Odds and Ends

The past few weeks have seen a series of articles, data releases, and comments relevant to things I have written in the past. Rather than write a new post on each subject, I have some comments, with quotes and links, as follow-ups to my prior posts on U.S. healthcare, electronic education, the perpetual tax increases and service cuts sweeping state and local governments around the U.S. due to pensions, and rail freight.

Health Care Costs

Two years ago I was surprised to read that despite a devastated economy and an underdeveloped health care industry, Cuba’s life expectancy was little different than that of the United States. I wondered what our country was getting for the ever-increasing amount of money in general, and public money in particular, spent on healthcare.


Two recent graphs in The Economist magazine show this — graphically.


America remains the world’s most profligate spender on health care, according to a report published on November 4th by the OECD, a club of 34 mostly rich countries. In 2013 the United States spent, on average, $8,713 per person—two and a half times as much as the OECD average. Yet the average American dies 1.7 years earlier than the average OECD citizen. This longevity gap has grown by a year since 2003.

That’s because a huge increase in spending in the U.S. brought just a modest increase in life expectancy, whereas smaller increases in spending elsewhere brought larger gains. The U.S. spends more and more, but on fewer and fewer, and more on generations born long ago and less on those to follow. Something Obamacare has yet to change enough to affect the statistics, if it ever will.

“Americans have the same life expectancy as Chileans, even though Chile spends less than a fifth of what America spends on health care per person.”

But what about the quality of life? Even more bad news.


“Statisticians at the Institute for Health Metrics and Evaluation at the University of Washington have calculated new figures that adjust life expectancy at birth for the number of healthy years that a person can be expected to enjoy, free from disease and disability…Since 1990, American men have gained an additional three years of healthy life and an additional four and half years of ill health. Such has been the slow rate of longevity progress in America, that Chinese and Iranian men born today are expected to live longer and healthier lives than their American counterparts.”

Why? Diet? Lack of exercise? Lifestyle? All the healthcare money going to seniors? All of it going to maintaining people in illness rather than preventing it? In any event, as I wrote previously, for the generations following Generation Greed falling behind in life expectancy increases, and having most of the added years be years of ill health, are unlikely to be the problem. Because U.S. life expectancy is going to fall.


Electronic Education

Back in September, I wrote about the promise of electronic education. Particularly as a lifeboat, given the fact that education “reform,” however one defines it, has been successfully defunded by the bankrupting of the school system via retroactive pension increases (in union-dominated states such as New York) and/or pension underfunding (in previously low-tax states such as New Jersey).   We are moving on to a politics of managing expectations downward for schools that, including retirement benefits, cost more and more per student.


Then a few weeks ago, the PBS Newshour had a segment on how readily children take to education via computer compared with other types of schooling.


It was based on an Indian educational evangelist who has decided that given access to the internet, children can teach themselves with the help of peers. Eventually, the radical idea ended up being applied in, of all places, a New York City school.

But UFT schools have twice as many active teachers as are present in a classroom with children at any one time, and one year in retirement (or more) for each year worked.   The result is sky-high costs and high class sizes. And it going to get worse and worse and worse.

Moreover, how dare anyone suggest that an NYC teacher use a computer if they don’t feel like it? What would the UFT demand in exchange? Retirement at age 50 after 20 years of work, with three years as an incompetent novice and five in an out-of-classroom assignment? Ten thousand dues paying computer consultants? And even given that, the union would find a way to do its job, which is to “screw things up.”

The time for “school reform,” however defined, has passed. It’s time to stop that unwinnable battle. As I noted in my original post, it’s time to think about lifeboats and alternatives. Parents have to accept the obligation to teach their own children, to pay up for schools but not have any expectation about what they will get in return. But at least give those parents and children the tools. Perhaps someone will – someone far away from New York State.   Perhaps even as far away as India.

Generation Greed’s Pension Costs in Connecticut

Speaking of pensions, for decades Connecticut was a state that wealthy people and large companies moved to in order to get away from the burdens of New York. To escape to a place with relatively few needy people, less racial and economic diversity, and low taxes.

It turns out, however, that the relatively small number of poor people was not the only explanation for Connecticut’s relatively low taxes. That state also kept state and local taxes low by robbing the future. Then the future became the present, and I found that in 2012 Connecticut was the state with the fourth most sold-out future in the U.S.


Worse than New Jersey and New York State as a whole, though not worse than New York City would be if it were a separate state. (In that case NYC would be worst off of all).

Connecticut faces a massive, multi-decade fiscal crisis and infrastructure decline, and some of the rats that scuttled in back in the day are looking to scuttle out and escape the financial consequences. Because as of FY 2012 Connecticut already had the ninth highest state and local tax burden in the country, even as a percent of the state’s (for the moment) high personal income, and that burden is higher today.


With pension costs wrecking the state, it’s unions have taken the trouble to point out that only a tiny share of those costs are going to pay for the retirement of current public employees.


“As legislators and others look closely at the cost of state employee salaries and benefits, one crucial factor often gets little or no attention: The overwhelming bulk of costs Connecticut faces today to support pension programs for state employees and public school teachers is from cleaning up problems caused years – and in many cases decades – ago.”

“According to Comptroller Kevin P. Lembo’s office, 82 percent of the $1.51 billion the state will contribute this fiscal year to state employees’ pensions will help cover past contributions Connecticut failed to make, as well as the corresponding investment earnings it never received.”

“Similarly 70 percent of the $976 million it will deposit into the teachers’ pension fund is to cover unpaid contributions and unachieved earnings from prior years. That means more than $1.9 billion of the nearly $2.5 billion in contributions Connecticut will make this fiscal year are to whittle down the fiscal sins of the past, and don’t reflect the cost of current workers’ benefits.”

This assertion is pushback against the reality that including the cost of retirement benefits, Connecticut’s public employees have been getting richer and richer relative to everyone else in the state, leaving everyone else poorer and poorer. The point is that since the “sins” were in the past, too bad for everyone else.

In New York City the chief sin was not committed by, and did not benefit in any way, the general public. NYC taxpayers kicked in more than anyone else for pensions, and were forced to accept inferior public services and high taxes to accommodate this. But New York City’s powerful unions went up to Albany and cut political deals retroactively granting NYC public employees far richer pension benefits than they had been promised, and which NYC taxpayers had paid for.

With money flying out of the pension funds at a vastly faster rate, and the employees themselves putting less in, pension assets became depleted and investment returns shrank. Because the rate of return on the money that isn’t there is zero. The public employee unions elsewhere generally don’t like to take about pensions in New York City, and don’t want anyone else to talk about them either, because they committed an enormous social injustice – repeatedly. So who is guilty in Connecticut?

As best as I can determine searching the internet, Connecticut didn’t have the massive pension increases in the 1990s and 2000s that one found in New York City, California, and other places. Instead, one finds the opposite.

For full retirement: NYC retired and soon-to-retire NYC teachers were promised a retirement at age 62 after 30 years of work and after contributing 3 percent of their salaries to the pensions. But by 2008 that had been changed to retirement at age 55 after just 25 years of work, with a 3 percent contribution only through the year 2000 and just 1.85 percent after 2008 (if one couldn’t retire at the time). In Connecticut, in contrast, it would appear that while employees hired before 1997 were allowed to retire at 55, those hired after are required to work until 60. And those hired after probably account for a large share of the state’s current public workforce.


As best as I can determine this is the only major pension change in recent years in Connecticut. There, as elsewhere, Generation Greed got a better deal and stuck it to those coming after, but at least it didn’t get any retroactive increases to the deal it had already promised itself. Like the public employee unions in NYC, however, taxpayer interests in Connecticut don’t want to hear that in their state the primary cause of the problem is that Generation Greed taxpayers didn’t pay enough in.

“As far as Connecticut’s taxpayer is concerned, the bill is very real, regardless of how the costs break down. ‘Overall, state employees get paid an unfair premium over non-government employees.’”

And in Connecticut, as in New York, the most selfish and entitled interests keep demanding more, and more, and more in exchange for less and less. Here that is the public employee unions. In Connecticut, it is not.

“The danger is this is misleading the public and policymakers about the truth,” said Larry Dorman spokesman for Council 4 of the American Federation of State, County and Municipal Employees. “That can have horrible consequences.”

“Among those consequences, Dorman said, is that officials and the general public may forget that since the initial state employee pension program was established, three successive tiers – each with benefits lower than the previous one – have been put in place. And though some legislators from both parties have suggested talks with labor to cut costs, Dorman said, state employees granted wage and benefit concessions in 2009 and again in 2011.”

“Dorman charged the institute with ‘grinding an ideological axe’ against public-sector employees and with advocating changes that would result in “putting more money in the hands of rich people and corporations.”

Sorry Dorman, as in New York those who took the money are going, going gone to Florida and the grave. Those aging “rich people and corporations” will be down in Florida and North Carolina with New York City’s retired public employees. Except for New York’s retired cops, who are in South Carolina. The money is gone, taken off the top. Now what? For NYC children, perhaps internet-based education. For Connecticut public employees hired after 1997? I’m not sure.

Hedge Funds: We’ve Kissed Our Assets Goodbye

Since the 2000s state and local government pension funds invested more and more money in “alternative investments” such as private equity and hedge funds. Actual cash investment returns that can be used to pay pension benefits, such as dividends and interest, were falling. So powerful unions who had scored retroactive pension increases, and politicians who had underfunded the pensions that had been promised to begin with, needed a lie to put off putting more into the pension funds until they had cashed in and moved on. The lie was that higher returns on hedge funds would pay for it all. I wrote about this like in early 2007.


Recently the American Federation of Teachers, the national teachers’ union that (as usual) has the former head of New York’s UFT in change, released a report that said that a decade later the higher returns of hedge funds are in fact an illusion, and taxpayers had damn well better pay up to make up for this. And yet pension funds continue to invest in hedge funds to keep telling that lie.


“’Nobody seems to care about performance’, as pension consultant Christopher B. Tobe told Gretchen Morgenson of the New York Times.”


“That’s not precisely true. People do care about performance, as well as fees. It is just that in the hierarchy of public-pension fund needs, both take a back seat to expected returns. This is because the higher the expected return, the lower the capital contributions required of some obligated public entity.”

“Here is the punchline: Those expected returns are a myth. They don’t exist, except for the most elite funds, which are a tiny percentage of the industry…”

“In other words, hedge funds aren’t used to generate higher returns; they simply make it possible for some public entity to reduce contributions to the underlying pension. This is the primary driving force in the rise of hedge funds for public pensions.”

Or claim that retroactive pension increases and early retirement incentives “cost nothing.”

So union-dominated pension boards, in New York City and California, invested in hedge funds and private equity. And so did anti-tax pension boards. And for the most part they keep lying and lying and lying. Paying Wall Street handsomely for participating in the lie. Just a few more years and I’ll be gone, taking my winnings with me, and tough luck for the next generation of suckers.

Rail Freight

After the federal and state governments built the highway system for the use of trucks, most general freight shifted away from the privately built and maintained railroads, which were stuck with an obsolete, aging and ever-shrinking infrastructure. In New York State, whereas there were once 12 intercity tracks between NYC/NJ and Buffalo, today we are down to three. The two-track CSX line, shared with Amtrak between Schenectady and Buffalo (which is one track for the most part along the west side of the Hudson). And the one-track Norfolk Southern line, shared with Metro North south of Port Jervis.

For the most part the railroads had been relegated to moving bulk, low-value products such as coal, oil, chemicals, building materials, grains, ores, and trash. Stuff that can move slowly because its value is low relative to its weight. Consumer goods, and parts for making consumer goods, the so-called “intermodal” goods because they use trucks to get to their final destination, accounted for just 8,085 of the 205,000 cars CSX was running nationwide in third quarter 2015, and 9,735 of the 190,600 cars on Norfolk Southern. And unlike trucks, trailers and containers on trains moved at less than 30 miles per hour on average, and spent an average of more than one day sitting at a terminal before moving.


With coal and oil shipments starting to fall off, however, the western railroads such as BNSF are apparently trying to change that.


“After this year, BNSF Railway Co. will be more than 99 percent finished with a second, parallel line to its 2,200-mile (3,500-kilometer) Los Angeles-to-Chicago route. Doubling up will create a rail superhighway speeding deliveries of toys, electronics, autos and other goods, because trains won’t have to yield to each other on sidings as they do on single tracks.”

“The goal: help the unit of Buffett’s Berkshire Hathaway Inc. grab cargo now going by road…”

“The Los Angeles-to-Chicago route links the busiest U.S. container port to the biggest mid-continent rail hub, giving BNSF a leg up in the race to find alternatives to those dwindling coal cars. And there’s room to grow: consultant FTR Transportation Intelligence estimates that trains now move only about 19 percent of the 71 million trailer loads that travel 550 miles or more, a rough threshold for where rail becomes an viable option.”

“We have significant opportunities to convert” truck cargo to rail, said Katie Farmer, chief of BNSF’s consumer group. “We’ve really narrowed the gap now between what was traditionally rail service and over-the-road trucking.”

“That’s where the dual tracks come in. More and longer trains can be run on two tracks than on a single line. Once the double-tracked section in Oklahoma is completed at the end of October, BNSF will have just seven more miles of line to build — involving three costly bridges — and will be able to run 78 trains a day in that region, up from 62 now.

“With no need to pull over, they can also go faster. A BNSF train laden with truck trailers now can make the Los Angeles-Chicago run in 64 hours, said consultant Jindel. Completing the twin-tracking will shave off as much as three hours, he said.”

As I noted when I wrote a series of post on rail freight, all of the rail freight improvements of recent decades have been located OUTSIDE of New York and New Jersey. Here the railroads are unwilling to invest.

Even when they do invest, however, the railroads apparently remain a backward looking industry. With two tracks trains may not have to pull aside to allow those going in the other direction to pass, but intermodal trains are still stuck behind slow trains hauling grain, coal, and garbage. If you have 78 trains per day that is 39 in each direction, or one every 37 minutes per track. And if it still will take 61 hours to go 2,200 miles, that is still just 37 miles per hour. Better, given that trucks have to stop along the way, but still not good.

Loads that travel 550 miles or more, a rough threshold for where rail becomes an viable option.”

Why 550 miles? Why not 250 miles, which is probably about the maximum distance a truck can travel in both directions and have the driver sleep in his or her own bed? Because of the time and cost required to remove a container or trailer from a truck and put it on a train, and then take it off the train and put it back on a truck somewhere else. And the infrequency of rail service between destinations.

The railroad industry has shrunk to an oligopoly, like more and more industries in the U.S., and economic theory holds that without as much competition there is less innovation. What if terminal time and costs and service frequency were attacked instead of being assumed? What if a freight railroad ran like the NYC subway?

The trains would run every half hour. As a trucker, if you missed dropping off a load for one train there would still be another train no more than half an hour later. The trains would travel at 60 miles per hour, and stop every 200 to 300 miles – for no more than half an hour. That’s 4.5 hours, on average for each 250 miles, or 55 miles per hour. There would be enough manpower and equipment to move those trailers and containers directly onto and off of trucks in that half hour. If a trucker did not arrive in time to collect their load, the railroad would move it to another location and an extra fee would be charged.

Perhaps that sort of rail freight service will arise at some point in the U.S.   As thing stand, however, one should assume that eastern Pennsylvania, “America’s Warehouse,” would be the eastern terminus.