Ana Matosantos has announced she is departing the Newsom administration at the end of the summer, telling the L.A. Times that she needs to sleep.

Can state government survive without her?

Unless you follow state politics closely, you’ve probably never heard of Matosantos, who doesn’t appear on television or give many on-the-record interviews. But for more than 15 years she has been an indispensable insider of Sacramento—depended upon by politicians, parties, and agencies of all varieties.

What makes her so important? The answer lies in a paradox.

Because our state is such a kaleidoscopically diverse and complicated place, one might assume it requires a large and diverse set of people and institutions to govern it. In reality, the opposite is true. The machinery of government here is so complex, no mortals—and certain no elected official—can understand it, much less govern it.

So, real governing in California requires that one-in-40-million sort of person. She must be a wizard with a mind peculiar and powerful enough to comprehend the incomprehensible algorithms of state finance, to make sense of rules and regulations that make no sense, to conjure possibilities from our impossible system. And the wizard must do this quietly, so that politicians can pretend to run the place.

Each generation in Sacramento produces its own wizard. In the later 20th century, the wizard was a soulful and profane state educational official named John Mockler, the author of Prop 98, the impossibly complicated school funding formula that makes the state budget so maddeningly complex.  Mockler was so vital to California that I proposed, in the L.A. Times, that the state constitution be changed to require him to live forever. (Alas, he died in 2015.)

In the 21st century, the unicorn keeping California from cracking up has been Matosantos.

You may think of the last three governors—Messrs. Schwarzenegger, Brown, and Newsom—as very different men with very different agendas. But when it came to the most complicated governing and budgeting tasks, they were flashy figureheads, often doing whatever Matosantos advised them to do.

Matosantos has had different jobs and titles. But, relying on her off-the-charts intellect, a Stanford education, and a freakishly good memory, she developed the rarer-than-rare ability to understand the bizarro world of state budgeting.

Originally from Puerto Rico, she first gained notice on the political stage when she helped Schwarzenegger (who often referred to her “the genius”) negotiate complicated and contentious budget fights in the 2000s. In one such conflict, which has become Capitol legend, Matosantos is said to have drafted both the Democratic proposal and Republican counter-proposal that led to a budget agreement.

In the 2010 elections, Jerry Brown replaced Schwarzenegger, but Matosantos stayed on to direct state finances—and ingeniously found ways to turn the curious koans of the philosopher-governor into real policies. One veteran Capitol wag compared her to the Kyra Sedgwick character in the TV series The Closer, a brilliant LAPD investigator who solved the crimes that no one else could crack. Matosantos was considered so essential to the state’s governance that her 2011 arrest for driving under the influence was treated not like a personal scandal but rather like a near-death experience for state government. What would California do without Ana?

She left state service for a time. But Newsom, after winning office, coaxed her back into state government, making her cabinet secretary, which requires coordinating operations and policy across all departments and agencies.

It’s an impossible job, and Matosantos had missteps in everything from pandemic response to utility regulation. But she also was the administration’s great resource, able to answer seemingly unanswerable questions about state government. She also kept pulling rabbits out of hats—insiders say she was particularly adept at exploiting the details of Trump administration regulations for California’s benefit. She and her administration colleagues managed to make historic investments in new programs while protecting the giant budget surpluses of recent years.

Indeed, some progressives in California privately complained that Matosantos’ ability to manage our messed-up government machinery was too good—her skill at solving difficult problems in the short term allowed state government to postpone systemic reforms.

This may be an election year, but Matosantos’ departure from the administration is the most significant change in California governance.

Possibly, after some well-deserved rest, Matosantos will find a way to keep playing her essential role in governing California, for instance, as a consultant. But if Matosantos is truly departing, this time of transition raises all kinds of fears about what comes next. Without a government wizard, California could fall apart under the stresses of economic downturn.

But, maybe, just maybe, this absence of sorcery might force Californians to redesign our complicated state constitution. Without Matosantos to keep things going, maybe we will have no choice but to remove the formulas and remake how we budget. Maybe we will create a new governing system simple enough that politicians and even everyday Californians can understand it.

But such changes make too much sense to ever happen in this state. California, and Sacramento, will just have to find a new wizard.

The post What Happens When the ‘Indispensable Insider’ of Sacramento Steps Down? appeared first on Zócalo Public Square.

Of course, California’s nearly 80,000 sworn officers don’t bother with the small-time grift of stealing electronics during civil unrest. Instead, they prefer to sack the treasuries of the governments that employ them, in both good times and bad.

In communities across our state, the escalating salaries, benefits, and pensions of police are swallowing up municipal budgets—and crowding out the other services, from libraries to summer programs, that poorer Californians depend on most. Over the past 40 years, police spending more than doubled, while parks, recreation, and maintenance budgets remained flat or declined. Police departments are by far the largest piece of any local budget, often consuming at least one-third of the general fund (as in my San Gabriel Valley hometown) and more than half of discretionary revenues.

As policing costs have come to dominate city finances, the police have gained nearly unchecked political power. Police unions, enriched by higher dues from well-paid officers, make the campaign contributions that determine who wins local races. So city council members rarely move to curb the pay or power of police officers who installed them in office. The result is that in many places in California, the city government does not run the police department; the police department runs the city.

This flawed local government structure deserves more attention in our current crisis—because it provides part of the answer to the question Americans are asking: Why does abusive, racist, and deadly police behavior keep happening? The deeper response to that question starts not with Twitter-fueled conspiracy theories about the protestors who have taken over our streets, but rather in recognizing just how thoroughly our police have taken over our city halls.

Police dominance of municipal budgets is a problem all over the country, but it’s most extreme in California. Our 120,000 full-time law enforcement officers—that includes police, sheriffs, and prison guards—are the highest paid in America. California consistently ranks, along with New York and Alaska, among the national leaders in spending on police ($414 per resident, compared to a national average of $354).

The peculiarities of California governance have long accentuated police power, as well as its costs. While local budgets were limited by the Prop 13-tax system, the “maintenance of effort” provisions in the state constitution—via Proposition 172, approved by voters in 1993—required local governments to maintain their spending on police and other public safety personnel. So police budgets, constitutionally, were programmed to gobble up ever higher shares of a limited local tax base.

Then things got worse. The full-scale police looting of municipal budgets began 20 years ago, when unions forced changes in pension rules that made it possible for officers to retire as early as age 50, with pensions that would be nearly as high as their salaries. These pension changes were both retroactive and permanent, and included easily-abused rules that allowed cops to maneuver to spike their pensions astronomically. A Los Angeles program allowed police officers to “retire” briefly and pocket part of their pension and salaries in a lump sum; the current LAPD Chief Michel Moore used it to take home $1.27 million.

With cops also receiving generous disability benefits and costly retiree health coverage, cities have experienced a crushing increase in their retirement costs. In effect, California cities are paying for two police forces—the current one and the retired one. And the last decade of recovery did not produce enough new revenues to keep up with these increases in police salaries and retirement benefits. (Firefighter pay and benefits also have taken big bites out of cities).

These escalating police costs add an irony to the current crisis on our streets. Today’s young protestors will get less in local services because they are paying for the unaffordable retirements of the cops who are using tear gas and rubber bullets against them. The police really should be kinder to their benefactors.

In another irony, police response to today’s protests will only add to another rising municipal cost: legal settlements. In recent years, cities have seen multimillion-dollar increases in amounts paid to settle lawsuits over police shootings, use-of-force, and in-custody deaths. Look for the current police-community clashes to produce hundreds of millions of dollars in new settlements, ultimately paid for by the taxpayers suffering under COVID and curfews.

Maddeningly, all the massive increases in police budgets haven’t given us more policing. Most cities have fewer sworn officers than they did in 2008. The lack of personnel was apparent in recent days, as police departments struggled to muster enough officers to protect property from vandalism, arson, and looting.

To be fair, California police are neither irredeemable nor unaware. Police collaborated with their critics to negotiate pioneering state legislation last year that limits police use of force. Some cities, notably Richmond, have transformed police-community relations.

And the LAPD, once a paramilitary citadel, is now a national model of community responsiveness and diversity, with two-thirds of officers now hailing from ethnic or racial minorities. Watching police and protestors up close recently in L.A.’s Fairfax district, I was struck by how the protestors were more male and white than the cops facing them.

But police departments have faced little pressure to surrender any of their local fiscal and political power—until now. Researchers at Black Lives Matter are building a strong case for rolling back local police budgets. They successfully targeted Los Angeles Mayor Eric Garcetti’s initial budget proposal, which offered deep cuts in virtually every city program except the LAPD, which got a 7 percent increase. After activists launched a “People’s Budget” to replace police spending with money for the homeless and renters, the mayor announced he would trim the police budget instead. Nationally, some activists even want to end police departments altogether.

That’s unlikely to happen, but California’s system of local government must change so that police no longer dominate our cities. This means empowering citizens to challenge police power in city hall, and perhaps forcing police to work under neighborhood service departments with a broader sense of community needs.

But first, let’s stop the looting.

The post To Rein in California’s Cops, Reclaim City Hall appeared first on Zócalo Public Square.

The scene unfolds as George Bailey, played by Jimmy Stewart, sets off on his honeymoon in a taxicab, only to realize that depositors have gathered outside a local bank, demanding their money. Instead of continuing on his honeymoon, George hustles to his beloved Bailey Building and Loan, where he finds it closed and hence in mortal peril.

The ensuing scene encapsulates the promise of the American financial system. And it explains why, in the first half of the 20th century, policymakers encouraged the development of institutions and markets powerful enough to make—or break—the lives of all Americans.

Of course, the scene also dramatizes the financial conflict between protagonist George Bailey and antagonist Henry F. Potter, played by Lionel Barrymore. After George lets his distraught depositor-investors in and the Building and Loan opens for business, he learns that Potter recently acquired the town’s other bank and then ordered the immediate repayment of funds it had loaned to his Building and Loan, thus denuding the mortgage lender of all its cash.

That premise would have been plausible and familiar to viewers of the movie because, in that era, financial intermediaries often made short-term loans to each other that stipulated repayment upon demand. The subtext, revealed in this and a previous scene, is that the Bailey Building and Loan needed to borrow from the bank because some of its own borrowers were in distress and not making payments.

And so, in this scene, you can see how community connections governed this era in the American economy. Rather than foreclose on his borrowers, evict them, and sell their properties, George Bailey, like other community bankers, allowed delinquent borrowers time to get back on their feet. Banks, in that time, saw themselves as vital to keeping their communities functioning.

But that complicated interdependence also made such small banks—and the communities they served—vulnerable. And it was during the bank run that Potter, Bailey’s rival, tries to take advantage—and take over Bailey’s Building and Loan. Then, Potter telephones to offer George his backhanded assistance. He says that if George doesn’t sell the Building and Loan to him on the cheap, like the other bank just did, he’ll have to dispatch the police to prevent the “mob” from doing bodily harm to George and his employees, who also are his relatives. Without his aid, Potter warns, the Building and Loan will go bankrupt before the official close of business at six that evening.

George hangs up and attempts to talk his way out of the jam and convince his depositors not to withdraw their funds. He asserts that this particular day’s economic crisis, one of the several waves of bank failures that swept the nation during the Great Depression, “isn’t as black as it appears.”

George doesn’t do well at first. When one customer, Tom, demands repayment of the $242 he invested in the institution, George correctly explains to him that building and loans are not commercial banks and that Tom owns time deposit-like shares in the institution payable in 60 days, not a checking deposit payable on demand. Despite George’s heartfelt, and accurate, reminder that the Building and Loan’s assets consist of long-term loans to his neighbors, Tom insists on getting his money, implying that something must be wrong if the institution cannot pay out a mere $242.

Another man, Randall, then enters the bank and tells the crowd that they can sell their shares in the Building and Loan to Potter for 50 cents on the dollar, cash. Tom immediately threatens to sell his shares to Potter because “it’s better to get half than nothing.” As the crowd starts to head for the door, George vaults the counter and blocks their path while plausibly explaining that if enough of the Building and Loan’s investors sell out, Potter will gain control of the institution and monopolize the town’s financial system and housing market, which will allow him to raise borrowing costs and rents to oppressive levels.

But Bailey keeps arguing. And he draws upon an intimate knowledge of his investors and borrowers of the sort that good community bankers had in small towns. Over the course of the day, George draws out the implications of Potter’s control in personal, detailed terms, which stops the crowd long enough for him to expose Potter’s intent: The old codger is buying shares, not selling them, because he is using the financial crisis to get rich at the expense of the poorer and presumably less astute and informed townsfolk.

The crowd ultimately agrees with George’s assessment. Americans in that era were bitterly opposed to monopoly. But inside the Building and Loan, the atmosphere remains thick with panic because Bailey’s depositors need cash to feed their kids, pay medical bills, and hold them over until a family member can find employment once again.

That’s when George’s new bride, Mary, played by Donna Reed, steps up with $2,000 in honeymoon money that her husband begins to lend out, starting with $242 for the recalcitrant Tom. The next two customers, however, request only $20 each. And it’s clear that George will survive the bank run when Mrs. Davis asks for only $17.50.

The scene ends with the Building and Loan still open—but with just $2 left at the close of the business day. That is enough not to be bankrupt, and to seek new financing. There is more work to recover, which viewers never see.

What the Capra film doesn’t say is that if the Federal Reserve System (“the Fed”) had been doing its job, it would have lent funds to the local commercial bank (or its correspondent bank in Manhattan) that in turn would have aided the Bailey Building and Loan. With Fed support, the Bedford Falls bank could have remained independent of Potter and had no reason to demand immediate payment of its callable loan to George’s institution.

The Federal Reserve was created in 1913 in part to act as a lender of last resort, making emergency loans to troubled but solvent banks during crises. It failed to do so during the Great Depression, greatly exacerbating the misery. (And for some viewers of the film when it first came out, the Fed’s failure to act may have been a bitter memory.)

At other points in American history, including during the Great Recession, the federal government and its central bank have gone too far in the other direction, bailing out bankrupt institutions that took on too much risk and should have been liquidated in an orderly fashion instead. Some Fed policies, most notoriously the “Too Big to Fail” doctrine, have actually increased the likelihood of financial crisis.

Still, the film scene is powerful in illustrating a point that I, as a political economist, have been trying to establish since my pitiable career began a quarter-century ago: To remain prosperous, America needs a robust, innovative financial system. But our existing system relies too much on the good luck of having a good guy in a community (like George Bailey) or a bigger bank (like the Federal Reserve) to thwart the inevitable bad guys who happily hurt others and cause a financial crisis in order to “make a bar” (Wall Street slang for a million dollars). Crises like the one in the film stem from the structure of incentives, institutional and individual, and hence that is where regulators should concentrate their efforts.

Only rarely have Americans, and their regulators, considered carefully the importance of incentive structures not only to financial institutions but also to the communities in which we live and work. But in It’s a Wonderful Life, we can see exactly how those incentive structures fail the people we love.

To be an American is to live with the cultural, economic, and political scars from numerous financial crises and the recessions, depressions, and often half-baked economic policies and regulations that they spawned. It’s also American to tremble with the certainty that more financial storms loom on the horizon.

Financial panics shape far more than our finances. Nobody much cares about the Panic of 1792 anymore because it seems so remote. But they should, because it helped to create America’s two-party political system.

Every major financial panic, in fact, led to titanic shifts in the American story, from the rise of Jacksonian democracy to the Civil War to the formation of the Fed itself. Although the events depicted in It’s a Wonderful Life took place during the Great Depression, which began almost 90 years ago, we live, and in some cases die, with the myriad policy decisions made in response to that epic economic downturn. So when you watch the bank run scene this holiday season, feel free to blubber away with me. It’s good to grieve.

The post What George Bailey’s Building and Loan Company Can Still Teach Us About Banking appeared first on Zócalo Public Square.

Specifically, it is coming to Stockton, a city that declared bankruptcy just five short years ago. Stockton Mayor Michael Tubbs, armed with a $1 million grant funded in part by the tech industry luminaries, is about to engage 100 or so of his constituents in the first municipal-run experiment of UBI in this part of the world.

UBI is not a new idea. Writing on it stretches back to at least 1516, when Thomas More discussed it in Utopia as an alternative to poverty and petty theft, a crime that sent many hungry people to the gallows. The idea also has had modern proponents, from conservative economist and Nobel Laureate Milton Friedman, to liberal economist and Nobel Laureate James Tobin. Martin Luther King Jr. argued in 1967 that a guaranteed income was a moral imperative for a capitalistic society. Modern entrepreneurs Elon Musk and Mark Zuckerberg, following Kurt Vonnegut’s novel Player Piano, advocate UBI as a way to protect the workers who lose their jobs to robots.

But for all of the discussion through the years, including serious consideration during a welfare overhaul under President Nixon, there remains no solid empirical evidence on the impact of “money for nothing.” This is important because UBI discussions have hit the serious policy sphere. The idea made the ballot (and lost) in Switzerland in 2016, entered into the 2017 French presidential election, and is now part of the platform of the left-right PAN/PRD coalition, which has a good chance of winning the upcoming 2018 Mexico presidential election.

All of which might make the experiment in Stockton quite important. In this San Joaquin River town, where the median income is substantially below that of other California places, the UBI transfer will go to some low-income folks who can certainly use the added $500 per month.

The idea of this and other small experiments now underway is to gather evidence on how people respond to UBI. The trouble is that this approach—which mirrors an earlier study in Finland—is doomed to failure because it cannot reproduce the surprising economic realities of how UBI would work in practice. Thus, it won’t really reckon with the arguments surrounding it.

The case against universal basic income was made recently in The National Review by Oren Cass, a former advisor to Mitt Romney. Cass states that UBI “would make work optional,” “create an underclass dependent on government handouts,” and therefore “erode the foundational institutions of family and society.”

Is he right that free money would end the incentive to work? The answer lies in the psychology of work. In his 2015 book Why We Work, Swarthmore College’s Barry Schwartz shows there are other compensations for work—including social interaction with co-workers, the feeling of doing something worthwhile, and the sense of being part of a greater enterprise. Schwartz argues that people don’t just work for money; often money is not even the principal reason they head out into rush hour each day.

To be sure, there is stultifying work that people do for money and nothing else. But most work in the 21st century, when technology has taken over mundane tasks, is not this. Today, it is the absence of work that angers and frustrates people, as the 2016 presidential vote illustrates.

This points to another problem with Cass’s analysis: his prediction that UBI would create an American underclass leading to social breakdown. UBI can’t create such an underclass, because one already exists—you see it in the torn fabric of American society emanating from the ongoing transformation of the U.S. economy. In their 2014 book Marriage Markets: How Inequality is Remaking The American Family, University of Minnesota professor June Carbone and George Washington University professor Naomi Cahn documented the breakdown of the family among lower-income individuals. In their analysis, the rising inequality in the United States—and the decline of opportunity for those who 50 years ago might have found work in a factory—has resulted in a dramatic deterioration of family, values, marriage, and relationships.

Other researchers have made similar findings. Princeton professor Ann Case and Nobel Laureate in Economics Angus Deaton, who documented the breakdown in their study of mortality rates by class, race, and age, described the falling life expectancy among lower-income Americans as “deaths of despair.” The opioid crisis in America is a stark symbol of just how torn the social at fabric already is.

Which raises the question: Under UBI, how much worse could it get? I suspect the answer is “not much if at all.” Clearly, the current array of social insurance programs has not constituted a solution. But social programs do provide a way that we can validate the economics of UBI and understand what it might and might not do.

Unemployment insurance and workfare programs are designed to get recipients back into the workforce, and thus they have an expiration date. Other social assistance programs, such as Supplemental Security Income (SSI) disability insurance, do not have time limitations. Because these programs are for those without incomes, they limit the amount one can earn and still qualify for benefits. If one is on disability, for example, there is a limited amount of part-time work and income that is allowed before the disability payments are taken away. The same is true with Social Security for those under full retirement age as well as for those on unemployment insurance. This provides a huge disincentive for work.

It’s instructive to compare how the current incentives against work might change under UBI. Consider today’s system first. Suppose our Stocktonian is earning $18,000 per year. Under the new tax structure with the standard deduction, the marginal tax rate for the Stocktonian would be 10 percent and the tax bill $600. So when working, her net income would be $17,400.

Compare this to payments if the Stocktonian were on disability. In this case, her income would be $11,000. Consequently the incentive to work is only $6,400 (i.e. the difference between $17,400 and $11,000), or $123 per week, not much when you consider commuting costs, work clothes, and the time spent at the job.

How would this be different under a UBI of $10,000? First, the Stocktonian would not be on disability since under UBI that program would not exist. Second, the UBI income would not be taxed and therefore would not go away if she took a job. Thus, the guaranteed payment of $10,000 would lift her take-home income to $27,400. The incremental incentive to take the job now jumps from $6,400 to $17,400, an almost threefold increase.

In this way, UBI increases the incentive to work relative to the current system. This would be true for all of the welfare and social assistance programs that it would replace. Consequently, there would be more work, more GDP, and more taxes to fund the program than before.

There would also be social advantages. Those who re-enter the work force will have higher self-esteem, be more attractive as marriage partners, and have a greater stake in society. And UBI would allow for elimination of today’s elaborate system of checks on eligibility for social insurance, producing a cost saving in program administration that could be applied to funding UBI.

UBI offers another advantage: Today’s system requires that you prove you are unable to work or unable to find work. It is a system in which individuals have to downgrade and disparage themselves. Ask any psychologist whether or not this contributes to depression and low self-esteem (and addiction).

Of course, critics of UBI are right that there will be some individuals who game the system to satisfy their desire to do nothing of value. But by incentivizing work, there will be fewer of such people than there are today. (At least some indolent folks will always be with us if we want to be a society that takes care of our least fortunate.)

Is there a silver lining? Yes, UBI opens up new possibilities for the ambitious. Under the current system, an individual with a great idea for a new product or service who also happens to be a single parent, or have other important family responsibilities, is not apt to strike out on her own to explore that idea, create a new company, and innovate. Such an individual cannot afford the risk. With UBI she can. This means more new businesses, more innovations, higher aggregate productivity and a faster-growing economy. After all, small businesses generate 64 percent of new private sector jobs in the United States.

The biggest obstacles facing UBI involve politics (the instant revulsion to “money for nothing,” as the Dire Straits song put it)—and the lack of data that the current UBI experiments are supposed to give us. So let’s drive the 99 to Stockton and ask why this UBI experiment won’t tell us much.

The experiment is doomed for two reasons. First, it is temporary. The recipients know that the money will only last two years, and that will incentivize them differently than a true UBI. Second, it is $500 a month, and even though Stockton has one of the lowest costs of living in California, this is still not much money. Recipients are going to view it as a windfall and not as part of their expected income. As with all UBI experiments to date, the temporary nature of this study pollutes the outcome. “Can I start a small business and live on $500-a-month knowing that it will go away in 2 years?” our Stocktonian asks. The likely answer is, “Maybe, but what I’ll do if my business goes bust?”

Since we can’t learn from such experiments, pursuing UBI as both an economic and societal solution will require relying on economic theory, and on the empirical evidence that work is valuable, that people want to work, and that they will work, even in a factory, if the disincentives are removed. The only way to find out if Thomas Paine’s idea was the right one is to put it into actual practice.

The post Mark Zuckerburg and Martin Luther King Liked It. But Will Guaranteed Income Play in Stockton, California? appeared first on Zócalo Public Square.

This waste is energy. The media organization Diginomics estimates that the energy consumption to fuel bitcoin is equivalent to the consumption of just under 2 million average U.S. households. Add in the energy for other digital currencies like Ethereum, then figure in the resulting environmental pollution, and it’s clear that such currencies have great social costs.

For clarity, let me keep the discussion here to bitcoin, which consists of two separate pieces. The first is a mathematical hashing algorithm, which drives its mining feature; the second is a storage feature, called the “blockchain.” Although the blockchain is not particularly efficient, either, it is the mining that is the disaster.

Mining is what creates bitcoins in the first place. It is the running of a computer algorithm to solve a mathematical problem. Mining consumes about 18 TWh of electricity costing about $1 billion a year (plus more for hardware costs). This is less than the estimated $3 billion in value of all bitcoin (though the value changes every day), so market forces have been pushing more investment into bitcoin mining—in economics-speak, entry is profitable until the marginal cost equals the marginal revenue.

For the record, mining has absolutely nothing to do with making the currency secure. No, the purpose of mining is perverse: to solve a problem whose only purpose is that it is increasingly difficult to solve. If it were easy to solve, everyone could manufacture bitcoins aplenty. It is the difficulty that effectively creates bitcoin’s scarcity, and the expectation of even more difficulty and future scarcity has attracted speculators.

Why does scarcity matter? Anything that exists in unlimited amounts cannot be worth very much. Sand is not worth a lot in California. There is too much of it. But the reverse is not the case. Scarcity in itself is not enough. For example, my left thumb print is scarce, but it has no intrinsic real value.

Bitcoin mining takes considerable energy. Photo courtesy of Wikimedia Commons.

Bitcoins are scarce, but they have no intrinsic value. When one pulls back the curtain, the bitcoin hashing problem really has only its one nefarious purpose: It exists to provide the mystery of complex mathematics to confuse and help hide the true benefits of the hashing solutions (i.e., the bitcoins), which is zero. An important part of the deception is that mining is mathematically guaranteed to become ever more expensive, as it gets harder to mine new bitcoins. That difficulty creates the false impression that today’s value is a bargain compared to what it will be in the future. Bitcoins are the ultimate Ponzi scheme.

But aren’t there some real uses of bitcoins? Proponents of digital currencies often argue that bitcoins make transactions more efficient and thereby create value. But even if you believe that, bitcoin has much higher costs than better alternatives. We already have plenty of good currencies and near-currencies (such as credit) that can play transaction-cost reducing roles. And, unlike official currencies like the U.S. dollar, which is ultimately backed not only by legal tender rules but also by its ability to pay taxes, bitcoin has no fallback uses.

Today’s prime use of bitcoin, other than for naive speculation, seems to be black- and gray-market transactions. Using bitcoin is especially attractive in countries like China and India that have imposed currency controls that individuals want to circumvent. A Chinese local can purchase bitcoins on the local market, move them anonymously to the United States, and convert them back into dollars (or store them). It can be argued whether the ability to avoid currency controls creates social value (or not). But it’s clear that such transactional anonymity is not particularly useful to most legal transactions. Bitcoin also brings risks. Standard channels of payment afford some safety against anonymous hacks. Banks offer some protection. Bitcoin does not.

Eventually, authorities will crack down on the illegal channels of currency controls with bitcoin, and the value of bitcoin will fall. Speculators and miners will then further drive down the value, and the bubble will collapse. The last ones in the game of musical chairs will have nothing.

So I have a proposal that solves both the inefficient (nay, stupid and useless) creation of scarcity through mining, as well as the lack of a connection of bitcoin value with reality.

Rather than destroying electricity in order to hide the nefarious schemes of the bitcoin hustle, we should design a new kind of electronic currency that works almost like bitcoin but without the mining algorithm. A designated entry-exit server could hand out unique and verifiable “bittokens,” instead of wasting electricity.

Creating these bittokens would cost about 3 cents, batteries included. But, because the bittoken should be worth $3,000 (like bitcoin), we could sell them for $2,999.99 and put the remaining $2,999.96 into a trust account.

Like bitcoin, we guarantee that new bittokens can be purchased at the same and ever-increasing price as it costs to mine bitcoin. Unfortunately, we cannot guarantee that our bittokens can be sold for the same price as bitcoin on the open market (which we cannot control). Who knows, the original bitcoin may go even crazier for a while longer, with a price of $1 million (or drop to $0).

This is not all bad. On the open market, bittokens may sell for more or less than bitcoins. But bittoken can guarantee something important that bitcoin cannot: we can guarantee that the bittoken can always be redeemed for its original purchase price. The original bittoken buyer cannot lose!

Of course, there is a risk. There is one unique entry and exit site that administers and verifies new bittokens, manages the real dollar trust fund, and honors all redemption requests. If the trust fund were to go bust, so would the bittoken redemption guarantee. But this risk is trivial when compared to bitcoin’s guarantee of nada at exit.

Any transactional efficiencies of bitcoin would apply to bittokens, too. Society would be better off. By not wasting electricity and using the money to make productive investments, the trust can produce social goods—creating jobs, fighting disease, building infrastructure, or encouraging energy efficiency.

And, best of all, JP Morgan could do it tomorrow and make a fortune!

The post Bitcoin Is an Energy-Wasting Ponzi Scheme appeared first on Zócalo Public Square.

This is how societies have progressed over many centuries: from Silk Road traders traversing the Middle East to Asia, to explorers crisscrossing from the Old World to the New World, to the millions of students who flock to the United States to attend college and graduate schools. Free trade has freed us from the tyranny of our own narrow ideas and ways of living. The movement of peoples across national boundaries has transformed religion, technology, and political thought for many centuries.

Now, free trade and the free movement of people is under attack. In Trump’s America, coinciding with Brexit and perhaps with an impending “Frexit” from the European Union, many of us are wanting to crawl back into our shells, hoping the distance that we create, both economic and cultural, will protect us from the dislocation, and redistribution of wealth.

It will not.

Demonstrators, one dressed in a Theresa May puppet head, pose near parliament in London, March 13, 2017, to express their concern that the Prime Minister is whipping members of parliament to endorse a “blank cheque Brexit.” Photo by Kirsty Wigglesworth/Associated Press.

The forces of technology have always been powerful and are likely to become even more so in the future. Robots carry no passports and don’t need visas to invade our shores. Artificial Intelligence (AI) does not even need to travel by sea, air, or land. It will arrive on our computers, tablets, and smartphones while we are asleep.

So factory workers in Detroit or Ohio should no longer be worried about the threat of exported Chinese, Japanese or South Korean manufactured goods. The real threat comes from factories that will be largely run by robots, and the tsunami-like advance of AI.

Is it not our moral duty to protect those who are deeply hurt by free trade, immigration, and, now, by the ever-accelerating free movement of technology? Of course it is. But our focus should be on protecting workers, not old jobs or dying industries. The best way to protect workers is to make them ready for the new, ever-changing world we live in.

Endless cavalier talk about job retraining can sound patronizing. It isn’t easy to learn new trade or skills, especially as one gets older. But there are fresh ideas worth considering about how to protect people and help them to adapt, and at least a few of these are worth trying.

First, even if we cannot re-train ourselves so easily, we certainly can make sure that our children are equipped to navigate the new world with more agility and ability. This means making sure they receive a modern education. How do we make sure that education remains affordable and within reach for all, especially those being displaced?

Here’s one idea: When a worker is laid off, we should do more than simply protect her basic needs by providing unemployment insurance and other social security benefits. We should also offer her vouchers that allow her to send her children to school, college, or vocational training schools; the voucher could cover her own education if she is so inclined.

Second, we can make unemployed workers eligible for micro-finance loans that encourage them to start a small business of their own. Entrepreneurship is not a panacea, and is still riskier than having a stable job, but society can help shoulder the risk of failure with them.

Third, we must now embrace the idea of Universal Basic Income (UBI) to make sure that no one is hungry, without adequate healthcare or a roof over their heads. Such guarantees need not add to the taxpayers’ burden if we reallocate the existing transfers and subsidies that have favored the upper middle-class and the rich. We can begin by targeting agricultural subsidies and the tax-deductibility of corporate debt and mortgage interest.

Of course, entrenched interests will fiercely oppose such moves. But the Trump-led transformation into a protectionist and parochial society, if enacted, would be far worse. We can ignore a thousand years of history only at our own peril.

The post Want to Really Help Workers? Then Embrace Free Trade appeared first on Zócalo Public Square.

Californians may think we have a system of public education. But what we really have is a state system for rationing public education.

I got a personal taste of this in the spring, when I took my five-year-old son to our local school district offices to determine his educational future. This being California, the determination was made not by a test of his abilities or an assessment of his educational needs. Instead, it was a lottery. A school administrator pulled names out of the hat to determine whether he would get one of 24 coveted spots in our elementary school’s new Mandarin language program.

The month of September, early in a fresh academic calendar, is the time of year when we hear fine speeches and noble promises about how our state and its school districts are committed to doing the very best for every child. School superintendents and politicians often point to our state constitution’s commitment to universal education, which includes a funding requirement to deliver on that commitment. But when you experience how our schools operate, you learn quickly that such lofty, sweet sentiments and guarantees are so much Fang pi (a Mandarin approximation for cow dung).

In California, when it comes down to who gets precious educational resources, schools as a matter of policy and law leave much to chance.

We do this for two reasons: scarcity and avoidance. Educational resources here are scarce—there is simply more demand for schooling than the state’s wobbly budget system can accommodate. And so we’ve come to use lotteries and formulas, so that our officials can avoid the work of deciding who deserves resources, and so that the rest of us Californians can avoid reckoning with our collective failure to support public education.

Yes, it’s true that K-12 (and community college) education is the top spending item in the state budget, but there is no area in which our school spending—which remains below the national average despite recent increases—meets education needs.

By all reliable accounts, there aren’t nearly enough good, experienced teachers in our schools. The state offers only 180 days of instruction (when research suggests there should be more than 200 days and more hours of instruction), and only provides half-day kindergarten. And the inadequacy of newer programs and schools offered by some districts in the name of educational choice only underscore the ongoing scarcity. There are simply not enough Advanced Placement classes, career-readiness programs, charters, magnets, or language immersions to meet the demand for high-quality options.

There’s little hope of trying to do more to meet those needs. California long ago decoupled school funding from educational needs. Our school funding formulas, known collectively as Prop 98, are baked into the state constitution, and are driven by tax revenues, the budget, and income growth, not academic needs. Effectively, Prop 98 guarantees only a portion—you might say a ration—of the state budget to schools. (Tellingly, that money is supplemented by a small amount—usually $1 billion or less than 2 percent of annual education funding—from the state lottery).

So in the absence of funds to meet all our students’ needs, we turn to education’s version of lotteries to allot scarce resources. State law (mirroring federal guidance) directs school districts to use a lottery system for charter school admissions once the number of pupils who want to enroll exceeds the number of spaces. Districts with magnet programs do the same. Many of these lotteries have complicated rules and exclusions, often to help kids go to schools in their own neighborhoods, keep siblings together in the same school, or to make sure campuses are diverse. L.A. Unified has a system of points to govern its lottery for magnet school placement so complicated that a cottage industry (check out “Ask a Magnet Yenta” ) has sprung up to help parents navigate it.

Of course, such lotteries are not all that fair. The winners in lotteries are more likely to be the children of parents who have the time and resources to investigate their local educational possibilities, sign their children up for the lotteries and, in some cases, write letters or pursue strategies to help their chances.

And the lotteries raise a bigger question, now being debated in California’s courts. Does “random” allocation of educational resources really represent justice?

Earlier this summer, the California Supreme Court showed itself to be divided on the question. A 4-3 majority of justices refused to hear challenges to the state’s systems of hiring and firing public schoolteachers and funding schools. The challengers said that those systems were violating the rights of students, because they didn’t produce enough money and qualified teachers to meet the state constitution’s guarantees of education for all. But the Supreme Court majority, in declining to hear the challenges, endorsed the position that while there might be problems with funding and teachers, these weren’t constitutional problems—because the impact of bad policies was random and arbitrary, and not felt by any particular group of students.

Mariano-Florentino “Tino” Cuellar, a young associate justice of the Supreme Court, dissented powerfully from that logic. Curtailing access to educational opportunity, the justice argued, doesn’t become justifiable simply because it’s done arbitrarily.

“Arbitrary selection has at times been considered a means of rendering a governmental decision legitimate,” he wrote. “But where an appreciable burden results—thereby infringing a fundamental right [like the right to an education]—arbitrariness seems a poor foundation on which to buttress the argument that the resulting situation is one that should not substantially concern us.”

The brilliantly cynical filmmaker Orson Welles once said, “Nobody gets justice. People only get good luck or bad luck.” He wasn’t wrong—our parents, where and when we were born, the people we happen to meet, all influence the direction our lives take, through no fault or deed of our own.

My own son was lucky. His name was pulled 16th out of the hat, giving him a place he now enjoys in that Mandarin immersion kindergarten. His own luck will transfer to his younger brother, who is automatically eligible to join the program when he reaches kindergarten age.

But California is not as fortunate in leaning its educational system so heavily on luck. Our schools are supposed to be equalizers, helping counter the lottery of life. Instead, they are emulating it.

The post California’s Bad Bet on School Finance Leaves Too Much to Chance appeared first on Zócalo Public Square.

Inside the union hall and behind the big room used for banquets is a library named for Edward Tchakalian, an Armenian-American labor activist who uncovered a statewide scheme of paying janitors sub-minimum wages for long hours of work within the Ralphs, Albertsons, and Vons/Safeway grocery chains.

When I visited the hall recently, I met Juan Estrada, a shy man who’s worked as a janitor in Universal City for 18 years. He and six of his coworkers participate in what’s called a cundina. It is a lending circle, and a method to build savings. A cundina, also known as a tanda, which translates roughly to “taking a turn” or “doing a circle,” is a worldwide phenomena for poor people whose access to capital is limited. In Korean it is called kye, susu in West Africa and the Caribbean, juntas in Peru, and hui in China.

There are many variations of cundinas, but the easiest way to do it is to pool your resources. Typically each cundina takes contributions from at least six and as many as 12 people. Each participant contributes a certain amount monthly, from $50 to $200 or so. Then, you draw a number from 1 to 12. You receive the whole pot for the month that corresponds to the number you drew.

Estrada told me that he participated in a cundina back home in Guatemala. But this cundina was different for two reasons. First, it was established through Building Skills Partnership, a partnership between building owners, employers, and the union. And second, it’s connected with a bank called Mission Asset Fund. The bank reports the savings of the cundina members to credit agencies and allows the participants to build credit. (The participants also attend a credit class and learn about their credit histories). And the bank arranges things so that the cundina contributions and disbursements are automatically drawn and maintained through each of their bank accounts.

As a modern updating of an old tradition, the cundina epitomizes the union hall where it operates. “Union hall” may sound archaic, like a place where men in coveralls sit around and wait for their number to be called before heading to Walgreens for a malt. But SEIU-United Services Workers West is a different sort of union. It’s relatively young, forged by janitors who organized in L.A. office buildings in the 1980s and ‘90s. Today, its members are 40,000 security officers, janitors, and airport workers across the state. For this union, serving members means offering classes and training that allows them to build skills and gain power.

I’ve been spending time in union halls since I was a teenager who, having grown up in L.A.’s foster care system, was trying to find a voice and do something different. I’ve worked for unions, and even drove around the country visiting union halls. But I hadn’t encountered a union hall with programming quite like this.

Members of the cundina. From left to right: Dolores Santa Maria, Juan Estrada, Ana Velasquez, and Nynor Galindo.

On the day I visited the union hall, a group of janitors was taking an English as a Second Language class from an instructor from Los Angeles City College. They practiced vocabulary amidst some foldout tables, a low-hanging chandelier, some intricate curlicue molding on the ceiling, and, embossed on the walls, residual imprints of the funeral parlor. The union also offers computer literacy classes, citizenship classes, nutrition classes, a green janitor education program that teaches people how to clean in ways that produce less waste, and financial literacy classes.

The union’s emphasis on financial literacy, and its support of cundinas, is designed to counter payday lenders that are all too prevalent today, especially in poorer parts of Los Angeles. Dr. Steven Graves, a professor of geography at California State University, Northridge, has mapped the prevalence of payday lenders across L.A. Low-income areas with a high percentage of African American and Latino residents have many more payday lenders than other neighborhoods. Graves has mapped 50 payday lenders just in South Los Angeles.

The long-term consequences of the quick cash offered by these lenders can be severe. According to the Center for American Progress, one in five title loan borrowers will lose their car, one in four online payday loan borrowers’ bank accounts will close, and four out of five borrowers will need to borrow multiple times just to stay afloat.

Traditional cundinas are not always a beneficial alternative, however. Some people have shunned them for fear of getting scammed or someone taking off with their money. Dolores Santa Maria, another union member who participates in the cundina, told me, “I’ve never believed in a cundina before. There are many other people that leave with all the money. I always figured I can work on saving by myself.”

But she tried this one, and noticed that, as she built credit, she started to get offers of credit cards—she mentioned Best Buy—“because people can see I’m a responsible borrower and my credit is going up.”

Nynor Galindo, a now-retired janitor, participates in the cundina in part because there are no fees or interest payments. In response to every point made during the cundina gathering, Galindo would chime in, “And zero interest!” With the cundina, he and his partner Ana Velasquez were able to pay off all of their credit card debt 18 months earlier than expected and avoid high interest payments.

The collaborative nature of the cundina can make the difference. Estrada said when his family had an emergency in Guatemala, he was able to switch numbers with a friend in the cundina so he could collect his money in an earlier month and send it to his relatives.

Now with the help of the union’s cundina and financial literacy courses, Estrada is thinking far beyond payday—he’s saving up so he can buy a piece of property back home in Guatemala.

The post Inside a South L.A. Union Hall, a Tool for Saving Money—and for Fighting Predatory Payday Lenders appeared first on Zócalo Public Square.

When I got home, I dug into the mystery of these stone stumps, discovering the profoundly insecure time before Americans had Social Security, when anxieties about death and finances ran deep in the American psyche. In response to these fears, the Woodmen of the World order and its progenitor and competitor, the Modern Woodmen of America, made life insurance approachable and fun by packaging it in the familiar fraternal-order culture of the day. The two Woodmen societies succeeded in selling fraternal insurance where others failed, thanks to their innovations, which included offering distinct tombstones, flaunting ax-twirling pageantry, and holding clandestine rituals that involved slapstick pranks and mechanical goat rides. Today, both organizations still exist as insurance companies, but they’ve shed the fraternal antics. It’s hard to imagine their previous incarnations, which resembled a combination of LinkedIn, GoFundMe, and Jackass.

Death was everywhere in 19th-century America: Fatal injuries, disease epidemics, and the Civil War made families acutely aware of mortality. For women and children, the death of a husband and father could tumble them into poverty. Only the wealthiest Americans bought private life insurance. Women were not allowed to take out policies on their husbands, and if the husband bought the policy on himself, the money wouldn’t be protected from creditors.

And then, grieving families faced another layer of shame. In 19th-century America, taking charity was seen as a sign of weakness: The thinking was, if a lack of industriousness made you destitute, well, then you got what you deserved.

The middle and working classes did, however, have a workaround. Men could join secretive boy’s clubs like the Freemasons and Oddfellows that provided networking, entertainment, and a moral education. If a man proved himself to be hardworking and of good character through his initiation trials, his social standing meant his family could quietly receive financial support from the lodge without the stigma of accepting charity.

After the devastating Civil War, well-established fraternal orders began to formalize their benefits into insurance subsidiaries. New secret societies known as “mutual beneficiary societies,” created with the explicit purpose of offering life insurance policies, sprang up around the United States. Largely excluded from the original fraternal orders, women and African-Americans even launched their own aid societies. Still, to join any fraternal order and receive its insurance benefits you had to prove that you were no slouch—a hard worker with high morals such as thrift, self-reliance, discipline, and generosity.

But it wasn’t all about restraint. Before the days of TV, radio, or fantasy football, fraternal lodges offered plays, rituals, and camaraderie and allowed men to let loose, which kept members coming back for more. The clout of being an insider and the endless pursuit of mystical, esoteric knowledge ensured that men would make their insurance payments for decades to come. The payouts were between $1,000 and $2,000, a lot of money at the time.

The Woodmen came late to the party—incorporating in 1883 as the Modern Woodmen of America—but their leaders’ entrepreneurial innovations breathed new life into the fraternal insurance game. Founder Joseph Cullen Root, a businessman in Lyons, Iowa, seized the opportunity to create his own fraternal order when the mutual aid society Knights of Honor, which almost went under because of the 1878 Yellow Fever epidemic, was selling its local lodge.

To avoid the financial pitfall that wrecked the Knights, Root made fitness a requirement to join his order, recruiting rural young men from the “healthiest states,” which meant those outside industrial New England. In the Woodmen, he fused Christian philosophy and pioneer values with ancient agricultural rites. “At that time, Root’s thought was that a cleared conscience and a cleared forest were synonymous,” says Bruce Lee Webb, who co-authored the 2015 book, As Above, So Below: Art of the American Fraternal Society with Lynne Adele. “The axe is an instrument clears the forest but is also useful for constructing buildings and making progress.”

Wielding aluminum-headed axes, members of Modern Woodmen lodges formed marching units known as the Foresters that performed precision drill routines in military-like uniforms. Eventually, there were roughly 10,000 drill teams nationwide. Dave Lettelier, curator of the Phoenixmasonry Museum in Havana, Florida, says that such pageantry appealed to young men who’d grown up in awe of Civil War heroes. The fraternal beneficiary societies made signing up for insurance seem glamorous.

After an internal dispute with the other Modern Woodmen of America leaders, Root left the organization in 1890 and moved to Omaha to form a nearly identical “speculative woodcraft” order: the Woodmen of the World. One of his innovations was to provide free tombstones—Root believed passionately that no member of his order should be buried in an unmarked grave. So for 10 years, the Woodmen gave its members grave markers in the shape of tree stumps, inspired by the Victorian Rustic movement. (For another two decades, the members put down $100 apiece to reserve theirs.) At a Woodman’s funeral, his personalized tombstone would be revealed in an elaborate ritual. The 4- or 5-foot-tall tree stump would be marked with the motto “Dum Tacet Clamet” (“Though Silent, He Speaks”) and rest on a stack of logs, each log symbolizing one of the deceased’s children. The local stone carver, who might alter the pattern, would add embellishments reflecting the Woodman’s personality, such as axes and doves.

The Woodmen tweaked another feature of the fraternal orders, most of which had solemn initiation rituals, loosely based on old Masonic ceremonies that symbolically forced recruits to confront their own mortality. Most societies had some macabre obstacle courses that ended with the young man facing a human skeleton lit by candles. According to As Above, So Below, in an early Woodmen of the World initiation, the blindfolded candidate wore weights symbolizing the “selfishness,” “hatred,” and “prejudice” he had to shed as he navigated a “dangerous path,” which involved wood boards on rollers, before he was allowed to see “the light of Woodcraft.”

The Modern Woodmen took such rites to new levels. They’d challenge recruits to put their hands in (fake) molten lead. Others were subjected to spanking machines and collapsing chairs. The Ferris Wheel Coaster Goat, patented and sold by a company co-owned by Modern Woodman member Ed DeMoulin, would flip the unsuspecting rider upside down and fire blanks from its rear.

What did a slapstick goat gag have to do with selling insurance? Everything. Besides reminding recruits that death was always at the door, the Woodmen “had to come up with all kinds of gimmicks to get people to join,” Lettelier explained. “When an initiate had to ‘ride the goat,’ everybody else would sit around the lodge room and have a big belly laugh. … If you ‘rode the goat,’ then you were in with the clique. Then that new member would bring in his buddies so the Woodmen could prank them. What it did was help build their insurance company.”

A group photo of Woodmen of the World with their goat mascot

Thanks to pranks like these—soon adopted by other societies—fraternal-order membership reached its peak or “golden age” in the United States between 1890 and 1930, with as many as one-third of American men belonging to at least one secret society. While that’s impressive, it still means about two-thirds of American families did without such a safety net.

The Great Depression killed the fraternal insurance business in two ways. First, many men were unable to make their payments. Secondly, FDR’s New Deal created Social Security in 1935, filling the need aid societies once met. Radio, movies, and TV supplied the entertainment that the orders once provided. Woodmen of the World embraced these new media in Omaha, establishing a radio channel and a TV station—which launched the career of a local comedian named Johnny Carson—before both were sold to Meredith Corporation in 1958. Today, the Woodmen groups have become all-inclusive not-for-profit insurance companies: WoodmenLife in Omaha and Modern Woodmen Fraternal Financial in Rock Island, Illinois. Unlike for-profit insurance companies, they put profits back into their members’ communities with programs for senior citizens, people with disabilities, and orphans.

“We still have an active Woodmen of the World lodge here in Waxahachie, Texas,” Webb says. “I’ve talked to them, and they said that they no longer do the different degrees. They meet once a month for a little banquet where they discuss their insurance premiums.” The goats, the costumes, and the rituals are long gone.

The post When Secret Societies Sold Life Insurance appeared first on Zócalo Public Square.

And so, though I’m not rich or famous, as a retired California state worker I’m reasonably secure. I get a modest but safe state pension which, coupled with Social Security and a veteran’s disability check, gives me about 70 percent of what I made while working. That keeps food on the table and the wolves away from my door. I also get good health care coverage through a comprehensive Kaiser Medicare Advantage plan coupled with state paid supplemental benefits.

You may have heard that the retirement costs of workers like me are a fiscal problem for the state and the country. They are not. The real problem is the opposite: I’m becoming a rarity.

Fewer and fewer workers can expect or aspire to the modest retirement I have. The number of people receiving secure pensions has been in decline for at least 30 years; the number of pension plans of any sort today is just a quarter of what the number was in 1984.

Retirement security declined sharply in the Great Recession, in 2008 and just after, when Americans on the verge of retirement—ages 55 to 64—lost a third of their net worth. Younger boomers lost even more. Today, over 23 million Americans who are 60 and older are economically insecure, living at or below 250 percent of the federal poverty level. Five years ago, only one in five private sector workers enjoyed the sort of traditional defined benefit pension plan that supported our parents and grandparents for as long as they lived. Today, as companies eliminate such plans even more rapidly, the number is down to one in seven.

The outlook for the future is even bleaker. Back in 1991, half of all American workers planned to retire before they reached the age of 65. Today, that number is 23 percent.

In 2008, the US Government Accountability office reported that half of all companies that still have the old, secure defined benefit pension plans are freezing them and forcing newer employees into much less secure defined contribution plans. The GAO predicted that the remaining secure private sector pensions would be gone within a few years. And then there’s Social Security, which makes up about 38 percent of total income for the elderly, and for 1 in 3 retirees, it is their only income source.

Moreover, the Social Security fund will be exhausted within decades. After that time, contemporaneous money paid into the fund will be enough to pay only about 75 percent of benefits. As Social Security’s most recent annual report warns, the window for making changes to stabilize the fund is small and closing soon. All this spells a cold, hard old age for our children and grandchildren.

The reality of that cataclysm hit home to me not long ago when I was waited on at a fast food place by a sweet old lady maybe ten years older than I am. I imagine her pay was not much above minimum wage, say $8 an hour. (Maybe I’m wrong and she owned the franchise, but she looked frail and arthritic and hardly appeared to be the boss.) Those are poverty line wages and I would shudder to think that my fellow Boomer retirees are headed for a similar existence.

Public employees have not been spared from the attack on retirement security. The pensions of those of us who served the public are increasingly at risk. Recent polls show that here in my state of California, many people, alarmed by supposedly common $100,000 pensions, now believe that public pensions are too large and that those pensions threaten the solvency of state government.

In reality, 98 percent of public retirees barely get by on modest pensions. Half get less than $1,500 a month and many—teachers and public safety workers among them – do not even receive Social Security.

One would think that private sector workers, having seen their own pensions trashed, would stand at the barricades along with public workers to protect public pensions, if only to rebuild support for secure pensions as a whole. Instead, antipathy toward public workers seems on the rise.

Who’s hurt? Minorities, for one. African Americans are 30 percent more likely to be public employees than any other race. So, let public pensions shrink and African Americans will be disproportionately affected. The same will almost certainly be true for Latinos, whose retirement savings are about half those of non-Latino whites.

Finally comes the issue of OPEB, Other Post-Employment Benefits, principally health care. Here is where my own greatest concern lies. While my pension is secure for the foreseeable future, my health care coverage could be revoked at any time. It is at the mercy of our elected leaders and the voters. Like most public employers in the US, California does not set aside money in advance to cover health care for its retirees. It is pay as you go. The state budget has recovered from the awful effects of the Great Recession, but nothing says that we won’t face another similar fiscal mess. If so, non-guaranteed costs like retiree health benefits could be among the first things tossed overboard. National estimates of unfunded public retiree health costs run from $1.2 trillion to $2 trillion.

This January, in a unanimous decision, the US Supreme Court threw out previous dicta guaranteeing vested lifetime health benefits for retirees and sent the issue back to a lower court to determine how or even if such a lifetime guarantee should apply. Few private employers provide such coverage and the decision is likely to end even that. Public sector workers may fare little better. Here in California some state workers with sufficient service credit at retirement now receive full employer paid health coverage. Because of the Supreme Court’s action, such continued coverage is likely to be a significant bargaining issue in future contract negotiations.

A piece in the San Francisco Chronicle notes that the Affordable Care Act may be the savior of retiree health benefits. Governments could simply eliminate their retirees’ health benefits and instead give them a subsidy to buy health coverage under Obamacare, thus turning a program to ensure all Americans have health coverage into a bailout for strapped or fiscally irresponsible governments. Detroit, as part of its bankruptcy plan, will stop providing health care to retirees not yet eligible for Medicare, the Chronicle noted, and instead give them each a stipend to buy insurance in the Obamacare exchange. Other cash-poor governments will likely follow suit.

My own pension is probably not at risk. The California Public Employees Retirement fund is solvent and well-managed. I’m old enough for Medicare and the small additional amount the state pays for my Medicare supplement is affordable for it. But I fear greatly for those coming after me. I certainly do not want, in my senior years, to have to see oldsters from Gen X and beyond (my kids included) flipping burgers to supplement their meager retirement savings. Or worse, facing what Shakespeare described: mere oblivion, sans teeth, sans eyes, sans taste, sans everything. And, he might have added, sans health care and pension, too.

The post My Modest Retirement Is Not Bankrupting America appeared first on Zócalo Public Square.