Legal Reform = Job Creation

We all agree that the number one priority in this state and nation should be job creation. However, it seems like some people are more focused on spending money than saving money, at the expense of job creation.

A new study published by the U.S. Chamber Institute for Legal Reform called Creating Conditions for Economic Growth: The Role of the Legal Environment sheds some light on how the high cost of tort systems in the United States is raising the cost of doing business and hurting job creation. This study is based on a data set of state liability costs never before made available to public policy researchers, which provides an excellent basis for a reliable state-by-state comparison of costs.

I have often cited the Pacific Research Institute’s U.S. Tort Liability Study, which stated that just one tort reform in California would create 141,000 jobs. This study, looking at updated data, concludes the same thing: improvements in states with the costliest legal environments could increase employment between 1% and 2.8%. In California, that could mean more than a quarter million jobs.

Will this latest study simply be placed on a bookshelf with all the other studies and rankings or will someone (in the Legislature or Governor’s office) clue in and get it? We need to make legal reform part of California’s jobs package and thoroughly examine our regulations so we can get California back on track.

It is pretty clear that if we want people to invest or expand businesses in our state, we need to make the business climate more inviting. Right now, it is fair to say (and many CEOs agree) California’s business climate is among the worst in the nation. Legal and regulatory reform will create a positive business climate where investors will come and build.

Are you listening California? Legal reform = Jobs. Don’t just take my word for it – there are plenty of materials you can read to back it up.

(Tom Scott is the Executive Director for California Citizens Against Lawsuit Abuse.  This article was first featured in Fox & Hounds.)

How the wealth of the “1%” provides the standard of living for the “99%”

The protesters in the Occupy Wall Street Movement and its numerous clones elsewhere in the country and around the world chant that one percent of the population owns all the wealth and lives at the expense of the remaining ninety-nine percent. The obvious solution that they imply is for the ninety-nine percent to seize the wealth of the one percent and use it for their benefit rather than allowing it to continue to be used for the benefit of the one percent, who are allegedly undeserving greedy capitalist exploiters. In other words, the implicit program of the protesters is that of socialism and the redistribution of wealth.

Putting aside the hyperbole in the movement’s claim, it is true that a relatively small minority of people does own the far greater part of the wealth of the country. The figures “one percent” and “ninety-nine” percent, however exaggerated, serve to place that fact in the strongest possible light.

What the protesters do not realize is that the wealth of the one percent provides the standard of living of the ninety-nine percent.

The protesters have no awareness of this, because they see the world through an intellectual lens that is inappropriate to life under capitalism and its market economy. They see a world, still present in some places, and present everywhere a few centuries ago, of self-sufficient farm families, each producing for its own consumption and having no essential connection to markets.

In such a world, if one sees a farmer’s field, or his barn, or plow, or draft animals, and asks who do these means of production serve, the answer is the farmer and his family, and no one else. In such a world, apart from the receipt of occasional charity from the owners, those who are not owners of means of production cannot benefit from means of production unless and until they themselves somehow become owners of means of production. They cannot benefit from other people’s means of production except by inheriting them or by seizing them.

In the world of the protesters, means of production have the same essential status as consumers’ goods, which as a rule are of benefit only to their owners. It is because of this that those who share the mentality of the protesters typically depict capitalists as fat men, whose plates are heaped high with food, while the masses of wage earners must live near starvation. According to this mentality, the redistribution of wealth is a matter merely of taking from the overflowing plates of the capitalists and giving to the starving workers.

Contrary to such beliefs, in the modern world in which we actually live, the wealth of the capitalists is simply not in the form of consumers’ goods to any great extent. Not only is it overwhelmingly in the form of means of production but those means of production are employed in the production of goods and services that are sold in the market. Totally unlike the conditions of self-sufficient farm families, the physical beneficiaries of the capitalists’ means of production are all the members of the general consuming public who buy the capitalists’ products.

For example, without owning so much as a single share of stock in General Motors or Exxon Mobil, everyone in a capitalist economy who buys the products of these firms benefits from their means of production: the buyer of a GM automobile benefits from the GM factory that produced that automobile; the buyer of Exxon’s gasoline benefits from its oil wells, pipelines, and tanker trucks. Furthermore, everyone benefits from their means of production who buys the products of the customers of GM or Exxon, insofar as their means of production indirectly contribute to the products of their customers. For example, the patrons of grocery stores whose goods are delivered in trucks made by GM or fueled by diesel oil produced in Exxon’s refineries are beneficiaries of the existence of GM’s truck factories and Exxon’s refineries. Even everyone who buys the products of the competitors of GM and Exxon, or of the customers of those competitors, benefits from the existence of GM’s and Exxon’s means of production. This is because GM’s and Exxon’s means of production result in a more abundant and thus lower-priced supply of the kind of goods the competitors sell.

In other words, all of us, one hundred percent of us, benefit from the wealth of the hated capitalists. We benefit without ourselves being capitalists, or being capitalists to any great extent. The protesters are literally kept alive on the foundation of the wealth of the capitalists they hate. As just indicated, the oil fields and pipelines of the hated Exxon corporation provide the fuel that powers the tractors and trucks that are essential to the production and delivery of the food the protesters eat. The protesters and all other haters of capitalists hate the foundations of their own existence.

The benefit of the capitalists’ means of production to non-owners of means of production extends not only to the buyers of the products of those means of production but also to the sellers of the labor that is employed to work with those means of production. The wealth of the capitalists, in other words, is the source both of the supply of products that non-owners of the means of production buy and of the demand for the labor that non-owners of the means of production sell. It follows that the larger the number and greater the wealth of the capitalists, the greater is both the supply of products and the demand for labor, and thus the lower are prices and the higher are wages, i.e., the higher is the standard of living of everyone. Nothing is more to the self-interest of the average person than to live in a society that is filled with multi-billionaire capitalists and their corporations, all busy using their vast wealth to produce the products he buys and to compete for the labor he sells.

Nevertheless, the world the protesters yearn for is a world from which the billionaire capitalists and their corporations have been banished, replaced by small, poor producers, who would not be significantly richer than they themselves are, which is to say, impoverished. They expect that in a world of such producers, producers who lack the capital required to produce very much of anything, let alone carry on the mass production of the technologically advanced products of modern capitalism, they will somehow be economically better off than they are now. Obviously, the protesters could not be more deluded.

In addition to not realizing that the wealth of the so-called one percent is the foundation of the standard of living of the so-called ninety-nine percent, what the protesters also do not realize is that the “greed” of those who seek to become part of the one percent, or to enlarge their position within it, is what serves progressively to improve the standard of living of the ninety-nine percent.

Of course, this does not apply to wealth which has been acquired by such means as obtaining government subsidies or preventing competition through protective tariffs and other forms of government intervention. These are methods which are made possible to the extent that the government is permitted to depart from a policy of strict laissez-faire and thereby arbitrarily reward or punish firms.

Apart from such aberrations, the way that business fortunes are accumulated is by means of the high profits generated by the introduction of new and improved products and more efficient, lower-cost methods of production, followed by the heavy saving and reinvestment of those high profits.

For example, the $6 billion fortune of the late Steve Jobs was built on a foundation of Mr. Jobs having made it possible for Apple Computer to introduce such new and improved products as the iPod, the iPhone, and the iPad, and then heavily saving and reinvesting the share of the profits that came to him.

Two closely related points need to be stressed. First, the fortunes that are accumulated in this way generally serve in the larger-scale production of the very sort of products that provided the profits out of which their accumulation took place. Thus, for example, Jobs’ billions serve largely in the production of Apple’s products. Similarly, old Henry Ford’s great personal fortune, earned on the foundation of introducing major improvements in the efficiency of automobile production, which brought down the price of a new automobile from about $10,000 at the beginning of the 20th Century to $300 in the mid 1920s, was used to make possible the production of millions of Ford automobiles.

Second, the high rates of profit earned on new and improved products and methods of production are temporary. As soon as the production of the new product or use of the new method of production becomes the norm in an industry, it no longer provides any exceptional profitability. Indeed, further improvements again and again render earlier improvements downright unprofitable. For example, the first generation of the iPhone, which was highly profitable just a few years ago, is or soon will be unprofitable, because further advances have rendered it obsolete.

As a result, the accumulation of great business fortunes generally requires the introduction of a series of improvements in products or methods of production. This is what is required to maintain a high rate of profit in the face of competition. For example, Intel’s ability to maintain its high rate of profit over the years has depended on its ability to introduce one substantial improvement in its computer chips after another. The net effect has been that computer users have gotten the benefit of improvement after improvement not only at no rise but a drastic decline in the prices of computer chips. Insofar as high profits rest on low costs of production, competition drives prices down to correspond to the lower level of costs, which necessitates the achievement of still further cost reductions to maintain high profits.

The same outcome, of course, applies not only to Intel and microprocessors but also to the rest of the computer industry, where gigabytes of memory and terabytes of hard drive data storage now sell at prices below the prices of megabytes of memory and hard drive data storage just a couple of decades ago. Indeed, if one knows how to look, the principle of ever more and better products for less and less applies throughout the economic system. It is present in the production of food, clothing, and shelter as well as in the high tech industries, and in virtually all industries in between.

It is present in these industries even though the government’s inflation of the money supply has caused the prices of their products to rise sharply over the years. Despite this, when calculated in terms of the amount of labor the average person must expend in order to earn the wages needed to enable him to buy these products, their prices have sharply fallen.

This can be seen in the fact that today, the average worker works 40 hours per week, while a worker of a century or so ago worked 60 hours a week. For the 40 hours he works, the average worker of today receives the goods and services comprising the average standard of living of 2011, which includes such things as an automobile, refrigerator, air conditioner, central heating, more and better living space, more and better food and clothing, modern medicine and dentistry, motion pictures, a computer, cell phone, television set, washer/dryer, microwave oven, and so on. The average worker of 1911 either did not have these things at all or had much less of them and of poorer quality.

If we describe the goods and services received by the average worker of today for his 40 hours of labor as being 10 times as great as those received by the average worker of 1911 for his 60 hours of labor, then it follows that expressed in terms of the amount of labor that needs to be performed today in order to be able to buy goods and services equivalent to the standard of living of 1911, prices have fallen to two-thirds of one-tenth of their level in 1911, i.e., to one-fifteenth of their level in 1911, which is to say, by 93 1/3 percent.

Capitalism—laissez-faire capitalism—is the ideal economic system. It is the embodiment of individual freedom and the pursuit of material self-interest. Its result is the progressive rise in the material well-being of all, manifested in lengthening life spans and ever improving standards of living.

The economic stagnation and decline, the problems of mass unemployment and growing poverty experienced in the United States in recent years, are the result of violations of individual freedom and the pursuit of material self-interest. The government has enmeshed the economic system in a growing web of paralyzing rules and regulations that prohibit the production of goods and services that people want, while compelling the production of goods and services they don’t want, and making the production of virtually everything more and more expensive than it needs to be. For example, prohibitions on the production of atomic power, oil, coal, and natural gas, make the cost of energy higher and in the face of less energy available for use in production, require the performance of more human labor to produce any given quantity of goods. This results in fewer goods being available to remunerate the performance of any given quantity of labor.

Uncontrolled government spending and its accompanying budget deficits and borrowing, along with the income, estate, and capital gains taxes, all levied on funds that otherwise would have been heavily saved and invested, drain capital from the economic system. They thus serve to prevent the increase in both the supply of goods and the demand for labor that more capital in the hands of business would have made possible. They have now gone far enough to have begun actually to reduce the supply of capital in the economic system in comparison with the past.

Capital accumulation is also impaired and can ultimately be turned into capital decumulation, through the effects of additional government regulation in raising the costs of production and thus reducing its efficiency. This applies to practically all of the regulations imposed by the Environmental Protection Agency, the Occupational Safety and Health Administration, the Consumer Product Safety Commission, the National Labor Relations Board, the Food and Drug Administration, and the various other government agencies. The effect of their regulations is that for any given amount of labor performed in the economic system, there is less product than would otherwise be produced.

Now anything that serves to reduce the ability to produce in general, serves also to reduce the ability to produce capital goods in particular. Because of such government interference, any given amount of labor and capital goods devoted to the production of capital goods results in a smaller output of capital goods, just as any given quantity of labor and capital goods devoted to the production of consumers’ goods results in a smaller output of consumers’ goods. At a minimum, the reduced supply of capital goods produced serves to reduce the rate of economic progress. A reduction in the supply of capital goods produced great enough to prevent the addition of any increment to the previously existing supply of capital goods, and thus to put an end to capital accumulation, brings economic progress to a complete halt. A still greater reduction, one that renders the supply of capital goods produced less than the supply being used up in production, constitutes capital decumulation and thus a decline in the economic system’s ability to produce. As indicated, the United States already appears to be at this point.

The problem of capital decumulation has been greatly compounded as the result of massive credit expansion induced by the Federal Reserve System and its policy of easy money and artificially low interest rates. This policy led first to a great stock market bubble and then a vast housing bubble, as large quantities of newly created money poured into the stock market and later the housing market. Between these two bubbles, trillions of dollars of capital were lost. In both instances, vast overconsumption occurred as people raced to buy such things as new automobiles, major appliances, vacations, and all kinds of luxury goods that they would not have believed they could afford in the absence of the effects of credit expansion, often incurring substantial debt in the process.

In the one case, it was the artificial rise in stock prices that misled people into believing that they could afford these things. In the other, it was the artificial rise in home prices that produced this result. The seeming wealth vanished with the fall in stock prices and then again, later, with the fall in housing prices. In the housing bubble, moreover, millions of homes were constructed for people who could not afford to pay for them. All of this represented a huge loss of capital and thus of the ability of business to produce and to employ labor. It is this loss of capital that is responsible for our present problem of mass unemployment.

Despite this loss of capital, unemployment could be eliminated. But given the loss of capital, what would be required to accomplish this is a fall in wage rates. This fall, however, is made virtually illegal as the result of the existence of minimum-wage laws and pro-union legislation. These laws prevent employers from offering the lower wage rates at which the unemployed would be reemployed.

Thus, however ironic it may be, it turns out that virtually all of the problems the Occupy Wall Street protesters complain about are the result of the enactment of policies that they support and in which they fervently believe. It is their mentality, the Marxism that permeates it, and the government policies that are the result, that are responsible for what they complain about. The protesters are, in effect, in the position of being unwitting flagellants. They are beating themselves left and right and as balm for their wounds they demand more whips and chains. They do not see this, because they have not learned to make the connection that in violating the freedom of businessmen and capitalists and seizing and consuming their wealth, i.e., using weapons of pain and suffering against this small hated group, they are destroying the basis of their own well being.

However much the protesters might deserve to suffer as the result of the injury caused by the enactment of their very own ideas, it would be far better, if they woke up to the modern world and came to understand the actual nature of capitalism, and then directed their ire at the targets that deserve it. In that case, they might make some real contribution to economic well being, including their own.

(George Reisman, Ph.D. is Pepperdine University Professor Emeritus of Economics, a Senior Fellow at the Goldwater Institute, and the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996). His website is www.capitalism.net and his blog is georgereismansblog.blogspot.com.)

Fake Teacher Evaluation Racket Busted in Los Angeles

Parents sue the LA school board and teachers union, forcing them to obey a law that they have ignored for 40 years.

There is nothing new about unions bullying weak-kneed school districts, but this may be the mother of all abuses– for forty years, school districts and unions have collaborated to break the law in California. According to the Stull Act (Section 44660 of the state’s education code), part of a teacher’s evaluation is required to include a student achievement component, but this has not happened anywhere in the state. Last week, after consulting with EdVoice, a reform advocacy group in Sacramento, parents of some students in Los Angeles Unified School District sued the school district and the teachers union for what amounts to a dereliction of duty. While the lawsuit is aimed at LA, it will have state-wide ramifications.

Originally enacted in 1971, the Stull Act, named after State Senator John Stull, was amended in 1999 to include,

“The governing board of each school district shall evaluate and assess certificated employee performance as it reasonably relates to:

The progress of pupils toward the standards established pursuant to subdivision (a) and, if applicable, the state adopted academic content standards as measured by state adopted criterion referenced assessments….”

In other words, a part of a teacher’s evaluation is supposed to be contingent on how well his students do on state mandated tests. This is hardly a radical notion, as half the states in the rest of the country now evaluate teachers in part by student performance on these tests.

But in California, what are laughingly referred to as “teacher evaluations” are anything but.  A “Stull” is typically a very rare and brief visit from a principal who helps plan the lesson they will observe and lets the teacher know exactly when the observation will be. And all the while, the teacher is prepping his kids to be at their absolute best when the principal steps into the classroom for the evaluation. Invariably everything goes swimmingly. So consistently good are the results of these Potemkin Village-style “evaluations” that over 99 percent of teachers get a satisfactory rating.

Teachers unions think that linking student performance to a teacher’s evaluation is a grave injustice and have always fiercely opposed it.

In reality, holding a teacher accountable for student learning is about as unjust as holding a chef responsible for the food he cooks.

Still, the teachers unions’ position is understandable because their unions have never demonstrated any real concern for students.

But what about the folks who sit at the other end of the bargaining table? What is the excuse for the school boards? Are they all that easily cowed by union bullies? Or are they part of a club that has forgotten their mission? Are they corrupt? Can they be ignorant of the law? Some or all of the above?

In any event, with judicial lights shining brightly, the jig is up…sort of. What the education code does not stipulate is how much weight to give the student performance component. Therein lies the rub. Without doubt, the teachers unions will negotiate to minimize it to near zero, with little or no consequence for the bottom performing teachers (to the unions, there is no such thing as a bad teacher, and they’ve rigged the system so that getting rid of a stinker is about as prevalent as the occurrence of Halley’s Comet).

If the intent of this lawsuit is seriously embraced, it could have a major impact in California, where a third of all students drop out before completing high school and a great majority of those who do graduate and go on to college need remediation.

Will school boards finally man up and take action to reverse a forty year shame?

Or will they cower and cave, yet again, to union demands and turn their backs on the children of California?

(Larry Sand is the president of the non-profit California Teachers Empowerment Network – a non-partisan, non-political group dedicated to providing teachers with reliable and balanced information about professional affiliations and positions on educational issues. This story was first posted on Red County and can be found here.)

No Education without Representation: how special interests are robbing our students’ futures

The U.S. Education Department’s National Center for Educational Statistics on Tuesday released what it calls the Nation’s Report Card. The compilation of student test scores nationwide reflected a 1 percent improvement by fourth- and eighth-graders in mathematics but essentially no improvement in reading proficiency.

While the tiny improvement in math marks the highest scores in the history of the test, what makes the results troubling is that only 40 percent of fourth-graders and barely 35 percent of eighth-graders tested proficient in math and roughly one-third proficient in reading.

Shortly after the release of the Nation’s Report Card, Michelle Rhee, an education reformer and former head of the public schools in the District of Columbia, called me to discuss the state of education in the United States and what ought to be done to improve public schools. Rhee made headlines for her tough, data-driven approaches to education reform and battles against teachers unions in D.C. which eventually led to her resignation after unions spent significant resources to unseat Mayor Adrian Fenty, who hired Rhee. Rhee also was featured in the acclaimed education reform documentary “Waiting for ‘Superman.'”

(Read Full Story)

(Brian Calle is an Opinion Columnist and Blogger for the Orange County Register. His blog is called Uncommon Ground.)

Pension initiative faces two tests: funding, courts

A pension reform group that filed two versions of an initiative yesterday faces two tests: raising $3 million to place the proposal on the November ballot next year, and a court battle over making current workers pay more for their pensions if the measure passes.

As public pension costs have risen while government services are being cut in a weak economy, the reform group has filed initiatives in the past, which failed to attract funding even though some polls have shown 70 percent support for pension reform.

This time the group, now led by Dan Pellissier, raised $250,000 for polling and legal experts before filing initiatives designed to withstand court challenges and quickly cut government pension costs, particularly important for some struggling cities.

He said the next step is to raise about $3 million, enough to pay for a drive to gather 1.3 million voter signatures and provide a cushion well above the minimum needed to place a state constitutional amendment on the ballot.

“Not today,” Pellissier said, when asked at a news conference if the group had the money. “But we have some commitments for future funding, and we have what we think is a good path in order to raise that amount of money.”

He said George Shultz, a former U.S. secretary of state in the Reagan administration, is a part of the campaign team and “has a tremendous amount of influence with major donors.”

In addition, Mike Genest, a finance director for former Republican Gov. Arnold Schwarzenegger, said he was “happy to be part of what’s become a pretty large coalition of people who have been trying for quite some time to make some progress on this issue.”

Aaron McLear, Schwarzenegger’s former press secretary, told the news conference fundraising should be aided by having agreement among reformers, who have not always been “on the same page,” and a firm proposal to show potential donors.

But some separation quickly emerged when Marcia Fritz, president of the California Foundation for Fiscal Responsibility, told the Sacramento Bee she was “not a part of this,” even though she was mentioned at the news conference.

The California Pension Reform group led by Pellissier is a spin-off from the foundation founded by the late former Assemblyman Keith Richman, R-Northridge. Pellissier, a former Richman aide, said the initiative is a Richman “legacy.”

Fritz article in the Los Angeles Times yesterday urged legislators to find “common ground” for taxpayers and public employees “within the framework” of a pension reform proposed by Gov. Brown, some parts requiring voter approval.

Pellissier and Genest said the governor’s plan needs to be “more aggressive.” They were skeptical that Democratic legislative legislators and their union allies will agree to the governor’s plan, much less add more cuts in employer costs.

“It is possible, very unlikely, that the Legislature could pass something that would be strong enough to have our team decide that we would not move ahead with our proposal,” said Pellissier.

Brown’s proposal is designed to avoid a court challenge on a key issue: The widely held view that court rulings mean pensions promised state and local government employees on the date of hire can’t be cut without a new benefit of equal value.

The reform group’s plan is designed to withstand a court challenge because current workers could be required to “pay more for their same benefits and for a share of unfunded liabilities.”

In the reform group’s initiatives a curb on “spiking” (boosting pensions by cashing out unused sick leave, vacation time and other things to increase final pay) covers current workers, not just new hires as in the governor’s proposal.

Fritz’s article mentions a curb of one “abuse” that is in the governor’s plan but not in the reform’s group plan: a limit on “double-dipping” or the collection of a government pension and paycheck.

“We think there are some issues with folks who retire and their life circumstances change,” Pellissier said. “Their spouse dies and they have obligations they have to meet. We weren’t really comfortable weighing in heavily on double-dipping.”

Like the governor’s plan, the reform group’s initiatives have curbs on other abuses: retroactive benefit increases, the purchase of service credits or “air time” to boost pensions, and contribution “holidays” or reductions for employers and employees.

But the big difference is that the governor’s plan calls for “equal sharing” by employers and employees of the “normal” pension costs, what actuaries say is needed to pay for the current year.

That does not include the debt or “unfunded liability” that soared after the stock market crash and a weak economy dropped investment earnings well below the typical pension fund forecast, 7.75 percent, which critics say is too optimistic.

The governor’s budget last May estimated that the unfunded liability for the three state pension funds (CalPERS, CalSTRS and UC Retirement) was $121 billion over the next 30 years, not counting an additional $60 billion for retiree health.

A Stanford graduate student report last year, using a lower earning forecast of 4.1 percent, estimated that the unfunded liability for the three state retirement systems is about $500 billion.

The reform group’s initiatives address the unfunded liability by requiring equal “normal” cost contributions for employer and employees, except when the funding level of the system drops below 80 percent using federal private-sector pension standards.

Then government contributions to the normal cost would be limited to 6 percent of pay for most workers and 9 percent for police and firefighters. Employees would pick up the remainder of the normal cost until funding returns to 80 percent, potentially a significant increase over time.

Pellissier said employee contributions would be limited to an increase of 3 percent of pay a year. Current employees would have the option of switching to a lower-cost plan for new hires.

The original version of the initiative gives new hires a 401(k)-style plan. The alternative version would give new hires a “hybrid” similar to the governor’s proposal that combines a lower pension with a 401(k)-style plan and Social Security, if available.

Many public pension systems are below 80 percent funding now using government standards. Pellissier estimated that switching to private-sector standards could drop funding an additional 10 to 15 percent.

The reform group expects to pick one version of the initiative after they receive titles and summaries and an analysis by the Legislative Analyst, probably a week before Christmas.

Pellissier said the goal is to begin circulating petitions for signatures in early January. He said the signatures should be submitted by April 20 to ensure qualification for the November ballot.

(Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. This story was originally posted on Calpensions.)

The Union’s Occupation

Until recently, it’s been tough to pinpoint precisely where Occupy Los Angeles ends and public-employee union activism begins. For weeks, a large contingent of teachers’ union activists has mingled among the several hundred progressive malcontents encamped on the north lawn of Los Angeles City Hall. But the emergence of a new movement—“Occupy LAUSD”—will just about obliterate any distinctions between the two groups. Last week, 500 Los Angeles Unified School District teachers marched about a mile to demonstrate in front of their district’s headquarters. A few dozen hard-core activists joined them, camping out for five days before ending the “occupation” Saturday with a large union pep rally.

Truth is, parents and taxpayers—to say nothing of thousands of hard-working teachers—have plenty to gripe about. L.A. Unified is a picture of dysfunction, bureaucratic bloat, and massive waste. The second-largest school district in the United States, LAUSD has a $7 billion budget and enrolls (“educates” isn’t quite the word) around 600,000 students. The district is home to both the glistening, half-billion-dollar Robert F. Kennedy Community Schools complex, opened last year on the former site of the Ambassador Hotel (where Kennedy was assassinated in 1968), and Locke High School, one of the worst-performing high schools in California. Only 55 percent of LAUSD students graduate from high school after four years. The district is hindered, in large part, by its 350-page contract with United Teachers Los Angeles (UTLA), which enshrines seniority over quality and leaves younger, tatealented teachers most vulnerable to pink slips. Yet as Los Angeles education blogger Anthony Krinsky notes, despite three consecutive years of layoffs, “we have more teachers per student than we had 5 years ago, 10 years ago, 15 years ago, and 20 years ago.” For all of the manpower, student performance remains stagnant.

But the demonstrations at 4th Street and South Beaudry Avenue had little to do with those concerns. For Occupy LAUSD, all of the district’s problems could be solved with more money, more teachers, and less student testing. It’s no coincidence that the Occupy leaders were all top officials with the UTLA, which represents 40,000 LAUSD teachers, or that the marches and rallies preceded preliminary contract negotiations that had been scheduled for this week. What’s more, Occupy LAUSD got backing from the California Teachers Association (CTA), the California Federation of Teachers, and dozens of local teachers’ unions around the state. The CTA is the most powerful lobbying organization in Sacramento; it has spent more than $210 million in the past decade on lobbying, supporting liberal causes and Democratic candidates almost exclusively. The CTA’s state council recently authorized expending $8 million on next year’s elections, a number that’s likely to rise. (To be fair, however, new CTA president Dean Vogel wasn’t lying on Saturday when he counted himself among “the 99 percent.” With an annual salary of just under $290,000, Vogel is in merely the top 4 percent of American earners.)

Unlike the Occupy Wall Street protesters in Lower Manhattan, whose consensus-driven committees have offered an inchoate list of complaints and a hodgepodge of utopian remedies, Occupy LAUSD has issued demands easy to divine. They are precisely the same demands that UTLA has made for months, with derisive references to the rapacious “1 percent” tacked on to align the union’s public-relations campaign with the Occupy zeitgeist. Foremost among the demands is the union’s insistence that district officials use a $55 million budget surplus to rehire up to 1,200 teachers laid off in the past year. One teachers’ union activist—writing for the Socialist Worker, no less—summarized the larger goals of the occupation: “Tax the 1 percent to fully fund our schools; keep our schools public—by the 99 percent, for the 99 percent; and democratic community-based schools, not corporate Wall Street reform.”

District officials reacted to the union-led occupation with frustration and dismay. Superintendent John Deasy, a reliable liberal, professed his bewilderment at the protests in front of his office. “Occupy LAUSD is both misinformed and contrary to the spirit and intent of Occupy Wall Street, Occupy L.A., and the other laudable movements for economic justice that have sprung up around the country and the world over the last month,” Deasy said in a statement. “It is an insult for these protesters to equate a school district that during the past four years has experienced a $2 billion loss of dollars in state and federal funding, with policies and institutions that have systematically hurt the poor and middle class.” Deasy’s befuddlement may have been confounded further by Occupy LAUSD’s response. “It is hard for him to understand what the 99 percent movement is really about because he represents the worst of the 1 percent,” said Jose Lara, a board member of UTLA and chief spokesman for Occupy LAUSD.

For people like Lara, the “1 percent” consists of people such as Microsoft’s Bill Gates and Los Angeles real-estate mogul Eli Broad, both of whom support charter schools and contribute heavily to education-reform efforts. References to “keeping schools public” and rejecting “corporate Wall Street reform” are code for long-standing union opposition to school choice and suspicion of private philanthropy. Gates and Broad come up again and again in union talking points. “We reject the premise that the 1 percent billionaires—Bill Gates and Eli Broad—should be allowed to seize our public schools by buying seats on school boards that dismantle our schools, lay off thousands of teachers, and then award dozens of public schools to private charters, while denying teachers collective bargaining rights,” reads an October 22 UTLA press release outlining the themes of Saturday’s rally.

Beyond union rabble-rousing ahead of what’s sure to be a contentious contract negotiation, Occupy LAUSD highlights a stark and widening disagreement about what American public education should be. With their billion-dollar endowments, Gates and Broad are powerful players among an ideologically diverse coalition of reformers that includes conservative Republicans, Milton Friedman libertarians, and urban Democrats. But Gates and Broad are hardly the prime movers or the last word in education reform—a point that UTLA and its left-wing union allies refuse to concede. In general, reformers hold that public education should teach students how to be autonomous, knowledgeable, and self-governing citizens. The how and the wherematter less than the what. So reformers advocate empowering parents with a range of options, whether they’re charters or “virtual schools” or opportunity scholarships aimed primarily (but not exclusively) at lower-income families. Traditional public schools should compete with alternative models. Excellent teachers should be rewarded with higher pay. Bad teachers should be eased out of the system.

When Deasy took office this summer, he laid out a handful of proposed contract changes, including more school-site flexibility with hiring (thus curtailing the “dance of the lemons”), overhauling tenure rules, and experimenting with merit pay. Occupy LAUSD opposes every one of those ideas. For the occupiers, public education means tax-funded schools operated by union-organized administrators and teachers with little testing and accountability and no choice. Seen in that light, Occupy LAUSD is less radical than reactionary.

(Ben Boychuk is an associate editor of City Journal, where this article first appeared.)

Why You Should Care about Pension Reform

The current pension reform debate – with proposals from the governor and now from a team of Republicans via ballot initiative – is drawing considerable media attention.

It’s hard to understand why.

The debate has almost nothing to do with the broader public.

The pension changes being talked about won’t change all that much or save much money for other public programs. And the plans being offered don’t respond to the real problem in matters of retirement savings.

The problem? That the number of Americans participating in retirement plans is on the decline.

You read that right. I just finished reading a chilling new report from Michael Calabrese of the New America Foundation (full disclosure: I’m a New America fellow). His conclusion:  “the majority of American adults do not participate in any retirement saving plan—whether pension or 401(k) or Individual Retirement Account (IRA). Participation in employer-sponsored plans peaked in the late 1970s and appears to be at its lowest level in more than 30 years.”

In that context, any debate about public pensions that doesn’t talk about the lack of retirement savings is missing the point. The question ought to be how do we increase retirement security for the broad majority of Americans – by getting them to save and participate in retirement plans. Because that’s the real unfunded obligation – those who don’t have retirement savings will have to rely more on Social Security or other forms of public assistance.

So if you want meaningful pension reform (meaningful enough for the public to care), a proposal must focus on ways to reshape public employee pensions not merely to save money but to provide some sort of basis for greater retirement savings by people who don’t work for the government.

And the California reforms on the table don’t meet either test. Both Brown’s plan and the initiatives filed this week would set up two-tiered pension systems – different for current and new employees. The savings in such systems are likely illusory because two-tiered pension systems are unstable (they end up becoming one tier again in good times) and because savings from new employees are likely to be minimal (especially in an era when there aren’t many new employees).

And yes, both Brown’s plan and the initiatives demand more in contributions from current employees. That’s good – but it’s not enough. If current employees are going to be asked to take hits – and they should be asked, and pressured to do so – they should be asked to move into defined benefit programs that are so safe and sustainable that other Californians and their employers outside the public sector could participate in them.

That kind of program would require not only more in contributions from employees (and from employers) but also much more conservative assumptions about investment returns.

That would mean less in pensions for public workers – but much, much more in retirement, and in retirement security for the rest of us.

For now, however, the pension reform debate remains one of those Sacramento conversations that has almost nothing to do with the lives of Californians.

(Joe Mathews is a Journalist and Irvine senior fellow at the New America Foundation, Fellow at the Center for Social Cohesion at Arizona State University and co-author of California Crackup: How Reform Broke the Golden State and How We Can Fix It (UC Press, 2010). This article was first published in Fox & Hounds.)

Ballots Instead of Bullets

T2AR: The Second American Revolution, Part 5

As we watch the evening news, our television screens are filled with young Americans encamped from Washington to Seattle in various Occupy tent cities. They are linked instantly via smart phones, Facebook, Twitter and other social media. They are protesting, as the Tea Party protested in 2010, a government seriously out of touch with its citizens.

In 1775, colonists frustrated with the oppressive government of King George began organizing. Farmers and blacksmiths practiced military actions with wooden guns. Some brought their hunting weapons. Without telephones or telegraph, they developed a rapid grass roots communication system using riders on horseback to spread the word. They were called Minutemen because they could be mobilized in a minute if the need arose.

On April 18, 1775, British troops were ordered to Concord to find guns and powder hidden by the colonists. They also planned to arrest Sam Adams and John Hancock, thought to be hiding in Lexington. At midnight, Paul Revere raced on horseback to warn citizens from Boston to Lexington that 700 British troops were on the march. At dawn, on the greens of Lexington, British troops fired upon the local militia. The first shot fired came to be known as “The Shot Heard ‘Round the World”. Outnumbered, they fell back to Concord where 500 Minutemen gathered at the North Bridge. In a famous battle and the first victory of the American Revolution, the Minutemen defeated three companies of the King’s troops. And inflicted serious damage as they chased the troops back to Boston.

Two hundred and thirty-five years later, another shot heard round the world was fired in Massachusetts. On January 19, 2010, Scott Brown won the special election for Ted Kennedy’s Senate seat, becoming the first Republican elected to the U.S. Senate from Massachusetts in 38 years. The election took the 60th Senate seat from the Democrats removing their filibuster-proof majority for the first time since Obama’s election in 2008.

The close election in Massachusetts was decided by the entry of a new force in American politics – The Tea Party Express – who raised money nationally to buy television ads for Brown. A week before the general election, Brown was able to raise $1.3 million in one 24-hour period from over 16,000 donors.

The parallels are there between the American Revolution and the Second American Revolution. The first shots have been fired, this time by voters using ballots instead of bullets.

SEE ALSO:
T2AR: The Second American Revolution, Part 4
T2AR: The Second American Revolution, Part 3
T2AR: The Second American Revolution, Part 2
T2AR: The Second American Revolution, Part 1

(Robert J. Cristiano, Ph.D., is the Real Estate Professional in Residence at Chapman University in Orange, CA, Senior Fellow at The Pacific Research Institute and President of the international investment firm, L88 Investments LLC. He has been a successful real estate developer in Newport Beach California for thirty years.)

From Rich State to Poor State

By now, it’s clear that California’s state budget, which Governor Jerry Brown signed to great fanfare in June, was a bet that didn’t pan out. It assumed a national economic recovery that isn’t happening. In August, state controller John Chiang reported that revenues for July, the first month of the new fiscal year, were running 9 percent below the budget assumptions. The unemployment rate spiked back over 12 percent in August, the second worst in the nation, and all Brown could do was appoint a “jobs czar” to help come up with answers.

At the same time, the strategy once touted as part of a solution to California’s economic funk—the creation of “clean- technology” and “green” jobs, such as manufacturing and installing solar panels—has proved a bust. A Brookings Institution study found that clean-tech jobs made up just 2 percent of jobs nationally and 2.2 percent in the Silicon Valley, a supposed hub of the new green economy. In fact, the San Jose area lost 492 jobs in the renewable-energy sector between 2003 and 2010. Not an auspicious start for a field that Brown promised would generate 500,000 jobs in California by the end of the decade. To drive home the futility of hoping for a green-jobs boom, the much-hyped and richly funded solar company Solyndra went into bankruptcy at the end of August, taking 1,100 Bay Area jobs with it.

Amid this convergence of bad news, leading California Democrats have begun to entertain the notion that business just might be over-regulated. Darrell Steinberg, the president pro tem of the state senate, announced that regulatory reform would be at the top of his legislative agenda. Brown has charged his new jobs czar, former Bank of America executive Michael Rossi, with improving the business climate. Lieutenant Governor Gavin Newsom came out with his own “Economic Growth and Competitiveness Agenda” for making the state more business-friendly.

As the legislative session wound down in early September, several bills with a pro-jobs tilt landed on Brown’s desk. Assembly Bill 29, sponsored by Assembly Speaker John A. Pérez (D-Los Angeles), would set up a new Governor’s Office of Business and Economic Development, described in a press release as “a one-stop shop for businesses seeking assistance with state agencies.” Senate Bill 617, sponsored by Ron Calderon (D-Montebello) and Fran Pavley (D-Santa Monica), would require state agencies to consider the impact of proposed regulations on jobs and business formation, starting in 2013. AB 900, sponsored by Assemblymembers Joan Buchanan (D-Alamo) and Rich Gordon (D-Menlo Park), which Brown signed on September 27, allows the governor to fast-track major projects—such as the proposed football stadium in downtown Los Angeles—rather than navigating the typically long and tortuous legal-review process currently required under the state’s environmental law.

But these bills are just a start. California has plenty of history to live down before it sheds its reputation as a terrible state for business. More than 500 executives polled by CEO magazine for its 2011 business climate survey said California was once again the worst of all 50 states to set up shop. Texas was judged the best. Requiring an economic review of new rules is better than nothing, but why not review existing rules, too? After all, these are the regulations that make the current climate as bad as it is. And why not start applying SB 617 next year, rather than waiting until 2013? How about going a step further and placing a five-year limit on all regulations? That would force legislators and policymakers to reexamine whether the rules are doing more harm than good. Sunset clauses are not unheard of in California. The concept has been applied in the past to tax increases in order to get the necessary two-thirds vote. And AB 900 has one. The measure self-repeals on Jan. 1, 2015, restoring the dispositive power of the California Environmental Quality Act (CEQA). The legislature can’t bring itself to pass a reform that actually sticks.

If any law needs to be permanently revised, it’s CEQA, which enables some of the state’s worst abuses of regulatory power. Enacted in 1970 to protect the environment from runaway development, CEQA has morphed into the Swiss Army Knife for NIMBYs—an all-purpose tool to stop the building of almost anything, public or private. It’s not just about development anymore. Los Angeles County Economic Development Corp. President Bill Allen and Maura O’Connor, the group’s former chairwoman, point out that the CEQA process is now used “for purposes that have absolutely nothing to do with protecting the environment,” such as blocking competitors and helping “unions squeeze businesses for concessions.”

Like others in the California business community, Allen and O’Connor would like to see fundamental changes to CEQA, such as an end to the now-unlimited right of any group to file a lawsuit against a project that has already gone through the review process. But it will take a sea change in the legislature to put such a reform into law. The Democratic majority is in lockstep with two groups for whom the status quo works just fine. One is the environmental lobby, which defends CEQA’s power to stop development. The other is organized labor, which will use CEQA and any other law it can find to maintain or expand union membership. Labor and the green lobby often work together to devise new legislation to crimp business. For example, SB 469, by Sen. Juan Vargas (D-Chula Vista), would require local governments to prepare an “economic impact report” before any proposed “superstore retailer”—i.e., Wal-Mart—can open a new store in the community. The bill’s transparent purpose is to preserve union supermarket jobs. And it has no sunset clause.

True, some of the legislature’s worst ideas—like the bill that would have required hotels statewide to switch to fitted sheets—don’t make it into law. That bill wound up sidetracked in committee. But such small victories are like a hit in Whack-A-Mole. Business lobbies know a new threat will pop up soon enough, because they know the legislature is not on their side. Left to its own devices (and obeying its own masters), it would impose new burdens on business with no thought of the cost. Labor and the green lobbies play offense. Business plays defense. It’s been that way for decades.

We’ll know real change is in the offing when politicians stop talking and acting as if California’s economic woes are temporary. That kind of thinking lies behind AB 900’s sunset clause. As Steinberg explained to the Los Angeles Times, “This is a recession. People are hurting, and we have to use every tool in our disposal to help people get back to work, and do so in a way that does not undermine our very important environmental laws.” He seemed to suggest the state’s economic ills will blow over in a few years, and then lawmakers can resume their old habits—making rules and pretending to save the planet. In reality, California’s problems are long-standing. The state has been a chronic underperformer for the past two decades, ever since then-governor Pete Wilson in the early 1990s called the state’s business climate a “bad product.” Its unemployment rate has consistently outstripped the national average since that time, and it has seen a steady erosion of its economic leadership among the states.

California is still somewhat richer than the average state, at least on the basis of per-capita income, but it is far from the wealthy dynamo it was 50 years ago. As of 2010, the U.S. Bureau of Economic Analysis estimated California’s per-capita income at $43,104, about 6 percent above the national average of $40,584. Texas was still a shade below the average (at $39,493), but it has been gaining ground. It was 6 percent below the average in 2000. California has been trending the other way. Its per-capita income had been 10 percent above average in 2000, 18 percent above average in 1980 and 24 percent above average in 1960. Some of this slippage toward the mean could be explained by wealth becoming more equal among regions, much to the benefit of once-hardscrabble states like Mississippi. But the decline wasn’t inevitable, and it didn’t have to be so great. New York, a state just as rich as California 50 years ago, still boasts a per capita income 20 percent above average.

California still has some major assets, including plenty of venture capital, a second-to-none base of technology infrastructure and talent, and access to the Pacific markets. And don’t dismiss the weather. The Golden State also still has some muscle in manufacturing, energy, transportation, and logistics. (Younger Californians may not remember, but the state’s great wealth of the past was built on not-so-green industry, including a huge defense sector.) California’s mechanized, highly efficient agriculture is another vital economic resource. These are not “green” activities. Moving, making, and even growing things at industrial scale creates pollution. Nurturing them requires some adjustments in the state’s ultra-strict standards. The Obama administration recognized that fact—and did California a favor—when it announced just before Labor Day a delay in tightening federal ozone limits. Manufacturing, logistics, and agriculture also happen to generate well-paid blue-collar jobs. As economist John Husing points out, these industries can be a godsend to the areas, mostly inland, that have “large numbers of marginally educated workers.”

At this point, California is like a middle-aged wastrel who finally has run through his trust fund and has to get a real job. Or more like a million jobs, which is roughly what the state lost in the recent recession. This heir to a once-great fortune has devoted much time and energy to hobbies and causes, some more worthy than others. But he barely remembers what it was like to work. And his taste for work runs to genteel and low-paying pursuits, like green energy. But real poverty lies down the road if he doesn’t learn fast and get it through his head that money doesn’t grow on trees, even in the Golden State.

(Tom Gray is a former editorial page editor at the Los Angeles Daily News and a former senior editor at Investor’s Business Daily. This article was first posted on City Journal.)

Voters Need to Fix California’s Government Pension Mess

It’s great to finally see the pension reform debate on the front page. Last week Governor Jerry Brown unveiled a pretty good proposal. It didn’t go nearly far enough to solve the problem, but he certainly went further than most people expected. Also last week, the Legislature held its first hearing on the issue. No one expects them to do much, but it’s nice to know they are finally looking into the problem.

Against that backdrop, yesterday California Pension Reform, a group including myself, former state Finance Director Mike Genest, and former Assemblyman Roger Niello, filed two pension reform initiatives with the Attorney General. After we get the titles, summaries and fiscal reviews back, we’ll put the best option on the November, 2012 ballot.
Specifically, the two proposals will do the following, with a couple key differences:

  • Requires current government employees to pay their fair share of retirement benefit costs, especially while their pension funding levels are less than 80% — deemed “at-risk” under federal regulations
  • Makes retirement benefits for new government employees more comparable to private sector benefits — reducing taxpayer responsibility for pension fund losses
  • Stops the accumulating debt caused by unfunded pension and retiree benefit liabilities — official figures are more than $20,000 per California household
  • Raises retirement ages to 67 for non-safety employees and 58 for safety employees
  • Requires pension boards to be more transparent and accountable, with protections against conflicts of interest
  • Ends abuses such as salary spiking, retroactive benefit increases and payment holidays

As the Legislative Analyst, the Little Hoover Commission, and countless academics have pointed out, our unfunded pension liabilities are crushing every other part of state government. Every new employee promise we make for an unsustainable government employee pension squeezes more money out of the education, parks, public safety, and social programs Californians depend upon.
 As former United States Secretary of State George Schultz said about our initiatives, “This effort is a full and thoughtful solution that, in the short term, will stop the fiscal hemorrhaging and, in the long term, sets an example of how to get this state back on track.”
This $240 billion pension debt crisis is far too big for the half-measures being considered by politicians.  It’s time for voters to fix our pension system once and for all.

(Dan Pellissier is the President of California Pension Reform. This article was originally posted on Fox & Hounds.)