    In markets, action matters, not thoughts. (As F. Scott taught, “action is character.”)

    Likewise, you and I may not have intended X result in public policy when we voted for a winning candidate, but that does not vitiate the official actions we oppose any more than those taken by the candidate we did not vote for. Action is all that matters. And since we agreed to the rules on being governed our option is to organize and persuade enough of our fellow citizens to vote officials out and elect new ones.

    Most significantly, err in your “crime” analysis at the end by making unstated assumptions about both law and economics.

    Your analysis seems to absolve the management side of the market of responsibility to a) bargain properly on the full amount, b) bargain to make sure an adequate amount is diverted into the pension (and health) plans and c) that the money is invested properly.

    You wrote:
    “More likely, we are observing the fact that union leaders and legislators are not operating in a perfectly competitive market environment. This is not a case of employees negotiating with employers over a pool of profits, in which the employers are accountable to shareholders through the board.”

    That’s absurd. First, no market is perfectly competitive (see “rules” above).

    Second, and more importantly, the evidence suggests that corporate management is significantly less accountable than elected officials. Ever notice how many shares are held by mutual funds and other institutional investors who hold down costs by not exercising ownership powers? Have you noticed all the lobbying and PR campaigns by managements to limit shareholders, especially managers of pension funds, from holding managements accountable?

    I am sure you have because the literature on this is exhaustive and a strong case can be made that things are much worse now then when Berle and Means wrote their famous words eight decades ago.

    You also absolve voters of their duties as citizens to elect officials who will be prudent. Voters, like shareowners, have power and if they do not exercise it this does not mean that workers should be faulted for exercising their rights.

    Many states have inadequate assets to pay future liabilities. Whose fault is that? In the most infamous case, New Jersey, Gov. Whitman slashed contributions against sound financial advice and used the money not invested to finance a tax cut. Surely you would not blame the unions, who fought against this, for her imprudent actions that, to quote you, amount to “pushing the real cost of the increased pensions onto future taxpayers.”

    Do you have any evidence that public sector unions sought to intentionally contribute inadequate sums to pension plans? There is plenty that they fought against such efforts.

    But even if your assumption were true, there is a check on such awful behavior, as you will see below.

    You write that I hold the pension as fixed without regard to future cost. Not true and if you re-read my column you will see that. My comments responding to the more than 100 people at tax.com and in other forums also show this.

    In Wisconsin the evidence shows that sufficient amounts were diverted and the money has been soundly invested based on actual rules in place.

    There is, to be rounded, a new theory of pension liabilities proposed by Andrew Biggs at AEI. It provides another metric, at a minimum, to evaluate our existing pension funding accounting rules. Time will tell if his concept wins acceptance in the marketplace of ideas and proves reliable as a model. I asked Biggs if he had applied his algebra against old data to see how it stacked up against actual results and he advised that he had not, with no indication he planned to do so. That he has not back-tested his theory strikes me as a very serious and curious omission.

    You and I have been critical of the GASB rules on pension accounting. (You should look into the GASB election made for the NYState plan that my former colleague Mary Williams Walsh exposed some time back which, in extreme shorthand, says that your assets equal your liabilities.)

    But the place to resolve issues of whether diversions in the compensation package to the pension are adequate is the bargaining table, including supervision of the invested assets.

    So what if there are no unions? Does that better protect the interests of taxpayers, as you implicitly argue?

    Without unions such decisions will be unilaterally made by one side, which sort of vitiates any thought that market forces are at work other than the check by voters, which you say is “easy to circumvent.”

    Indeed, without collective bargaining, one could argue using your assumptions, politicians could choose to offer benefits to lure workers without funding those benefits, thus pushing costs off onto future taxpayers.

    The presence of unions, like expecting voters to actually behave as citizens, acts as a check on the system because the unions have an interest in properly funding their retirement plans (which generally are under management control). Public sector unions, in particular, are infused with highly educated people, some of whom understand finance in a sophisticated way and all of whom have the power to speak up, to get elected to union office and to be on bargaining committees.

    Indeed, public sector unions have a much greater interest in properly funding their pensions than private sector workers, something you implicitly deny

    How does the law encourage such economically virtuous behavior for public sector workers, but less so for private sector workers (unionized or not) unions and managements?

    State pension plans are not guaranteed by the PBGC. And not being subject to ERISA, government plans can (and some do) have rules that take into account inadequate past contributions or prolonged market conditions that threaten payouts. That is, they come with market solutions, whether or not those solutions are implemented.

    There is a nonmarket check we could place on government pension plans for places which, unlike Wisconsin, have not acted prudently with taxpayer money. We could enact statutes requiring funding at specific levels based on calculations of future benefits, require periodic adjustments of future pension accruals (i.e., a benefit of 1% for years x to y, but 0.9 percent for years y to z).

    Corporate plans, on the other hand, come with taxpayer guarantees and also rules that enable underfunding, capital withdrawals (though they are more difficult now) and perversely provide executives in nonqualified plans better protections than workers in qualified plans, as I documented in my books Perfectly Legal and Free Lunch.

    In addition, because of limits put in place by Democrats to tweak a few dollars of corporate income tax, federal law actually requires companies to set aside less than the financially sound amount for millions of workers.

    See my article on this:
    http://www.nytimes.com/1995/05/04/business/from-washington-the-fading-pension.html?ref=davidcayjohnston&pagewanted=all

    Further, many corporations put many high paid, non-management workers into nonqualified plans because of these rules. As airline pilots and others discovered when the Internet bubble popped, the bosses walked away with all of their deferred money, but theirs vanished. (See my last two books and numerous articles by Walsh, others and me.)

    So, your straw man argument that we lack empirical evidence of whether the Wisconsin pension benefits are a crime (because they will turn out to be a gift) is based on false premises. And contrary to your closing point, we do have empirical evidence, lots of it, that the Wisconsin plan is well funded and reasonably invested. Indeed, the governor is not suggesting otherwise, all he did was make a politicians argument to confuse public understanding instead of being straight forward in saying he wanted workers to take a pay cut, something they had already agreed to in principle.

    When I err, or learn new information that shows the facts are other than I thought from my research, I go with the facts.

    Your arguments are not persuasive and were you taking my graduate course (which covers these things, by the way) your grade would not be better than a B, mostly for not critically questioning your assumptions.

    Thank you for getting me to think this through more deeply. Your points will help inform my future lectures.

  • Jeffrey Brown says:

    David,

    Thanks for taking the time to respond.

    Lesson #1 for me – don’t take on a prolific journalist unless I have a lot of time to dedicate to responding to his or her thoughtful and in-depth replies. Sadly, I have to keep this shorter than the debate deserves.

    First, on whether this compensation is a gift or not, and your statement that I first appeared to agree, and then later not. My point is exactly what I said – your analysis is the right starting point. It is the natural “null hypothesis” to any economist. As I also noted in my blog, I have previously made similar points myself. Indeed, there is a press release going out from my university today that quotes me talking about how we need to have a grown-up conversation about the proper role of pensions and health benefits as part of the compensation package, rather than an “us versus them” shouting match about public and private employees.

    But as I also said, this line of reasoning is the natural null hypothesis because it comes out of a standard economics model in which we have perfectly competitive markets where everything is operating according to standard theory. Workers are compensated their marginal product, and then the division of compensation between benefits and salary is based on factors such as worker preferences, taxes, etc.

    You agree with me that no market is perfect. This is certainly true in a politicized, unionized environment. By the way, this statement does not make me “anti-union” or “anti-public sector.” My mother and father were public school teachers, and my brother is a unionized firefighter. I am myself a public employee. The point is that there is a tremendous amount of opportunity for principal-agent problems (or, mischief), especially at the state and local level where the public is often less-informed about the details.

    My comparison with the private sector was perhaps a bit too strong, as you are not the first to point that out. Importantly, it was not really necessary to my point. I did not mean to imply that all contracts in the private sector are optimal. Indeed, the more I read about some of the “goings on” in the financial sector prior to and during the financial crisis, and the more I read about the effectiveness (or in some cases, the lack thereof) of boards, the more I recognize the existence of severe agency problems there as well. If I were re-writing my piece today, I would keep the comparison to the baseline model of perfect competition – which is the model that leads to your asserted outcome that all pensions are implicitly offset by wage reductions.

    A lot of your arguments actually support my claim. Your arguments are all against my comparison to the existing private sector – and you do so by pointing out that the private sector is not optimal either. But like I said, that is a red herring. The point is that your model of a wage/benefit offset relies on this process replicating the idealized market outcome that these models imply, and you yourself argue against this point by highlighting the absurdity of assuming that any labor market – public or private – would do so.

    You say “you believe workers undervalue pensions. That’s simplistic.” Well, your response is what is simplistic. I can give you a long list of empirical studies that document that people undervalue annuities, undervalue deferred compensation, etc. Can you provide me any peer-reviewed studies with good causal identification that can disprove this virtual mountain of research? I stand by my claim.

    As for who is to blame for underfunding. There is plenty of blame to go around. First, you and I both agree that GASB rules are fundamentally flawed. Sadly, the severely understate the true cost of DB pensions. This means that even well-intentioned legislators, participants, administrators and taxpayers have been using the wrong metric. So let’s agree to start there. Second, I blame legislators (and, therefore, voters for not holding them accountable) for consistently underfunding pensions over the years – this is especially true here in Illinois. So unions are not the lead cause – I never said they were. Of course they argue for more contributions, once the benefit level is established. The way in which unions have contributed (although to a magnitude far less than the first two factors above) is by fighting for more generous pensions (e.g., reduced claiming ages, etc) during good economic times when the pensions appeared to be funded based on flawed accounting standards, and then not being willing to accept less generous pensions when times are bad. The asymmetry is problematic.

    But regardless of whose fault it is, we have an enormous unfounded liability that someone is going to have to pay for. Even if we accept your argument that 100% of pensions were paid for by public employees (which I don’t accept, although we have no way of knowing whether for sure what % it is), one still has to point out that past legislatures have overspent and somebody has to pay. And given that labor costs are a huge part of the cost of government, if we need to cut spending, we have to look at the cost of labor. And given that benefits are a big part of compensation, we are right back to having this conversation.

    By the way, for what it is worth, I think we should protect benefits that are already accrued. What I find ridiculous is the idea – as is often argued in Illinois due to the non-impairment clause in the constitution – that we cannot change the benefit formula for the future for existing workers.

    One last thought. I viewed my role in writing this blog as that of a “discussant.” In academic seminars, the person presenting the paper has to convince the audience that he or she is right. The job of the discussant is to find the possible flaws by suggesting alternative hypotheses that the author may not have considered. The burden of proof is a bit different. You made some pretty strong statements, and I viewed my job as suggesting some plausible alternative hypotheses – that may or may not prove to be correct. I tried to be careful not to make strong statements – I used the word “likely” in the title, I admitted that we simply don’t have good empirical evidence to know, etc. My goal was to provoke further thought and discussion, and I am pleased that I have done so.

    I look forward to continued dialogue on this. I think the public is well-served by this type of exchange.

  • Glad you took that as well as I did your critique.

    And, yes, I think this is useful. So let me go back to my market-based argument.

    **You agree with me that no market is perfect. This is certainly true in a politicized, unionized environment. By the way, this statement does not make me “anti-union” or “anti-public sector.”**

    Unions or not, public employment markets are politicized.

    In Wisconsin there is no evidence that the state (management) has failed to properly fund the pensions.

    Indeed, in this awful market (worth less in inflation adjusted terms than in 2000 even with reinvested dividends) the plan is 99.7% funded on a 60-month smoothing basis and more than 90 percent on a current market value basis as of the last FY end.

    In those jurisdictions where plans are not fully funded, I think the evidence is overwhelming that it was rent-seeking politicians like Whitman who neglected their duty to either put in the proper amount each year for accrued liabilities or who engaged in crazy investments deals proposed by rent-seeking investment managers (NJ and San Diego, among others, come to mind here).

    Where unions protested I think we can hold them blameless. But where they were silent then they should suffer part of the consequence. And their duty would be, at the next contract talks, to demand changes in how compensation is paid and divvied up or suffer the consequences of their acquiescing..

    We have a private market proxy agains twhich to judge public employee DB plans — individual annuities. You have to back out the profit (government is not seeking a profit) and the higher costs of retail as opposed to mass wholesale, but that can be done and gives us a market price for accrued benefits. Of course that also assumes that the best insurers continue to exercise prudent decision making.

    Pensions are not, and should not be, welfare plans (something Malcolm Gladwell among others seems to have gotten wrong).

    Each worker’s diversions should be sufficient to pay all future benefits, including a reserve for market conditions (which in a large plan can be vastly smaller than for each worker individually). If not then the benefits should be scaled back or the diversion from wages increased so the DB plan is sound.

    There is no reason, absent a specific statutory bar, not to adjust future accruals, which is what I suggested in my original reply. If Illinois has such a law it can be changed by either the Legislature or the voters.

    A participant in one of the Wisconsin plans tells me that his contract provides for benefit adjustments under certain conditions, although I have not verified that.

    On your key point about “past legislatures have overspent and somebody has to pay” I think that does not detract from my point that workers earned the entire benefit.

    For simplicity, let’s assume arguendo. that investment returns are solid.

    That means that the past legislatures legislature shorted the workers on their pay by not fully compensating them on a current basis.

    Cheating is not a virtue and while that means taxpayers would have to pay more, it also means they got the benefit of lower taxes in the past and now must pay back their interest-free loan.

    As Adam Smith taught, the great virtue of markets is that they are self-reinforcing of virtuous conduct. When we have vicious conduct, such as cheating on compensation by either side (workers by not performing adequately) then we should punish that behavior as a deterrent and a corrective.

    But in your example the taxpayers got something. That the time value of money they did not pay at the time the workers were not timely compensated in full.

    That this turns out to be a very bad deal for them is a market corrective for bad behavior. But having to pay more than you could have does not change the principle, only the principal.

  • Jeffrey Brown says:

    The statistics on wisconsin’s funding status – are those the stats under GASB? If so, the with appropriate discount rates, they are stiill underfunded.

    Another aspect of this debate is that when we refer to “employees” and “taxpayers,” we need to recognize there are also different generations. Taxpayers have benefitted in the past by not paying the full cost of public services. But if it is a different, younger set of taxpayers that must pay the future bills. So it is not really “fair” to them either. Basically, we are bearing the brunt of past overspending, and some one the current generation has to pay. That should obviously not fall totally of public workers, but neither should they be totally immune.

    FYI – The problem is Illinois is that it is not easy to change because it is a constitutional guarantee, not a legislated one.

  • Andrew Biggs says:

    For what it’s worth, using market valuation the WRS is around 56% funded and has an unfunded liability of around $60 billion. Terrible by private sector standards, but far better than the average public sector pension. So it’s all relative.

  • Andrew Biggs says:

    And I forgot to say, a very interesting and educational exchange. This is what the web is made for.

  • Jeffrey Brown says:

    Thanks Andrew. Yes, 56%. About what I would have guessed if they are using 8%. I think if people really understood this, both public sector workers and taxpayers would be aiming their flamethrowers at GASB rather than at each other. Whoever says that accounting does not matter has not dealt with public sector pensions. Of course, our method of accounting for private sector pensions under FASB is not so great either.

  • dale coberly says:

    Brown

    of course the taxpayers pay for it. they pay the entire wage.
    what you are arguing is that there is some kind of corruption in the bargaining process whereby taxpayers end up paying more than they “should” have for the work they are getting.

    that may be. but thats an empirical and political question. you don’t offer any credible evidence that it is so.

    as for the “employers share” of Social Security. i would agree that it is the “workers money” simply because the worker gets it in the end. but whether the worker “would” get it in the absence of the tax… is a more complex question. i’d suggest the answer depends heavily on the political power of the workers vs that of the employer (i mean political power very narrowly.. the leverage each party has over the other).

    You and Biggs may have leverage with respect to your employer. Most low end workers do not.

    My take home so far is that you are…. perhaps entirely honestly… inviting your readers to enter the fantasy world called “economics” in order to confuse their thinking with abstract or imaginary constructs to divert their attention for the rather obvious fact that most public workers do NOT have leverage with respect to the state, beyond what a very mild union can give them with respect to the very well organized interests on the other side of the public bargaining table.

  • Wisconsin is covered by GASB.

    But I agree that 8 percent too high going forward considering current economic conditions and the policies that are lowering wages, assets and tax revenues. As I noted in my column, the average balance is only $131k per worker and so unless the average worker is quite young (and she is not) that gives pause as to whether the GASB rules properly measure future costs.

    The SS trustees assume future wage growth that is 30% less than the historic average (1.7 percent in real terms per worker, not 2 percent).

    I am foursquare for sound funding, sound investing, sound actuarial analysis.

    I am not in favor of taking what politicians (or anyone else in public life) says at face value, failing to question assumptions (which journalists rarely do) or using rhetoric to engage in sleight-of-facts arguments that conflate and confuse.

    There is nothing inherently wrong with DB pensions and indeed if properly funded and invested they save taxpayers money because of the benefits of professional money management versus amateur (see Smith, Adam, on specialization) and the much smaller reserve needed for a large number of workers whose life expectancies can be averaged.

  • @ Dale Coberly,

    we have a real world experiment regarding the other half of the SS tax that employers pay directly. No economist has studied it, however, my search of the literature indicates.

    In 2000 I exposed more than a dozen employers who claimed no law requires taxes and stopped withholding. (Most of them eventually were convicted and went to prison for six years or more.)

    In each case the employers kept the half of SS that they had been paying.

    The wrinkle is that while the employers pocketed this money that economic theory says is really worker wages, these were also failing enterprises so the criminal tax schemes also need to be viewed in the context of wage cuts by failing enterprises.

  • dale coberly says:

    with respect to Browns last reply to Johnson

    “someone has to pay.” yes. no reason it should be the workers intead of the taxpayers.

    the generational equity issue is a bit bogus. if your father spends money on fast cars instead of paying off the mortgage you are not as well off as you might have been. that’s just “life.”

    i think it still turns out that most of us are better off for the “work” previous generations have done than we would be under some perverse idea of “generational equity”.

  • Jeffrey Brown says:

    Dale,

    You are correct, of course, when you say “of course the taxpayers pay for it. they pay the entire wage.” It is important not to forget that.

    Just to clarify, I did not assert that there is corruption. I merely provided an alternative hypothesis to counter David’s original strong statement about his position being “indisputable.” I was very careful to state at the end of my piece that “we lack a careful empirical study of the Wisconsin situation.” I was clear what I was laying out as a conjecture (“if I were a betting man …”) from where we actually have some evidence (e.g., the studies I referred to on how people value pensions.) The idea was to generate discussion and further thinking on the issue, and I am pleased that I have succeeded.

    Thanks for taking the time to make a comment.

  • Jeffrey Brown says:

    Dale,

    One other thing I wanted to mention. You make a comment about the “fantasy world called ‘economics.’” I am really puzzled by this comment, largely because it was David Cay Johnston’s argument who implicitly relied on the “fantasy” of perfectly competitive markets in the wage-setting process. I was highlighting ways in which political and behavioral realities might lead us to a different outcome than what would normally come out of a simplified economic model.

  • Jeffrey Brown says:

    David,

    The expected returns on assets has nothing to do with valuing liabilities. Does the value outstanding balance on the mortgage that you owe the bank have anything at all do with whether you invest your savings in CDs or mutual funds? No, of course not. These are separable issues, and the fact that people keep linking them is what is driving financial economists nuts.

    If we want to treat accrued pension benefits as contractual obligations, the we should discount with somethign like a riskless rate. The fact that the state may take on investment risk in its asset portfolio does not change the value of the liabilities. So 8 percent is far too high unless the political risk to accrued benefits is comparable in magnitude to the financial risk of the asset portfolio. If we think the state may default on the obligations, then a higher rate may make sense. But not if we intend to pay.

    I won’t say much to your point about wealth destruction, other than to say that the biggest source of wealth destruction in the US has been 30 years of fiscal policy that has led to a crushing national debt. The defiicits have crowded out capital formation. I agree that some govt spending is investment (e.g., education, research, etc). But much is “consumption” (I put in quotes, because it includes “consuming” things like military equipment.) I am not cating partisan blame – both parties have been totally irresponsible, with a few exceptions on both sides.

    I will address the DB vs DC issue another time.

  • Jeffrey Brown says:

    David,

    That is really not much of an “experiment.” In fact, I don’t think we can learn anything about the incidence of taxes from that case because because those tax dollars legally belonged to the government, and Social Security probably honored the benefit accruals for the individual employees that those taxes were meant to pay for.

    Also, you are right that people have not studied the SS tax directly because it is difficult to identify a causal relationship when everyone faces the same tax rate and there is little cross-sectional or time-series variation. However, people have studied it in other countries. MIT economist Jon Gruber wrote a paper about 15 years ago looking at the incidence of the payroll tax in Chile and concluded that “the incidence of payroll taxation was fully on wages.”

    Jeff

  • Jeffrey Brown says:

    Dale,
    I am afraid I don’t understand your point about generational equity. Yes, it is “just life” if your father spends money on fast cars instead of paying off the mortgage. But that hardly strikes me as a responsible thing for your father to have done, and it does not strike me as a model that we would like our elected officials to emulate.
    Jeff

  • dale coberly says:

    jeff

    i have a way of expressing thing that seems to offend people. i don’t mean to offend,merely to offer a “would some power the giftie gie us…” point of view.

    I could have said “abstract” instead of “fantasy”, but i mean that economics relation to any real situation is always at least a little tenuous. whatever economics principle Johnston may have cited, you go on to rely on economics principles to, in my opinion, distract attention from the directly observable facts on the ground.

    And yes, dad spending your inheritance on fast cars is not the model we would like our elected officials to emulate. But that is the model our elected officials DO emulate. Then they try to pass on the cost to the most vulnerable…ultimately the taxpayer, but not before they can get political mileage… and reduce the taxes of their contributors… by demonizing labor unions, public employees, FDR, the communists…

    The issue here, as I think Johnston fairly lays out, is that the workers bargained in good faith for a wage package. The state bargained and agreed to that package. Reporters who imply that the “state” unfairly “gives” a pension to workers, are misleading, deliberately or out of ignorance, their readers in the service of a political agenda.

    Your initial point that the taxpayers pay for that pension is valid but not the way you say it. The taxpayers pay the workers for the work according to contract.

    If there is serious injustice or corruption in THAT contract, by all means address that. But don’t rely on some arm waving economic theory to imply collusion between workers and politicians to defraud the taxpayer.

    The politicians are certainly defrauding the taxpayer, but not the way you say.

  • dale coberly says:

    maybe i need to explain

    i assumed for the sake of argument that “dad” had foolishly wasted your inheritance on fast cars. i did that because it is easy for people to feel that they have been cheated and i merely wished to make the point that even if you feel cheated you still have to deal with the inheritance you have, not the inheritance you “might have” had.

    but it is by no means clear that you have been cheated. Peter Orszag and,separately, Andrew Biggs make a great issue of “backward transfer” of wealth or “legacy debt” on the idea that our parents should not have spent their SS taxes helping their parents, when they could have spent the money buying bonds from the Biggs bank that would have paid more interest and saved us from having to help out old dad in turn. The argument depends on a number of fallacies, but essentially its a woulda shoulda argument that obscures the fact that the cost of our own SS going forward is entirely commensurate with the benefits we will receive.

    In any case, it was dad’s money to spend and if he thought he wanted the sports car more than the gratitude of his children he was entirely free to spend his money as he chose. What the politicians want you to do is feel that you have a right to refuse to pay, from the estate, the sports car dealer the money dad still owed on the car because dad “should have” used the money on the mortgage. That is the kind of rationalization that get a person in trouble… minor trouble with the bill collector. Big trouble with what they used to call your “soul.”

  • Jeffrey Brown says:

    Dale,

    Yes, whatever has happened in the past is indeed water under the bridge. But that does not mean there are no implications. For example, the fact that Social Security was set up as a pay-as-you-go system rather than a funded system (a difference that led to the legacy debt to which you refer) has reduced the size of the existing U.S. capital stock (the famous paper on this was Feldstein’s 1974 article, but there are others).

    It is still the fact that we have to deal with it, rather than wishing it were not so. But that is precisely why we are having this discussion. We have to deal with it through some combination of higher taxes or less spending, and thus it is a legitimate and appropriate discussion to wonder whether part of the spending cuts ought to be in the form of changes to the pension system going forward.

    By the way, the problem with your analogy is, in fact, that it was the father’s money. With Social Security, the better analogy is that the father not only spent all his money, but he also took out a loan secured by the child’s future earnings, and then spent the money on the fast car. So then the father dies in a car crash, and the kid is still legally required to pay back his dad’s loan.

  • dale coberly says:

    Jeffrey

    No.

    You make the same mistake Orszag makes. Social Security is not,and was never meant to be, an investment. It was a means to solve a problem that existed right then, and could be seen to be extremely likely to exist in any imaniginable future.

    Old people were in extreme poverty, usually for reasons that had nothing to do with anything they had any control over. SS… speaking over simply… merely shifted the tax payer burden from “welfare” to what would become a “worker paid” insurance program.

    The early taxpayers did indeed pay the early retirees more than those retirees “contributions” would have justified in an investment plan. Perhaps the early taxpayers felt they owed their (generational) “parents” something. Perhaps they felt those old people had paid for a decent retirement by contributions they had made to “the general welfare” over al life time… a lifetime of hard times, wars, depression, the draft, low wages, poor opportunities.. In any case, by paying for that first generation of SS checks, they saved themselves from paying taxes for welfare checks, and may well have gotten economic benefit from those old people spending the money they got, and the young people not being afraid of destitution in old age spending more freely and taking more entrepreneurial chances.

    At the end of the day, the people paying those “excess” taxes still got their money’s worth, just as we do today, and all future generations will. If nothing else they got their money back plus interest when they retired, or got sick, or died with dependents.

    When you and Biggs compare their “return on investment” you aways ignore the insurance factor… the simple fact that the “average” return is not the relevant question. You also ignore whether the people doing the investing have a right to accept a lower return because they value “other uses” more.

    I don’t see many people worrying about the rate of return they get on investments in champagne. Not entirely sure why workers should not be allowed to invest in Social Security even if it results in a lower “rate of return” than Biggs is promising in his imaginary bank.

    What I find wrong with your “analysis” is that it leaves out most of what normal people would regard as important.

    Your “better analogy” simply begs the question. Perhaps “those kids” are “required to pay.” But in this case old dad didn’t waste the money on a sports car, he bought them an annuity it would cost them to fail to keep up for themselves. He, being a good father, and understanding children, did this to force them to be prudent until they were old enough to understand the value of prudence. The kids are not paying for dad’s crashed car. They are paying for their own security.
    And they are paying back those old folks for the contribution those old folks made to their own higher standard of living.

    The “higher taxes” necessary to pay for the future costs of Social Security.. caused almost entirely by the longer life expectancy of the people paying the tax… amount to one half of one tenth of one percent per year up to, but not more than.. about 4% compined… after the year 2085. While incomes are going to more than double over the same time. Leaving those folks with more than twice as much money AFTER the “tax” as they have today.

    Like I said, when you look at ALL the facts, you get a healthier picture of the real situation than you can get from spinning out one theoretical construct at a time.

    As for the “reduced capital stock” have you looked at Wall Street lately? we are swimming in money with no place to go.

  • Jack says:

    I don’t see the benefit of bringing the Social Security program into this discussion, especially in that the discussion has begun to focus on whether or not the a state pension plan is underfunded. Social Security is something of a hybrid plan in that it is mostly pay as you go, but contains a prefunding mechanism, the Trust Fund. Over a prolonged period the pay-go status has been revised to result in an excess cash balance in each fiscal year. The result is a massive fund that has served two purposes, one being to supplement pay-go in underfunded years and the other to provide the Treasury with a lender of first choice. I don’t believe that there are any state plans that have such a structure and that being the case Social Security analogies will only confuse the discussion.

  • dale coberly says:

    jack

    sorry to confuse the discussion. but it seems to me that SS is part of the “situation” created by people who are attacking all forms of worker security.

    to my reading the “original” discussion had come down to Johnston making the case that workers pensions are part of their contractual compensation. And Brown arguing that those contracts were flawed as not being entirely “free market.” Then he denied that he was claiming any actual corruption.

    Perhaps there is room for that argument to move from there. I don’t see it.

    On the other hand Brown brought up the Social Security payroll tax and demonstrated one of the pillars of confused thinking that keeps intellectuals entertained while the facts on the ground remain exactly what they are whatever you call them.

    Workers compensation is arrived at by a process that could probably best be called “free market” in a environment that includes forces not usually considered by fundamentalists.

    The free market includes government just as surely as it includes gravity, and community expectations as well as “what the traffic will bear.”

    To make claims about who “really” pays, is to ignore the reality that first the money is the customers, then it is the employers, then it is the employees. And that as it changes hands it changes “ownership.” Of course the employer pays both shares of SS. Of course both share “are” the employees money.

    The only reason to play games with the distinction is for the political point, when you want to make it, that the workers return on investment is “really” lower than it seems since the employers money is “really” the workers money.

    Only when times change, and there is a recession, a bad stock market, and a deficit hysteria, all of a sudden the Payroll tax is “really” a “jobs killing tax.” Apparently paying the workers “their” money costs jobs.

    As of course it does. But then that’s what capitalism is all about… redistribution of resources toward more efficient (properly understood) uses.

    It’s all carney patter. Try to keep you eye on the shell with the pea under it.

  • dale coberly says:

    Professor Brown

    to try to make a little clearer what i meant by begging the question.

    Social Security pays every worker more than he paid in… that is enough “effective interest” to make up for inflation and to provide a “real” return approximately at the rate of growth in standard of living.

    This interest in fact comes from the growth in standard of living. 12% of my income while i am working, is going to be less than 12% of the income of some future worker who is paying, pay as you go, for my retirement.

    This is really no different for SS than it is for any other “investment.” But the return comes from the prosperity of the entire economy, not the prosperity of fortunately chosen particular “instruments.”

    And this means that it doesn’t matter that early retirees were paid more than “their investment” had earned. What matters is that the people paying the payroll tax would “earn” the “interest” generated by the economy as a whole during their working lifetime.

    Like all Investments SS will return more than some other investments, and less than some others. In fact some generations will get a better return on investment than others. And this is true for all investments. Yet no one is claiming that we need to make sure that all future investors in stocks and bonds get the same return on investment as their grandparents. We don’t claim that the price of bread, or the time spent in a military draft, should be the same from one generation to another. Yet Biggs and Orszag get away with claiming that the return on investment from one generation to the next should be the same. Just as, no doubt, everyone who buys Microsoft stock should get the same return as those who bought it as an IPO.

    This nonsense survives only because it serves the interests of some political players, and because typically human beings can only think of one thing at a time, so they are easy to fool by a fast talker with a clever “line.”

    Social Security provides a higher rate of return to people who make less money over a lifetime than it does to people who make more. That is its function. It is insurance. It seems strange to point at a future generation which will be richer than the last, and cry bitter tears because their return on their “poverty insurance” will be less… less as a matter of interest rate, not as a matter of absolute, real, dollars.

  • Jeffrey Brown says:

    Jack,
    The reason I brought up Social Security was simply to illustrate the same point that David Cay Johnston was making, namely, that the usual starting point for thinking about the incidence of contributions to benefit plans (whether social insurance or employer pensions) as falling on the workers through wage adjustments. It was Dale’s comments that have taken us into this other territory … a subject on which it appears Dale and I could debate endlessly. :-)
    Jeff

  • Jeffrey Brown says:

    Dale,

    You say “And Brown arguing that those contracts were flawed as not being entirely “free market.” Then he denied that he was claiming any actual corruption.” As I tried to point out to you previously, I was suggesting – in the true spirit of academic debate – an alternative hypothesis that David had failed to consider, and I was honest that we do not know the answer due to a lack of empirical work. If you know of any real evidence – as opposed to your assertions about the supposed real world – feel free to share.

    As for your other post, you are partially right on two points. 1) Samuelson showed many decades ago that the “rate of return” on a pay-as-you-go Social Security system is roughly equal to population growth plus wage growth, and that such a system can be sustainable forever – and provide decent returns forever – if demographic and economic conditions cooperate. Two limitations to this argument. First, it does not contradict the fact that our capital stock is smaller than it would otherwise be (oh, and by the way, I am talking about the real capital stock, meaning plants, equipment, etc, not just the money on Wall Street). Second, the problem, of course, is that lengthening life spans without a corresponding lengthening of working life, and lower birth rates have combined to reduce the “return” to Social Security for each successive generation.

    2) You are also right that Social Security is an insurance program. No offense, but I don’t need you to teach me this. Social Security is an annuity (in addition to being a disability program, and providing survivor benefits), and I have probably published more papers in peer-reviewed academic journals on the insurance value of annuitization than all but a maybe a dozen economists. But just because an insurance program has value above and beyond its expected return does not mean we should accept it without criticism, nor does it mean we should ignore the economic and behavioral consequences of such a program.

    As a bit of an aside, regarding your statement that “Social Security provides a higher rate of return to people who make less money over a lifetime than it does to people who make more,” I am sure you know that the precise extent to which this is true has been analyzed in a number of academic articles, including work by Jeff Liebman, by Alan Gustman and Tom Steinmeier, by Julie Coronado and Don Fulleron, and many others. The net conclusion is that while there is some net redistribution going on, it is very noisy and inefficiently targeted. Part of the problem is that the system measures people as rich or poor on an individual basis, and thus fails to account for the fact that some of the “poor” workers who get a better deal are in fact married to “rich” people. Of course, these papers tend to focus on the retirement side of the program, and it is true that the disability aspect of the program, when included, increases the overall measured progressivity.

    Finally, I have to chuckle that you keep lumping me and Biggs together with Peter Orszag. If you followed the 2001 – 2005 Social Security debate at all, you will quickly discover that nobody was accusing us of being allies at the time!

  • dale coberly says:

    Jeffrey

    no offense taken. none meant.

    let me back up a bit. the point of the analogy with the sports car buying dad was that even if he does crash it, the kids still have to pay the bill out of their inheritance. it might reduce their inheritance, but it does not “cost them” anything beyond what they were hoping to get. the analogy is beginning to look a little tattered with us pulling it in different directions. but i’ll stand up to another take if you think it will help.

    as to the argument about whether the public union contracts were “free market,” i do have trouble seeing how you can go from making an implication that there is some implied corruption in the process, to denying that there is any evidence for such corruption, to saying that it doesn’t matter.

    my point was that “theoretical” departures from “free market” do not by themselves constitute a reason to renege on a contract. as neither does the assertion that because we have a new set of politicians who don’t like the old set that made the contract, we can just tear up the contract.

    similarly, if our “real” capital stock is not what it “could be” but there is money chasing itself around in wall street looking for good investments, i don’t see how you can blame the lack of investment in “capital stock” on Social Security. If nothing else it seems to me that once you have a “system” going whereby people “invest” (“save”) in the market and later take their money out of the market to provide for their needs in retirement… as long as the investment and the withdrawal balance, there is no net investment… which is pretty much what you have with Social Security. To the extent that withdrawal does not balance savings… you still have what you have with social security.. .people are free to “invest” all of their income above that which represents the withdrawals they would be making from those investments… hope that is clearer than it sounds to me right now.

    the return on social security may be lower from generation to generation… but that has more to do with the “windfall” the early generations got than the demographics… with no changes in the tax rate SS will provide a benefit greater in real value than the benefits it provides today. with a small increase in the tax… one half of one tenth of one percent per year… it will provide a greater real benefit over a longer period of time.

    we do need to care about the rate of return on an insurance program so we have a basis for knowing if we are geting what we paid for. but we need to be careful to remember what we are paying for is not the rate of return, but the insurance… and not be misled by calculations that make assumptions that ignore the risks, and focus on returns to the “average” person… when the whole point of the insurance is to provide a safety net for those who fall to a less than average condition.

    i don’t know about the poor married to the rich… but i suspect that is another of those statistics that Biggs is so fond of. brllliant but misleading.

    Then “i am sure you know…” not really. i don’t follow the professional literature very closely. I hope you have been as critical of Orszag and Biggs as I am…. they would respect it more coming from you.

    Again, no offense meant. I try to present another point of view, one I have some confidence in, but i can only blame myself if i fail to convince you.

  • Jeffrey Brown says:

    Dale,

    As for your comment about my views on the process … as I already explained, I was presenting an alternative hypothesis that cannot be ruled out without better studies. Unlike your attitude toward academic studies, I put great value on them, and I am always open to changing my view when the evidence warrants it. I won’t belabor the point, since I have already explained my position at least twice.

    On poor marrying rich, what is meant by that is as follows … some of the people with a low lifetime earnings history, who then get classified as being poor, are actually the secondary earner in a high earning household. For example, the college educated spouse of a high earning executive, who made the choice to spend half their working life out of the work force. That person “appears” poor based on the calculation of AIME – but it does not mean they are really poor. And this is one of several complicating factors that reduce the progressivity of the system. (Notice, I said reduce, not eliminate, the progressivity.)

    More generally, your comments make it clear that you have no respect for academic research. That is too bad, since academic research (and I am referring to papers published in peer-reviewed journals, not position papers put out by liberal or conservative think tanks) is how we get real answers to these important questions, rather than just arguing based on ideology and anecdotes. Specific to the work on progressivity, this is not “another of those statistics that (is) …brilliant but misleading.” It is high quality research produced by some of the best minds in the profession. Jeff Liebman is a chaired Harvard professor, who by the way, is not exactly a right winger, having worked at the NEC in the Clinton Administration and at the OMB in the Obama Administration. Gustman and Steinmeier are two of the most widely respected experts in the world on structural modeling of the retirement decision, and they are two of the most serious, and least political, researchers I know.

    You say that you “don’t follow the professional literature very closely.” That is fine, as I don’t expect non-academics to read the academic literature. But I would hope you would at least have some respect for what we can learn from it. I am happy to have you present another point of view – that is precisely what this blog is for and I am delighted you have taken the time to participate in this forum – but if you want to convince me, you are not going to do so by summarily dismissing the best available studies on a subject without reading them.

  • dale coberly says:

    Jeff

    I do not summarily dismiss them. I do try to point out that they are misleading when they do not account for the reality they claim to describe.

    As a former academic I have great respect for academic research. As I remember we spent at least half our time refuting “research” that was not as conclusive as its author thought… no doubt sincerely.

    And we rarely convinced the author of that research, but we did participate in the process that moved research toward arguably more accurate results.

    Let us return to what I took to be the point of your original essay:

    “the odds are quite good that taxpayers have borne (or perhaps more accurately, future taxpayers will bear) at least a sizable part of the cost of public pensions.”

    this is not controversial, but it is misleading.

    Of course taxpayers bear ALL the cost of public pensions. They are contracted to do so as compensation for the work the public employees did. The employees earned those pensions, and to that extent “paid for” them. The distribution of pension costs to “employee pays” vs “employer pays” is an entirely arbitrary and “economically meaningless” distinction, serving only to game the tax code and assign the risks of how the pension is financed.

    If a new set of politicians doesn’t like the contracts, they are not simply free to renege on them by claiming those contracts were not pure “free market.” They may choose to negotiate new contracts, but those won’t be exactly “free market” either, and there is more reason to suppose the politicians doing the negotiating on one side of the table are at least at “arms length” representing high end taxpayers, than in collusion with the employees union.

    This was the point I hoped to make. I am afraid that you seem to have jumped to a number of conclusions about my political orientation and secret thoughts about academic research that merely confuse the issue.

  • Jack says:

    “I was presenting an alternative hypothesis that cannot be ruled out without better studies. Unlike your attitude toward academic studies, I put great value on them, and I am always open to changing my view when the evidence warrants it. I won’t belabor the point, since I have already explained my position at least twice.” JB

    Study the wheel all you like and it remains round. Call a wheel a square and you can debate the matter ’til the cows come to barn. Research is a fine endeavor and can be used to support almost any side of an issue with virtually the same set of data. This is the problem with social science as a research medium. It tends to be 85% social and maybe 15% science and all the reference to numerical data and statistical analysis doesn’t change that assessment. Exact science it is not and even the more exact scientists know better than to rely on research data alone for determining the validity of a conclusion. That’s the other part of the error of the measure. Regardless of the data it is the analysis and the conclusions therein drawn that meander far afield.

    “Jeff Liebman is a chaired Harvard professor, who by the way, is not exactly a right winger, having worked at the NEC in the Clinton Administration and at the OMB in the Obama Administration” JB

    One need not be a Tea Bagger to be on the other side of the center of an ideology. Given the credits you list, above, for Prof/Dr Lieberman I’d suspect that he is primarily a career politician without an elected position. Clinton and Obama have not exactly evidenced any truly progressive economic intentions. A couple of true to the cause DLCers. Thank goodness that organization has since bitten the dust. Clinton has feathered his own nest quite well and Obama seems to be gathering the twigs and straw needed to provide for his own future. It’s the rest of us who will be put to pasture in a barren field if they represent liberal or progressive political policies.

  • Jeffrey Brown says:

    Jack,

    Your view of social science research is simply misguided. In the vast majority of cases, peer-reviewed empirical research in economics is not judged on political considerations. It is judged on the quality of the research. I’ve served as editor, reviewer and author (never at the same time, of course) on many, many papers, and I have never witnessed a case in which ideology or politics played a role.

    Of course, this is not true for policy position papers, whether put out by academics or by think tanks. Much policy research is written with a predetermined point of view in mind rather than as an unbiased search for answers. Man of the papers written by places like EPI or CBPP on the left, or by Heritage or Cato on the right, are not so much research papers as they are advocacy papers. In those cases, your critique holds. But plese do not confuse the two types of papers.

    As for Jeff Liebman, he is a greatly respected academic researcher who has spent most of his career doing extremely high quality academic research. The fact that he took time out of his academic career to engage in public service does not make him a career politician.

  • Jack says:

    Jeffrey,
    Your response is naive at best. I did not suggest that social science research was not peer reviewed. I suggested instead that what is acceptable as objective research, including analysis of data and conclusions drawn, might not be found to be acceptable by statisticians and other researchers outside of the peer group. A peer group sets the boundaries of acceptability and reviews research from its members within those boundaries. The social sciences, including economics, set the parameters of those boundaries. Those parameters may not be acceptable to the entire sceintific and/or academic community. What is not often measured is the distance between one’s heuristic device and the reality of the phenomenon to be studied, observed and measured. There in often lies the error of the measure.

    I’m sure that Prof Lieberman is a credit to his profession and highly respected in his field. That is not the measure of the validity of one’s analysis or conclusions. And, as noted, working within the political arena sets up an alternative basis for measuring the objectivity of the individual. As an example Alan Greenspan is a highly respected economist who has served his government for a long period of time. To what good or bad end is up for debate, but his peers have held him in high regard for more than twenty years.

  • Jack says:

    More importantly your comment, which I was originally referring to, “I was presenting an alternative hypothesis that cannot be ruled out without better studies.” seeks validation from “additional research.” That is not the process of science. If your alternative hypothesis is not supported by the current body of research it cannot stand as a rebuke of DCJ’s article in the first place. When you say “better studies” do you imply that the studies done to date are inadequate and if so, why so? Were those studies not peer reviewed? Or, did those peers hold a different point of view?