“I’m so bored. I hate my life.” - Britney Spears

Das Langweilige ist interessant geworden, weil das Interessante angefangen hat langweilig zu werden. – Thomas Mann

"Never for money/always for love" - The Talking Heads

Sunday, July 31, 2005

I have seen the future, and it is United

Anyone interested in what Bush’s reformed Social Security would look like should look at the NYT article about United Airline’s pension fund today. It is a fun article. Here's how the movie goes: Wall Street persuades a viable pension fund to redo its safe strategy of investing for a much more groovy strategy of growth growth growth in equities. Big money is made by everybody on the Street as the pension fund shrinks, disappears, goes into a black hole. Everybody is very sorry that the beneficiaries of the fund have nothing left, but everybody also points out – the beneficiaries are scum. Mere workers. Pilots, for god’s sakes. Imagine, some stewardess somewhere is bawling cause her measely 200 thou went to some really nice Manhattan bistros. As if she deserved it. The best and the brightest, in the new Hobbesian Randian world, feast upon such little lambs.

Bush’s plan has those advantages too. By targeting middle America’s vast wealth and accelerating the burgling of it, in a record amount of time the top 10 percent income percentile can capture even more of America’s wealth. This money will be used much more efficiently. For instance, many retiring congressmen will be able to find lobbying jobs that will launch them into the higher regions of financial security when the theft is completed. Meanwhile, in a blow against the French, Americans will work harder. They will have to, as their retirement will be approximately equal, in value, to the price you can get for confetti that’s been cleaned off of streets and sidewalks after the parade is over.

The first three grafs of the article map a strategy that is almost a perfect parallel of the Bush reforms:

“HAD anyone listened to Doug Wilsman, tens of thousands of United Airlines employees would not be facing big cuts in their pensions. And the federal agency that guarantees pensions might not be struggling with its biggest losses ever.

So who is Doug Wilsman? He is a retired pilot and a former fiduciary of United's pension plan for pilots, and in 1987 he discovered that the company had abandoned its older, tried-and-true approach of investing retirees' money in bonds timed to pay when the pensions came due. Instead, it had bought into the promises of Wall Street that it could put less money into the plan - and take out more later - if it just put most of the assets into the stock market.

Mr. Wilsman was skeptical of such promises, and soon after learning of the change in strategy, he filed a grievance with his union, the Air Line Pilots Association. "Hey, you guys are really building yourselves a trap," he recalled warning them at the time. "Someday, at the worst possible moment, when the bottom falls out of the stock market, the plan is going to have to come up with new money, and it's going to be enough to kill the company."

Wilsman has got to be a traitor, and one hopes he will be roundly denounced on the rightwing media circuit. More voices like his would blow the perfect caper. He obviously wasn’t clued in that DJ 36,000 was just around the corner.

As even the article admits, the result of the Bush-like investment strategy proved highly satisfactory:

“While the money managers and other pension professionals who ran United's pension plan walked away from the wreck unscathed - indeed, they collected about $125 million in fees over the last five years alone, records show - the ones who will have to pick up the bill for the advisers' collective failure will be the airline's 130,000 employees and pensioners, the federal pension guarantor and probably, someday, the taxpayers.”

Million dollar payouts for high level failure have become America’s secret weapon for achieving true greatness. As for the employees – they merely work for a living. Piss on em, as the old Wall Street saying goes. Also, the federal government has proven that almost any problem can be solved if you have a gigantic enough credit card. Put those pensions on the card and have the Chinese buy more of our dollars, as they say in the corridors of the Treasury department.
Here’s a nice window into what Social Security is gonna look like once we get it all licked into shape:
“United is far from unique. Lifting the lid on how most pension funds are invested might raise an outcry if the 44 million Americans covered by company plans knew these things:
Pension investing is largely unregulated, even though the federal government effectively covers the investment losses when a defined-benefit plan fails. At United, this freewheeling approach gave rise to investments in junk bonds, dot-coms and even what appears to be an energy venture in Albania.
The Securities and Exchange Commission recently said that more than half of the consultants who help pension funds invest their money have outside business relationships that could taint their advice.”
I, for one, am totally psyched.
Three more irresistible grafs. Your congress at work!

"While the federal agency tries to pinpoint its obligations, apparently no one in an official capacity is pausing to ask who the plans' outside investment professionals were, much less how they made their decisions and how they responded as the airline's fortunes faded.

"It's just a nonstarter," said Richard A. Ippolito, the pension agency's former chief economist, who is now retired. A few years ago, he recalled, a director of the federal pension agency appeared before Congress and suggested that if companies wanted to invest their pension funds in stocks, they should pay more for their pension insurance coverage.
"I could politely say that he was vilified," he said. "They basically accused him of being un-American because he was asking companies to pay for the privilege of investing in stocks. He just dropped that idea."


Deleted said...

It was a beautiful scheme while it lasted, Roger. If only the destitute pensioneers had exercised a little personal responsibility and taken ownership of their retirement funds, they wouldn't be faced with a cat food diet in old age. The investment advisers are blameless. They were merely taking advantage of the money recklessly left sitting around gathering dust. If they hadn't acted to direct it productively, they would have failed their moral commitment to enhance value.

roger said...

Harry, the point of regulating these things correctly is to allow people not to waste their time specializing in investments -- the experience of day traders shows that mostly, people aren't good at that. Which makes me think better of human nature. Between the 40s and the 80s, pension funds were by and large solid. It wasn't because of the participation of the workers -- it was because the goal of the pension fund was to provide a secure retirement base, not to capture the hot hot hot values of some particular phase of the equity market. It is really pretty simple, to me. Security is about taking reasonable risks, getting rich is about taking large risks. Companies can easily take advantage of the get rich mindset to do incredibly blind and stupid things, and they will, if they aren't well guarded.

Now, you might say, well, these people should form their own small companies, and live like anarchist hobbits, growing their food, repairing their machinery, and telling their old, old tales. But I don't see it. I think working as a pilot at an airline company with a contract spelling out one's compensation, in terms of pension, medical benefits, et al, should be infinitely simple, so one can get on with the job of partying on the off hours and lying on the couch, channel changing. Or whatever. I think this because, well, it has been infinitely simple. It was for a long period of time. It became complex once the Reagan revolution pulled away the "barriers" to entrepreneurial investment -- or, in other words, ripped up New Deal regulations in order to make a certain class of person very rich indeed.

Since the national government is run by the Confederates, I don't expect a return to progressive regulation from that group. However, blue states, like New York and Illinois, can jump in and make United and the Wall Street boys very sue-able. And they can set up regulations -- ah, that demon word -- to make pensions secure. Regulation shouldn't be a demon word --it simply means rules, and every game will have them. They will come from the investors, in which case the regulations are investment rule-of-thumbs, or they will come from the state, but they will certainly come. The only people who play monopoly without rules are kids who just learn the game, and usually it ends by throwing over the board.

roger said...

Harry, looking at your comment again, I see I've been lured into the trap of naivete -- you were responding to the satiric spirit of my post, and I was getting frothily earnest. You got me, man.

Deleted said...

Frothily earnest is not so wicked, Roger. I have windshield wipers on my computer screen for when I'm outraged. It may interest you to know that I recently argued myself into finding an excuse for the existence of a kind, but firm, regulatory state. Until I can refute myself, anarchist hobbitry will have to await the demise of the Snopeses.

roger said...

Harry, get out of organ harvestry and start selling those windshield wipers. You'll make a fortune!

Paul craddick said...

"the point of regulating these things correctly is to allow people not to waste their time specializing in investments"

Right, and the point of "regulating correctly" (or even banning), say, pornography would be to "allow" people not to waste their time looking at images which give a pretty warped view of sex and relations between men and women generally - a benefit, especially, to the weak-willed who might be distracted from more wholesome and productive labors!

The regulation-is-really-"choice" theme appeared in a recent colum by Krugman, in which he valiantly attempted to defend the decaying dirigisme in France as a milieu of attractive choices, in contradistinction to our apparently anarchic setup here. If nothing else, this shows that modern so-called "Liberals" certainly are keen to take liberties with other people's money and economic decisions. But, so long as Johnny has his porn, can burn his flag, and get free treatment for his bad habits, all is well!

roger said...

Paul, as it happens, I've made an extensive argument on the effects of banning and of regulation vis a vis consumer products and durables on several posts. July 05, 2002 is a start. If you put "banning" in the search engine, you'll come up with most of the regulation posts. I strongly disagree with your mapping, which begins with the principle that a., the only regulation that is coercive is the states, and b, that all products and services are the same, and thus can be treated to the same analysis as to the effect of regulation and or banning. In truth, most people like some consumer services should be banned (for instance, murder) instead of self regulated. You'll notice, however, that I nowhere think that investment in equities should be banned -- regulation here would make transparent such investments, and limit them given the state's interest as insurer of last resort. I'm pretty sure you would argue against making it a law that, say, an insurer could not regulate its clientele to the extent of refusing certain clients, raising the rates on others, etc.

Here's the beginning of that discussion on July 5:

"So, okay, LI has thought long and hard about regulation. Which speaks volumes about the vacuum in LI's head. Sexual fantasies eventually fail and fade, and we all lose our charms in the end, so: I've taken to thinking about regulation and governance. So sue me.

To speak of regulation is to speak of associations, institutions, and markets as the sites in which regulation is effective. It is not necessarily to speak of the state -- all associations, institutions and markets require some ordering, and this ordering is achieved by regulation enforced by some medium of governance. So, that's clear, I hope. We are going to speak of specifically state sanctioned regulation, because this post is supposed to be continuous with the last one, in which, you may remember, I laid out my disagreements with my friend X. about gun control. The aim, here, is to give some sense of the determining factors in the successful or unsuccessful state regulation of markets.

I'm going to use the term markets in an expanded sense -- markets, in my terms, will be taken to exist when a good or a service is possibly commoditized. That is, it can be exchanged. This makes it possible to talk of such things as the market in homicide, which is a service. That doesn't mean that all services or goods are marketed. Your kids could wash your car, because that is a family chore, or you can take your car to a car wash and have it washed. In one case, the act of washing the car is an extra-market operation, and in the other case it is a fully marketed service.

Given this expanded sense of markets, I'm going to use regulation as a term designating all acts by which the way in which goods or services are composed and offered are modified by the state. Traditionally, regulatory scholars, like Supreme Court justice Stephen Breyer, have concentrated on the state's regulatory role in allocating goods and services, with less attention paid to the state's role in enforcing transparency, for example. We are going to leave the categories of regulation up in the air in this post, since our concern is with the general factors that impinge on the regulation of goods or services generally."
Check it out if you feel like it. It's long.

roger said...

The temptation to quote myself is irresistable, Paul. I found a bit about regulation that makes my overall point -- which is that there is no top down principle with which you can judge whether regulating is going to lead to less or more freedom. You can only find out by looking at what regulating and non-regulating has actually done. That, of course, is why the libertarian position comes asunder -- it has no metric to measure real liberty. Thus, look at the bankruptcy bill, which recently intruded the state into the relationship between creditor and debtor in the most heavyhanded way since the Republic was founded. From the point of view of maximizing freedom, regulation, here -- that is, keeping credit card companies from charging huge amounts of interest - is obviously preferable. Otherwise, you defend the absurd position that the inhabitants of Arkansas are less free than the peasants of Indian villages in the 19th century, since the latter could borrow money at 200% interest or more. Any survey of the results of the liberty so accorded to these two societies would find that the Indian villagers lived as slaves to the usurers, while Arkansanians have to merely suffer from state regulation.

The inability to use a real standard of liberty here is intellectually scandalous. My point is that you cannot derive practices from the principle of liberty. You can't say from it, in other words, whether a state should regulate a product or service or not. It's use is as a measurement of practices. The ruler, in other words, can't dictate styles to the tailor -- but it can show where the fit has gone wrong.

Anyway, to quote myself about regulation again:

In, was it Monday's post? -- one of those posts, we outlined a way of thinking of drugs, guns, murder, washing the car and other goods and services as potential market acts - acts that comprise formal and informal markets. This is of course not the only aspect of them that counts, but for LI, this aspect is the way that liberal democracy hooks into society, so to speak. This is not to buy into the myth that free markets produce liberal democracy -- market economies can coexist with monarchies, dictatorships, and even official Communism -- but liberal democracy has, so far, required markets.

We were trying to get a point across. Before we contemplate bannings, as of guns or heroin or euthanasia, for that matter, we have to understand how the market in these things works. The way the good or service is integrated into a sector of the economy (for instance, is it a good, like asbestos, with mainly industrial uses?), the amount of the good that is potentially available (is it feathers from an endangered bird? or an easily grown plant?), the composition of the market for the good in terms of supply (do suppliers have an incentive to comply with the banning? is the banning such that the suppliers can sell the good to a certain market -- for instance, alcohol to adults -- or sell substitutes? Is there a large demand for the good? Is there a hardcore group within that demand pool who will take extraordinary risks to procure the good?) and finally, whether the enforcement of the banning is going to fall on the police.

It is the last named factor which strikes LI as the most neglected of all in the study of regulation. How good are the police as regulators? How good are they at enforcing bannings?

LI's contention is that they are very bad. There are reasons for this that are classically rooted in the literature on regulation. One of the objections to regulation of an industry on the part of the state is that the agents of the industry have more knowledge of their business than are available to the state. While this knowledge assymetry argument has some holes in it, there is also something to it. In the case of the police, we obviously don't want the police to be good at organizing murder -- but this outside status is going to work against their efficiency in enforcing the ban on murder. We accept a large margin of inefficiency here because the harm of murder outweighs the harm of the inefficiency -- the injury, for instance, to the civil rights of innocent citizens that often ensues in the course of a murder investigation. So if the police are our regulators of last resort, we don't want to abolish them all together. It does mean that before we want to ban a good or service, we should consider whether the police, if the onus of enforcement falls upon the police, are going to be good or bad at doing this regulatory task. And if they are going to be bad at it, whether that harm might not multiply harms in such a way that we are worse off than we were before the ban.

LI claims that this is the case of the total banning of a popular product like marijuana or handguns. And we will at some point attempt to prove our case --well, no, we will merely attempt to make our case plausible. But for tonight, this is enough.

Paul craddick said...

"The inability to use a real standard of liberty here is intellectually scandalous."

Agreed - but I'm afraid it's you, Roger, who have perpetrated the scandal. A few sentences before, you wrote:

"there is no top down principle with which you can judge whether regulating is going to lead to less or more freedom. You can only find out by looking at what regulating and non-regulating has actually done. That, of course, is why the libertarian position comes asunder -- it has no metric to measure real liberty."

There is no stable definition of "liberty" here - in fact, you seem to equate it with "freedom," though the two are far from the same (Marxists and other "organicists" speak of "freedom," but not "liberty").

Libertarianism in fact has a very clear "metric" of liberty: the state of affairs that obtains when force is limited to the repelling of the initiation of force, or fraud. Hence the classic libertarian polity is described as the "night-watchman" state.

Ergo, to a libertarian, the idea that certain "regulations" - laws above and beyond the protection against the initiation of force or fraud - could somehow issue in a net gain in "liberty" is literally incoherent.

Whether a candidate regulation is good or not is a different question - and it's a measure of my departure from libertarian orthodoxy that I don't equate "deprivation of liberty" with "always and necessarily wrong." But my rough/ready rule of thumb still is: when in doubt, err on the side of liberty.

roger said...


Paul, to use the tennis ball metaphor -- claiming that libertarians have a metric of liberty is one thing, but looking at the only societies I know of -- human ones -- and applying it is something else. I think the ball is in the libertarian court, I think I was the one who served it, and -- pardon me -- but I spot an ace.

I don’t quite get this: “Libertarianism in fact has a very clear "metric" of liberty: the state of affairs that obtains when force is limited to the repelling of the initiation of force, or fraud. Hence the classic libertarian polity is described as the "night-watchman" state.” I don’t see where the metric is, unless you are saying that it exists in exerting appropriate force by party or parties unknown against inappropriate force. However, myself, I don’t see how inappropriate force is distinguished from appropriate force. I don’t see who is authorized to exert the force, or why. And I don’t see that there is any very clear sense of what force is. Definitely, you can force the kids to get up to eat breakfast, or you can force a bank teller to open the safe by pointing a gun at her. I definitely don’t see how, out of these disparate occasions, you get a third party – a state – nor do I believe the libertarians about the night watchmen aspect, unless they are willing to give up any notion of contract. In other words, I see this as hopelessly utopian, if they mean it, and absolutely unhelpful, if they don't. I take liberty to be a politically sanctioned subset of the set formed by freedom. And so, really, do the libertarians.

Given that lack of a metric, why the extension of state power should mean less general liberty is puzzling. I could come up with instances where it makes sense – for instance, the draft – or others where it makes no sense – like regulating pension funds. In the latter case, the extension of state power actually preserves the liberty of pension holders by ensuring that there are regulations on the investment of funds over which they cannot properly exercise real oversight. In fact, most pension funds involve signing away that real oversight. It is done voluntarily, but there is no contradiction in thinking a voluntary act can lead to an abridgment of liberty – in fact, it happens all of the time. Which is why the state can operate here to set the conditions that make the signing away of one's power over one's money infinitely less riskier.

The problem with top down principles is that it applies absolute distinctions based on contingent political arrangements. It is this kind of logic that leads, in the end, to such things as the bogus identification of corporate power, which is licensed by the state and exercises quasi-governmental power, and the individual human being, who is not licensed by the state and exists with or without a contract. A sperm and an egg will do.

As I say, if, from a libertarian viewpoint, a society that allows 200 percent interest and gradually subsumes freeholders into serfs is regarded as more ‘liberty-loving” than one that regulates interest rates, then so much the worse for libertarianism. A realistic view of liberty, seen as a subset of human freedom, allows us to understand a., how the mechanism of regulation cannot be separated from the principles that might animate regulation (since the extend of the regulation is with regard to preserving a democratic order), and b., why we would want to use bannings carefully.

Far from being organicist, the assumption here is that the state is an organized power like any other in a society, operating to punish and reward like other organized powers – corporations, the church, the family, associations, etc.

Paul craddick said...


I've been scratching my head over this one for a few days now - trying to come up with a constructive and charitable response. If one were to credit your view, libertarianism would hardly constitute an "ism," as it allegedly has no notion of liberty which it seeks to enshrine.

Let's define a few terms. In the context of the present discussion, "metric" means "standard of measure" or "benchmark." Asking whether libertarianism has a a "metric of liberty" is tantamount to inquiring what, for it, qualifies as "liberty." Now, whatever it is, liberty is a condition or state of affairs - hence the question becomes: according to libertarianism, what arrangement, state of affairs, or condition qualifies as the ideal milieu or matrix of liberty.

The answer is that "liberty" obtains when force/coercion are circumscribed within narrow limits: very nearly limited to self-defense against the actual or probable initiation of force or fraud (the latter taken as a specialized instance of force). There's no mystery about what "force" means here: violence brought against one's person or possessions, entailing captivity, and/or bodily harm and/or deprivation. In other words, libertarianism enshrines an alleged "right" to be left alone, free of the violent predations of others, within the widest (com)possible sphere. The positive corollary is that consensuality or "free" (=uncoerced) association is taken as the zenith of sociality, appropriate to a body of equals ("each man a master"). Hence, in a rough/ready way, liberty is secure and durable in inverse proportion to the extent and efficacy of coercion which obtains in society - which, practically, usually means the reach and scope of state power.

The puzzles you raise about, in effect, sovereignty, are interesting but irrelevant to the matter at hand (though they certainly exercise the "anarchist" vs. the "minarchist" libertarians, over the questions of the coercion entailed by the "night watchman" state, the coercion of parents vis-a-vis their children, etc). Any self-described libertarian would agree that the kind of securitarianism or statism which you esteem does violence to liberty, as its confiscatory levels of taxation, coordination of daily life, and general social busybodyness, all entail a massive (even if tacit) quantum of coercion, on the part of the omnicompetent state. The application of the "metric" here is very easy, and - as far as it goes - rather precise: the extent to which the state deviates from protecting the citizenry against the violent predations of others is the extent to which the state loses whatever warrant it initially had.

There are many telling objections that can be made against libertarianism, some of which we may well agree about. But the bizarre notion that libertarianism has no respectably precise notion of "liberty" on which to found its doctrine isn't one of them.

roger said...

Paul, I'm not convinced by that defense. The notion of violence is obviously about what force is acceptable, but I certainly don't understand what initiation has to do with it. And, to return to your original phrase: "Libertarianism in fact has a very clear "metric" of liberty: the state of affairs that obtains when force is limited to the repelling of the initiation of force, or fraud." Now, last part first, here. What is fraud, here? If we are trying to define the state's right to regulate, it is circular to say the state's right to regulate is defined by fraud, since fraud is defined by... regulation. As for the initiation of force, that doesn't make much sense to me. If X initiates violence -- say he grabs the pepper from Y -- and Y repells him by drilling him with a bullet, there you go. But we might say, hmm. Initiation here doesn't seem to have called up appropriate response. And appropriate is what the metric is about. Now, in my definition of liberty, as a subset of freedom (and not an absolute granted by Tinkerbell or God or human nature, but tied to a political context), I can give you answers about appropriateness -- but none of them would be founded in a transcendental principle. On the other hand, they might be founded on a certain society's belief that its liberties are founded on a transcendental principle. Just as a society's agricultural practices could be founded on a belief in sacred rituals and rhythms. Appropriateness is essential to the measure -- a measure of responding force is appropriate, another isn't. Etc. So the question is:
a. Why is initiation privileged?
b. Who distinguishes force from coordination? From persuasion? From any number of games in which something force-like happens? In fact, most fraud that the state prohibits doesn't seem to fall under the initiation thing at all -- con men, for instance, work best at getting their victims to initiate their own fleecing. There, the intention is initiating, I suppose. But we are getting into the pallid reaches of the concept.
c., finally, to get back to the regulation of economic activity, why should I split activities up so that x situation in which the government regulates is inappropriate because it encroaches on liberty, when the effect of x, by securing freedom (as in, the economic freedom of being able to retire with one's pension), enables further acts of liberty (as in, having the time to ponder current affairs and take the advantage of it by writing a weblog)?
No, I still don't see that the libertarian notion makes sense. Using as a parallel the utilitarian standard of increasing the quantum of happiness, I don't see how a libertarian society would at all lead to the increase in the quantum of liberty.
By the way, I was definitely hoping you'd respond. Your attacks on this help me think through the issues. Thanks, and continue chopping away.

roger said...


Paul, two questions:
a. Why haven’t you said anything about property or contract?
b. And, just to be clear – you are maintaining that liberty is not derived from the state, but is derived from the nature of the individual human being? Because, of course, my claim is that the libertarian has no recourse but to let the state quantify over liberty, which is the same as giving up the idea that liberty derives from the individual human being and hands the idea over to a larger social unit.

Anonymous said...

As a United pilot with 20+ years, I can tell you that a promise made is not a promise kept! My decision to stay with UA for all those years was on the basis of services performed for compensation and defered compensation, plain and simple! In the 90's I was forced to take a 26% pay cut for stock. The union made us buy it at 130$ a share.Because the ALPA set up their parameters incorrectly, we were not allowed to put our pre/post tax monies into a 401k plan. Matter of fact, we were mailed back a years worth of sheltered contribution and it was heavily taxed. The only way to collect the value of the stock was quit, retire (if you could), die or divorce with a favorable QDRO. If you want to read what the head of the union did, see Chicago Suntimes "Clash in the cockpit/Shame of the unfrinedly skies" April 13/14 2003.

Many pilots that were forced to retire at 60(a FAA requirement, but not discrimination as viewed by the Supreme Court) had to be taxed at the value on a that retirement date. But by the time you could market it, the ESOP value had plummeted ( Ie,Taxed at 90$ a share, recieved 40$ a share was typical)By the time I was allowed to get my AON held shares, It was at 1$ a share.I lost 750,000$ Sorry W you could only tax the 750 I got. Read this as how your Social Security Stock Fund will work.
Retirement now looks like my value with the PBGC will be locked in at 29K ( the age 60 rate at 2004 value)With inflation thats maybe 18K/YR ten years from now. My 100k/yr that I earned, and was promised by UAL and protected by ALPA is gone. With 10 years until FAA agency forced retirement I cannot get those 20 years back. Now UAL says trust us, we have a "shared plan" for you to invest in.

Once a relationship has a lie, it is always tainted. Frequent flyers and pensioners should take note. Paul