February 11, 2012
Even Critics of Safety Net Increasingly Depend on ItBy BINYAMIN APPELBAUM and ROBERT GEBELOFF
LINDSTROM, Minn. — Ki Gulbranson owns a logo apparel shop, deals in jewelry on the side and referees youth soccer games. He makes about $39,000 a year and wants you to know that he does not need any help from the federal government.
He says that too many Americans lean on taxpayers rather than living within their means. He supports politicians who promise to cut government spending. In 2010, he printed T-shirts for the Tea Party campaign of a neighbor, Chip Cravaack, who ousted this region’s long-serving Democratic congressman.
Yet this year, as in each of the past three years, Mr. Gulbranson, 57, is counting on a payment of several thousand dollars from the federal government, a subsidy for working families called the earned-income tax credit. He has signed up his three school-age children to eat free breakfast and lunch at federal expense. And Medicare paid for his mother, 88, to have hip surgery twice.
There is little poverty here in Chisago County, northeast of Minneapolis, where cheap housing for commuters is gradually replacing farmland. But Mr. Gulbranson and many other residents who describe themselves as self-sufficient members of the American middle class and as opponents of government largess are drawing more deeply on that government with each passing year.
Dozens of benefits programs provided an average of $6,583 for each man, woman and child in the county in 2009, a 69 percent increase from 2000 after adjusting for inflation. In Chisago, and across the nation, the government now provides almost $1 in benefits for every $4 in other income.
Older people get most of the benefits, primarily through Social Security and Medicare, but aid for the rest of the population has increased about as quickly through programs for the disabled, the unemployed, veterans and children.
The government safety net was created to keep Americans from abject poverty, but the poorest households no longer receive a majority of government benefits. A secondary mission has gradually become primary: maintaining the middle class from childhood through retirement. The share of benefits flowing to the least affluent households, the bottom fifth, has declined from 54 percent in 1979 to 36 percent in 2007, according to a Congressional Budget Office analysis published last year.
And as more middle-class families like the Gulbransons land in the safety net in Chisago and similar communities, anger at the government has increased alongside. Many people say they are angry because the government is wasting money and giving money to people who do not deserve it. But more than that, they say they want to reduce the role of government in their own lives. They are frustrated that they need help, feel guilty for taking it and resent the government for providing it. They say they want less help for themselves; less help in caring for relatives; less assistance when they reach old age.
The expansion of government benefits has become an issue in the presidential campaign. Rick Santorum, who won 57 percent of the vote in Chisago County in the Republican presidential caucuses last week, has warned of “the narcotic of government dependency.” Newt Gingrich has compared the safety net to a spider web. Mitt Romney has said the nation must choose between an “entitlement society” and an “opportunity society.” All the candidates, including Ron Paul, have promised to cut spending and further reduce taxes.
The problem by now is familiar to most. Politicians have expanded the safety net without a commensurate increase in revenues, a primary reason for the government’s annual deficits and mushrooming debt. In 2000, federal and state governments spent about 37 cents on the safety net from every dollar they collected in revenue, according to a New York Times analysis. A decade later, after one Medicare expansion, two recessions and three rounds of tax cuts, spending on the safety net consumed nearly 66 cents of every dollar of revenue.
The recent recession increased dependence on government, and stronger economic growth would reduce demand for programs like unemployment benefits. But the long-term trend is clear. Over the next 25 years, as the population ages and medical costs climb, the budget office projects that benefits programs will grow faster than any other part of government, driving the federal debt to dangerous heights.
Americans are divided about the way forward. Seventy percent of respondents to a recent New York Times poll said the government should raise taxes. Fifty-six percent supported cuts in Medicare and Social Security. Forty-four percent favored both.
Support for spending cuts runs strong in Chisago, where anger at the government helped fuel Mr. Cravaack’s upset victory in 2010 over James L. Oberstar, the Democrat who had represented northeast Minnesota for 36 years.
“Spending like this is simply unsustainable, and it’s time to cut up Washington, D.C.’s credit card,” Mr. Cravaack said in a February speech to the Hibbing Area Chamber of Commerce. “It may hurt now, but it will be absolutely deadly for the next generation — that’s our children and our grandchildren.”
But the reality of life here is that Mr. Gulbranson and many of his neighbors continue to take as much help from the government as they can get. When pressed to choose between paying more and taking less, many people interviewed here hemmed and hawed and said they could not decide. Some were reduced to tears. It is much easier to promise future restraint than to deny present needs.
“How do you tell someone that you deserve to have heart surgery and you can’t?” Mr. Gulbranson said.
He paused.
“You have to help and have compassion as a people, because otherwise you have no society, but financially you can’t destroy yourself. And that is what we’re doing.”
He paused again, unable to resolve the dilemma.
“I feel bad for my children.”
Middle-Class Blues
Mr. Gulbranson has tried several ways to make a living in the storefront he bought from his father in 1979. He ran a gift shop, then shifted to selling jewelry. Nine years ago, he moved the gold scales to the back and bought equipment for screen-printing clothing. Through it all, he has never made more than about $46,000 in a year.
Meanwhile, the cost of life — and of raising five children — has climbed inexorably.
“I used to go out and try to have a meal at Perkins, which is a restaurant here, and get out of the store with $5,” Mr. Gulbranson said. “And now it’s probably up to $10.”
In recent years he has earned so little that he did not pay federal income taxes, although he still paid thousands of dollars toward Medicare and Social Security. The earned-income tax credit is intended to offset those payroll taxes, to encourage people with lower-paying jobs to remain in the work force.
Mr. Gulbranson said the money covered the fees for his children’s sports leagues and the cost of keeping the older ones on the family’s car insurance.
“If we didn’t get these government things, then probably my kids could not participate in some of the sports they do,” he said.
Almost half of all Americans lived in households that received government benefits in 2010, according to the Census Bureau. The share climbed from 37.7 percent in 1998 to 44.5 percent in 2006, before the recession, to 48.5 percent in 2010.
The trend reflects the expansion of the safety net. When the earned-income credit was introduced in 1975, eligibility was limited to households making the current equivalent of up to $26,997. In 2010, it was available to families making up to $49,317. The maximum payout, meanwhile, quadrupled on an inflation-adjusted basis.
It also reflects the deterioration of the middle class. Chisago boomed and prospered for decades as working families packed new subdivisions along Interstate 35, which runs up the western edge of the county like a flagpole with its base set firmly in Minneapolis. But recent years have been leaner. Per capita income in Chisago excluding government aid fell 6 percent on an inflation-adjusted basis between 2000 and 2007. Over the next two years, it fell an additional 7 percent. Nationally, per capita income excluding government benefits fell by 3 percent over the same 10 years.
Mr. Gulbranson’s business struggled as other companies, particularly construction firms, stopped ordering logo-emblazoned shirts. In 2009, the family claimed the earned-income credit for the first time on the advice of their accountant, who was claiming it for herself. The share of local families claiming the credit climbed 33 percent between 2000 and 2008, the most recent year for which data are available.
To make extra money, Mr. Gulbranson refereed 40 soccer games on Tuesday and Thursday nights last fall. His wife sold clothes at equestrian events and air-brushed novelties at craft fairs, driving around the country with a one-ton trailer hitched to a 20-foot van.
Their difficulties, Mr. Gulbranson said, have made it hard to imagine asking anyone to pay higher taxes.
“I don’t think most people could bear to pay more,” he said.
Instead, he said he would rather give up the earned-income credit the family now receives and start paying for school lunches for his children.
“I don’t demand that the government does this for me,” he said. “I don’t feel like I need the government.”
How about Social Security? And Medicare? Can he imagine retiring without government help?
“I don’t think so,” he said. “No. I don’t know. Not the way we expect to live as Americans.”
A Starring Role
Bob Kopka and his wife often drive to the American Legion hall in North Branch on Thursday nights, joining the crowd gathered in the basement bar for the weekly meat raffle. Almost everyone present relies on the government to pay for their medical care.
Mr. Kopka, 74, has had three heart procedures in recent years. His wife recently had surgery to remove cataracts from both eyes.
Without Medicare, Mr. Kopka said, the couple could not have paid for the treatments.
“Hell, no,” he said. “No. Never. She would have to go blind.”
And him?
“I’d die.”
Few federal programs are more popular than Medicare, which along with Social Security assures a minimum quality of life for older Americans.
None are more central to the nation’s financial problems. The Congressional Budget Office projects that government spending on medical benefits, even taking into account the cost containment measures in the 2010 health care law, will rise 60 percent over the next decade. Then it will start rising even more quickly. The cost of caring for each beneficiary continues to increase, and the government projects that Medicare enrollment will grow by roughly one-third as baby boomers enter old age.
Spending on medical benefits will account for a larger share of the projected increase in the federal budget over the next decade than any other kind of spending except interest payments on the federal debt.
Medicare’s starring role in the nation’s financial problems is not well understood. Only 22 percent of respondents to the New York Times poll correctly identified Medicare as the fastest-growing benefits program. A greater number of respondents, 27 percent, chose programs for the poor. That category, which includes Medicaid, is slightly larger than Medicare today but is projected to add only half as much to federal spending over the next decade.
Medicare’s financial problems are much worse than Social Security’s. A worker earning average wages still pays enough in Social Security taxes to cover the benefits the worker is likely to receive in retirement, according to an analysis by the Urban Institute. Social Security is still running out of money because the program must also support spouses who do not work and workers who earn lower wages. But Medicare’s situation is even more dire because a worker earning average wages still contributes only $1 in Medicare taxes for every $3 in benefits likely to be received in retirement.
A woman who was 45 in 2010, earning $43,500 a year, will pay taxes that will reach a value of $87,000 by the time she retires, assuming the money is invested at an annual interest rate 2 percentage points above inflation, according to the Urban Institute analysis. But on average, the government will then spend $275,000 on her medical care. The average is somewhat lower for men, because women live longer.
Medicare is often described as an insurance program, but its premiums are not nearly high enough. In simple terms, Americans are getting more than they pay for.
But many older residents in Chisago say this problem belongs to younger generations. They paid what they were told; they want to collect what they were promised.
Some, like the Kopkas, have savings they can tap. Mr. Kopka still owns the landscaping business he started after leaving the Navy in the early 1960s. He and his wife own a three-bedroom home on three acres, valued by the county at $153,700. The mortgage is paid. They hope to pass the house to their children.
Others have nothing else. Barbara Sullivan, 71, moved last year to the apartments above the Chisago County Senior Center in North Branch. Waiting on a recent Friday for the hot lunch, which costs $3.50, she watched roughly 20 people play bingo for prizes including canned soup and Chef Boyardee pasta.
“Most of the seniors around here are struggling to make it,” she said.
She counts herself among them. She lives on $1,220 a month in Social Security benefits and relied on Medicare to pay for an operation in November.
She believes that she is taking more from the government than she paid in taxes. She worries about the consequences for her grandchildren. She said she would like politicians to propose solutions.
“We’re reasonable people,” she said. “We’re not going to say, ‘Give it to me and let my grandchildren suffer.’ I think they underestimate seniors when they think that way.”
But she cannot imagine asking people to pay higher taxes. And as she considered making do with less, she started to cry.
“Without it, I’m not sure how I would live,” she said. “With the check I’m getting from Social Security, it’s a constant struggle on making sure that I pay my rent and have enough left for groceries.
“I haven’t bought a Christmas present, I haven’t bought clothing in the last five years, simply because I can’t afford it.”
Keeping a Promise
Representative Cravaack often says he entered politics to lift the burden of debt from the shoulders of his two sons.
“I vision that I open up their backpacks and I put in a 50-pound rock and zip it back up again,” Mr. Cravaack told the Minnesota Freedom Council in October 2010. “And I say, ‘Sorry, son, you’re going to have to hump this the rest of your life.’ Because that’s exactly what we’re doing to our national debt right now to our children.”
Mr. Cravaack, a 53-year-old Navy veteran and a retired pilot for Northwest Airlines, was grounded by sleep apnea in 2007. He and his wife, an executive at the drug company Novo Nordisk, decided he would stay home with their sons. He soon became the first man to serve as president of the Chisago Lakes Parent Teacher Organization.
In August 2009, while driving the children to North Branch, he heard a talk radio host urging people to protest President Obama’s health care legislation. Mr. Cravaack and about two dozen others spent more than two hours the next day in Mr. Oberstar’s North Branch office before a staff member told them the congressman would not meet them. The rejection convinced Mr. Cravaack that Mr. Oberstar should be replaced. One of the other protesters, a woman who had taken her six children to the office, became Mr. Cravaack’s campaign scheduler.
Two weeks after speaking to the Freedom Council, he beat Mr. Oberstar by 1.6 percentage points, or 4,407 votes. Voters in Chisago, the southern tip of an expansive district, provided the margin of victory.
“We have to break away,” Mr. Cravaack told supporters, “from relying on government to provide all the answers.”
Mr. Cravaack has said he drew unemployment benefits during a furlough from Northwest in the early 1990s. He did not respond to several requests for an interview, nor to an e-mail with questions about his views and about whether his family has drawn on other benefits programs. This account is based on a review of his public statements.
Shortly after arriving in Congress, Mr. Cravaack voted with a vast majority of House Republicans for a plan to remake Medicare by providing money to its beneficiaries to buy private insurance. Senate Democrats have rejected that plan.
But Mr. Cravaack has also consistently said the government should not reduce its largest category of spending — benefits for the current generation of retirees. He also says he does not support cuts for people who will turn 65 over the next decade.
“If you’re 55 years and older, you don’t have to listen to this conversation because we have to keep those promises,” Mr. Cravaack told The Daily Caller last April. “People like myself, 52, if you’re 54 or younger, we’re going to have a conversation.”
Tomorrow, Tomorrow
The government helps Matt Falk and his wife care for their disabled 14-year-old daughter. It pays for extra assistance at school and for trained attendants to stay with her at home while they work. It pays much of the cost of her regular visits to the hospital.
Mr. Falk, 42, would like the government to do less.
“She doesn’t need some of the stuff that we’re doing for her,” said Mr. Falk, who owns a heating and air-conditioning business in North Branch. “I don’t think it’s a bad thing if society can afford it, but given the situation that our society is facing, we just have to say that we can’t offer as much resources at school or that we need to pay a higher premium” for her medical care.
Mr. Falk, who voted for Mr. Cravaack, said he did not want to pay higher taxes and did not want the government to impose higher taxes on anyone else. He said that his family appreciated the government’s help and that living with less would be painful for them and many other families. But he said the government could not continue to operate on borrowed money.
“They’re going to have to reduce benefits,” he said. “We’re going to have to accept it, and we’re going to have to suffer.”
One of the oldest criticisms of democracy is that the people will inevitably drain the treasury by demanding more spending than taxes. The theory is that citizens who get more than they pay for will vote for politicians who promise to increase spending.
But Dean P. Lacy, a professor of political science at Dartmouth College, has identified a twist on that theme in American politics over the last generation. Support for Republican candidates, who generally promise to cut government spending, has increased since 1980 in states where the federal government spends more than it collects. The greater the dependence, the greater the support for Republican candidates.
Conversely, states that pay more in taxes than they receive in benefits tend to support Democratic candidates. And Professor Lacy found that the pattern could not be explained by demographics or social issues.
Chisago has shifted over 30 years from dependably Democratic to reliably Republican. Support for the Republican presidential candidate has increased relative to the national vote in each election since 1984. Senator John McCain won 55 percent of the vote here in 2008.
Residents say social issues play a role, but in recent years concerns about spending and taxes have predominated.
Voters in the North Branch school district have rejected increased financing for local schools in each of the past three years. In 2010, the district switched to a four-day school week, striking Monday from the calendar to save money.
Some of the fiercest advocates for spending cuts have drawn public benefits. Many, like Mr. Falk, have family members who rely on the government. They often cite that personal experience as the reason they want to cut government spending.
Brian Qualley, 49, has a sister who survived a brain tumor but was disabled by its removal. The government pays for her care at an assisted-living facility. Their mother scrapes by on Social Security.
Mr. Qualley said that the government should provide for those who need help, but that too much money was being wasted. Mr. Qualley, who owns a tattoo parlor in Harris, north of North Branch, said some of his customers paid with money from government disability checks.
“They’re getting $300 or $400 tattoos, and they’re wearing nice new Nike shoes that I can’t afford,” he said, looking up from working a complicated design into the left leg of a middle-aged woman. “I guess I shouldn’t say it because it’s my business, but I think a tattoo is a little too extravagant.”
But Mr. Qualley said he did not want to reduce benefits for the current generation of retirees. Rather, he said his own generation should get less, because they have time to prepare. This is a common position among the young and healthy in Chisago.
Mr. Qualley said he was saving some money for retirement, although, he added, “I don’t have a 401(k) or anything like that.”
“I also have a job that I don’t necessarily ever want to — or have to — retire from,” he said.
What if his hands start to shake as he gets older?
“Actually,” he said, the electric needle falling silent in his hand, “it’s my shoulders and neck that bother me most.”
Safety in Numbers
Barbara Nelson has little patience for people who say they will not need government help. She considers herself lucky she has not, and obligated to provide for those who do.
“Catastrophes happen in life,” she said, sitting in a coffee shop in Taylors Falls. “To be so arrogant that you think it won’t happen to you, that somehow you’re going to be one of the special ones, I disagree with that.”
Ms. Nelson, 61, who describes herself as a centrist Democrat, also dismisses the claim that people cannot afford to pay more taxes.
“Anyone who can come into a coffee shop and buy coffee is capable of paying more,” she said. “If someone’s life can be granted, in terms of adequate health care, if that means I give up five cups of coffee a month, that is a small price to pay.”
Gordy Peterson, 62, who has used a wheelchair for 30 years since a construction accident, has reluctantly reached a similar conclusion.
“I’m a conservative,” he said by way of introducing himself. He built his own house before his injury and paid for it in cash. He still thinks the government should operate that way. He never intended to depend on federal aid and said he sometimes felt guilty about it.
But for the last three decades, he has received a regular check from the Social Security disability insurance program, and Medicare has helped to pay his medical bills.
“Here I’m getting money, and everybody is struggling,” he said. “Even though it ain’t no cakewalk for me.”
Mr. Peterson used a workers’ compensation settlement to buy a farm that he managed with his brother-in-law, who is mentally handicapped and also on government disability.
“He was my legs, and we worked it,” Mr. Peterson said.
They grew corn, soybeans and rye, and even kept steers for a while. In good years they earned enough to live on. In bad years they lived on the government’s checks. Life would have been very difficult without them, he said.
Mr. Peterson, an easygoing man who looks down when he thinks and smiles sheepishly when he offers an opinion, looked down after completing the story of his own dependence on the safety net.
“It’s hard to beat up on the government when they’ve been so good to you,” he finally said. “I’ve never really thought about it, I guess.”
Lately, the government has been very good, indeed. The county, with federal financing, bought a corner of Mr. Peterson’s farm to build a new interchange for Interstate 35. He used the money to open a gas station at the edge of the farm in 2008 to serve the traffic that rolls off the new ramp. The business is prospering, and he no longer worries that he will need to depend on Social Security.
“But you can’t take that away,” he said. “My own sister has only Social Security. That’s all. That’s all she’s going to have. And if you take that away from her, Christ, she’d be a street person. I don’t think we can cut them off on that.”
How about higher taxes?
Maybe a little higher, he said. Maybe.
“I’m glad I’m not a politician,” he said. “We’re all going to complain no matter what they do. Nobody wants to put a noose around their own neck.”
Showing posts with label Government. Show all posts
Showing posts with label Government. Show all posts
Sunday, February 12, 2012
Most Expect to Give More Than They Receive, Poll FindsBy ALLISON KOPICKI
February 11, 2012
Most Expect to Give More Than They Receive, Poll FindsBy ALLISON KOPICKI
A majority of Americans say they expect to pay more in federal taxes over their lifetime than they will ever receive in benefits from the government, according to a recent New York Times poll. At the same time, the taxes Americans pay today are not keeping pace with the growing costs of government.
Medicare is the program projected to add the most to federal spending over the next decade, likely increasing the government’s annual budget deficits. But only one in five Americans surveyed named Medicare as the fastest-growing benefits program. From a number of choices, 27 percent identified programs for the poor, 17 percent said unemployment benefits and programs, 14 percent said Social Security and 5 percent named veterans’ benefits. Twenty-two percent named Medicare.
Most Americans realize that the taxes they pay during their working years may not be enough to cover either their Medicare or Social Security benefits. But a majority of those surveyed, 55 percent, also said they would pay more in taxes than they would ever get back from the government in benefits.
In follow-up interviews, some respondents said that was because their tax dollars were also paying for government programs that did not benefit them directly, like foreign aid, the military and assistance for the poor. Some also said government waste contributed to their pessimism.
Majorities of Americans also say Social Security and Medicare will not be there for them when they reach retirement. Nearly three-fourths of those under 45 do not expect Medicare to provide benefits for them, and more than two-thirds of these younger Americans said Social Security would not have money available for their retirement years.
That pessimism is another likely reason that 6 in 10 Americans under the age of 45 said the taxes they pay over their lifetime would exceed the benefits they would receive.
Those who currently receive benefits from the government were more likely than others to say their taxes would match what they receive in benefits.
To keep Medicare solvent, a majority of Americans favor raising taxes or premiums rather than reducing benefits. When asked to choose just one proposal to reduce the program’s deficit, 37 percent said they supported higher taxes on current workers, and 22 percent supported increasing the premiums paid by current recipients. Just 16 percent supported reducing benefits for future recipients, and 8 percent endorsed reducing benefits of current Medicare recipients.
Eighty-five percent agreed that increasing taxes on the wealthy should play a role in reducing the overall federal deficit, and three in five said it should play a major role. Seventy percent also favored raising taxes on all Americans, although only 32 percent said this should play a major role.
And 56 percent favored cuts in Medicare and Social Security; only 20 percent said this should play a major role.
The poll was conducted from Dec. 14 to 18 among 992 adults nationwide and has a margin of sampling error of plus or minus three percentage points.
Most Expect to Give More Than They Receive, Poll FindsBy ALLISON KOPICKI
A majority of Americans say they expect to pay more in federal taxes over their lifetime than they will ever receive in benefits from the government, according to a recent New York Times poll. At the same time, the taxes Americans pay today are not keeping pace with the growing costs of government.
Medicare is the program projected to add the most to federal spending over the next decade, likely increasing the government’s annual budget deficits. But only one in five Americans surveyed named Medicare as the fastest-growing benefits program. From a number of choices, 27 percent identified programs for the poor, 17 percent said unemployment benefits and programs, 14 percent said Social Security and 5 percent named veterans’ benefits. Twenty-two percent named Medicare.
Most Americans realize that the taxes they pay during their working years may not be enough to cover either their Medicare or Social Security benefits. But a majority of those surveyed, 55 percent, also said they would pay more in taxes than they would ever get back from the government in benefits.
In follow-up interviews, some respondents said that was because their tax dollars were also paying for government programs that did not benefit them directly, like foreign aid, the military and assistance for the poor. Some also said government waste contributed to their pessimism.
Majorities of Americans also say Social Security and Medicare will not be there for them when they reach retirement. Nearly three-fourths of those under 45 do not expect Medicare to provide benefits for them, and more than two-thirds of these younger Americans said Social Security would not have money available for their retirement years.
That pessimism is another likely reason that 6 in 10 Americans under the age of 45 said the taxes they pay over their lifetime would exceed the benefits they would receive.
Those who currently receive benefits from the government were more likely than others to say their taxes would match what they receive in benefits.
To keep Medicare solvent, a majority of Americans favor raising taxes or premiums rather than reducing benefits. When asked to choose just one proposal to reduce the program’s deficit, 37 percent said they supported higher taxes on current workers, and 22 percent supported increasing the premiums paid by current recipients. Just 16 percent supported reducing benefits for future recipients, and 8 percent endorsed reducing benefits of current Medicare recipients.
Eighty-five percent agreed that increasing taxes on the wealthy should play a role in reducing the overall federal deficit, and three in five said it should play a major role. Seventy percent also favored raising taxes on all Americans, although only 32 percent said this should play a major role.
And 56 percent favored cuts in Medicare and Social Security; only 20 percent said this should play a major role.
The poll was conducted from Dec. 14 to 18 among 992 adults nationwide and has a margin of sampling error of plus or minus three percentage points.
The Numbers Behind the ArticleBy ROBERT GEBELOFF and BINYAMIN APPELBAUM
February 12, 2012
The Numbers Behind the ArticleBy ROBERT GEBELOFF and BINYAMIN APPELBAUM
The article and graphics package about government benefits draws heavily on figures tabulated by the Bureau of Economic Analysis, a branch of the Commerce Department that serves as a scorekeeper for the nation’s economy.
The bureau tracks economic activity at the local, state and national levels. The Times used data from 2009, the most recent year for which the bureau has published local figures, but the picture has not changed substantially over the past two years. The most recent national figures, for 2011, show Americans still get 18 percent of their income from government benefits.
The bureau calculates that last year Americans received $8.4 trillion from work (about 65 percent of income), $2.2 trillion from investments (17 percent), and $2.3 trillion in cash, medical services and other government benefits.
Benefits are distributed through more than 50 programs ranging from the giants — Social Security, Medicare and Medicaid — to the $40 coupons the government issued to people with old televisions so they could buy digital converter boxes.
Tracking benefits is not an exact science, particularly at the county level, because some federal programs report distributions only by state. Tricare, which provides medical benefits for veterans and the dependents of active-duty personnel, is one such program. The bureau of analysis estimates that 75 percent of its county-level data is drawn from actual tabulations, while the rest is based on statistical estimates.
The results are the most comprehensive available data on county-level economies, widely used by government planners and academic researchers. But The Times’s county-level data, which is based on the government’s, are estimates and subject to estimation errors, particularly in counties with small populations.
Another issue: How to treat payments that the government makes on behalf of beneficiaries, like Medicare payments to hospitals. The bureau counts such payments as income for the beneficiaries, because it reflects the value of the service they received. Some researchers caution that this method creates the misleading impression that a person has become very wealthy when in fact the person has become very sick. And while the ability to gain access to treatment is a form of wealth, it is conditional. No one would have access to the money without being sick.
The Bureau of Economic Analysis also differs from some other federal agencies in counting tax credits, like the earned income credit, as a form of income. The Congressional Budget Office, for example, treats such credits as a reduction in taxes paid. In this case the difference does not affect the total amount of income.
The question is whether money paid to the government and then returned in the form of a tax credit should be treated as income from the original source, or from the government. The budget office methodology yields a lower estimate of the share of income from benefits.
Notwithstanding these differences, the bureau data are broadly consistent with other analyses of the distribution of government benefits, and of the trend toward increased dependence.
The budget office is a second major source of the data cited in the story. The Times in particular relied on its projections of future federal spending and revenues, which were updated in January. The nonpartisan office is widely respected, but its forecasts incorporate a host of assumptions — from the pace of growth to the whims of Congress. Take these, too, with grains of salt.
The estimate of the share of benefits going to low-income households is from a budget office study published last fall. The figures cited come from an analysis of the Current Population Survey by the Census Bureau, which is known to under-report participation in some benefits programs, a problem that has worsened in recent years. The budget office concluded, however, that the effect on its calculations was small, in the neighborhood of a single percentage point.
The Census Bureau also estimates the share of Americans living in households that get benefits. These data, from its sporadic Survey of Income and Program Participation, are drawn from a smaller sample than the Current Population Survey, but are gathered more carefully and therefore regarded by experts as more accurate in tracking the flow of benefits.
All dollar figures in the story were converted to 2011 dollars using the inflation index maintained by the Federal Reserve Bank of St. Louis rather than the widely quoted Consumer Price Index, because the St. Louis index is based on gross domestic product, which experts regard as a more relevant baseline for comparing changes in the level of government spending.
The Numbers Behind the ArticleBy ROBERT GEBELOFF and BINYAMIN APPELBAUM
The article and graphics package about government benefits draws heavily on figures tabulated by the Bureau of Economic Analysis, a branch of the Commerce Department that serves as a scorekeeper for the nation’s economy.
The bureau tracks economic activity at the local, state and national levels. The Times used data from 2009, the most recent year for which the bureau has published local figures, but the picture has not changed substantially over the past two years. The most recent national figures, for 2011, show Americans still get 18 percent of their income from government benefits.
The bureau calculates that last year Americans received $8.4 trillion from work (about 65 percent of income), $2.2 trillion from investments (17 percent), and $2.3 trillion in cash, medical services and other government benefits.
Benefits are distributed through more than 50 programs ranging from the giants — Social Security, Medicare and Medicaid — to the $40 coupons the government issued to people with old televisions so they could buy digital converter boxes.
Tracking benefits is not an exact science, particularly at the county level, because some federal programs report distributions only by state. Tricare, which provides medical benefits for veterans and the dependents of active-duty personnel, is one such program. The bureau of analysis estimates that 75 percent of its county-level data is drawn from actual tabulations, while the rest is based on statistical estimates.
The results are the most comprehensive available data on county-level economies, widely used by government planners and academic researchers. But The Times’s county-level data, which is based on the government’s, are estimates and subject to estimation errors, particularly in counties with small populations.
Another issue: How to treat payments that the government makes on behalf of beneficiaries, like Medicare payments to hospitals. The bureau counts such payments as income for the beneficiaries, because it reflects the value of the service they received. Some researchers caution that this method creates the misleading impression that a person has become very wealthy when in fact the person has become very sick. And while the ability to gain access to treatment is a form of wealth, it is conditional. No one would have access to the money without being sick.
The Bureau of Economic Analysis also differs from some other federal agencies in counting tax credits, like the earned income credit, as a form of income. The Congressional Budget Office, for example, treats such credits as a reduction in taxes paid. In this case the difference does not affect the total amount of income.
The question is whether money paid to the government and then returned in the form of a tax credit should be treated as income from the original source, or from the government. The budget office methodology yields a lower estimate of the share of income from benefits.
Notwithstanding these differences, the bureau data are broadly consistent with other analyses of the distribution of government benefits, and of the trend toward increased dependence.
The budget office is a second major source of the data cited in the story. The Times in particular relied on its projections of future federal spending and revenues, which were updated in January. The nonpartisan office is widely respected, but its forecasts incorporate a host of assumptions — from the pace of growth to the whims of Congress. Take these, too, with grains of salt.
The estimate of the share of benefits going to low-income households is from a budget office study published last fall. The figures cited come from an analysis of the Current Population Survey by the Census Bureau, which is known to under-report participation in some benefits programs, a problem that has worsened in recent years. The budget office concluded, however, that the effect on its calculations was small, in the neighborhood of a single percentage point.
The Census Bureau also estimates the share of Americans living in households that get benefits. These data, from its sporadic Survey of Income and Program Participation, are drawn from a smaller sample than the Current Population Survey, but are gathered more carefully and therefore regarded by experts as more accurate in tracking the flow of benefits.
All dollar figures in the story were converted to 2011 dollars using the inflation index maintained by the Federal Reserve Bank of St. Louis rather than the widely quoted Consumer Price Index, because the St. Louis index is based on gross domestic product, which experts regard as a more relevant baseline for comparing changes in the level of government spending.
Even Critics of Safety Net Increasingly Depend on It JEREMY WHITE, ROBERT GEBELOFF, FORD FESSENDEN, ARCHIE TSE and ALAN McLEAN Source: Bureau of Economic Analysis
Wednesday, July 20, 2011
The GOP’s fuzzy math By Matt Miller
The GOP’s fuzzy math By Matt Miller, Wednesday, July 20, 8:40 AM
It’s one thing for a political party to lose its moral bearings – after all, community values evolve, and large swaths of people and their elected representatives can end up on the wrong side of history on such questions as slavery, suffrage, and civil rights. But when a party loses its mathematical bearings – well, that’s a little shocking.
Yet that’s what’s happened to the Republican Party. The debt ceiling endgame has exposed the denial gripping the GOP in the face of the inevitable loss of “lower taxes” as the core of the party’s identity. You can feel the Republicans’ pain; tax cuts have been the party’s defining issue since Ronald Reagan rode them to power in 1980. But in an aging America, the numbers no longer work, and Republicans have failed to develop a new conservative vision to replace their fading mantra.
The “cap, cut and balance” plan passed by the House Tuesday night captures Republican denial perfectly. The plan would cap federal spending at 19.9 percent of GDP by 2018, with the goal of lowering it to18 percent over time. Similar caps have been endorsed by most of the GOP’s presidential candidates.
You’d never know from listening to Republicans that these goals are mathematically and politically unattainable.
But they are. Why? If there’s one fact you need to emblazon in your mind to make sense of the current debate, it is that Ronald Reagan ran the federal government at 22 percent of GDP back when our population was much younger. (Under President Obama, the extraordinary measures enacted to fight the recession – plus a collapse in the denominator, GDP -- have boosted spending to around 24 percent, while revenue has dropped to 15 percent from its 18-19 percent longtime average).
It is simply not plausible to argue that as we double the number of seniors on Social Security and Medicare, Uncle Sam will be able to operate at spending levels 10 to 20 percent below those over which America’s modern conservative icon presided. (Though, as my colleague Dana Milbank notes, Reagan agreed to raise taxes 11 times.) Today there’s no question: Taxes must rise.
Republican “thinking” about these facts is telling. According to the Wall Street Journal, House leaders picked 19.9 percent as their cap “because it is in line with the average spending level over the last thirty years.”
Well, sorry, GOP: The average spending levels of the last 30 years are irrelevant because we weren’t retiring 76 million baby boomers over the last 30 years. And decades ago per capita health costs for seniors were far smaller than they are today.
Let me pause so there’s no caricaturing of these views as belonging to some “tax and spend liberal.” I’ve advocated more “conservative” changes to Social Security than Paul Ryan did in his budget or his prior “roadmap.” I’ve urged progressives to realize that if we don’t slow Medicare’s outsized growth, there will be no money left for poor children, infrastructure, or R&D. And I’ve said we need to learn from countries like Singapore that get outstanding results in health care while spending a fraction of what we spend. So count me as a longtime entitlement reformer who has the arrows from my friends on the left to prove it.
Here’s the point: Even if we enacted the platonic ideal of sane entitlement reform, and trimmed defense (as we need to), Republican budget math still doesn’t come close to adding up. Instead, as my colleagues at the Center for American Progress have shown, shrinking spending to sub-Reagan levels while retiring the boomers would involve dramatic cuts in everything else Americans think of as government – from national parks to NASA to the FBI to cancer research to student loans.
So why does the GOP pretend otherwise? Because acknowledging mathematical reality is too politically painful. Because uttering this simple phrase – “to accommodate the retirement of the baby boomers, taxes will need to rise” – is forbidden by official Republican doctrine.
Because official Republican doctrine has banned honest math.
Aversion to honest math explains why the Ryan budget embraced by the GOP doesn’t balance the budget — even after Medicare changes that may prove fatal to the party -- until the 2030s and racks up at least $14 trillion in debt between now and then.
That’s because the Ryan budget cuts taxes. Balanced budget math in an aging America doesn’t work without higher taxes.
This doesn’t mean we shouldn’t cut taxes in the near-term to goose the economy. But when it comes to a long-term fiscal fix, the GOP’s math anxiety has produced months of debt ceiling charades instead of framing the debate we really need, which is this: Once the economy has more fully recovered, how do we lift taxes to fund the boomers’ retirement in ways least harmful to economic growth?
My own view is that this means slashing payroll taxes and corporate income taxes, while more than offsetting those tax cuts with higher taxes on consumption and dirty energy. But we can’t even get to this conversation until Republicans relinquish the fantasy that we can keep cutting overall taxes as America ages.
At bottom, this fantasy masks fear. Republicans’ refusal to let go of the old time religion shows how little work the party has done to craft an agenda equal to America’s current challenges. The party has abandoned problem-solving for brand preservation. If tax cuts aren’t our defining issue, Republican pols ask themselves, what distinguishes us from Democrats? Why should voters choose us?
Maybe the Gang of Six can end the GOP’s war on math, but I’m skeptical. For now, if it’s a choice between defying math and staring into this policy and political abyss, Republicans choose defiance.
It’s one thing for a political party to lose its moral bearings – after all, community values evolve, and large swaths of people and their elected representatives can end up on the wrong side of history on such questions as slavery, suffrage, and civil rights. But when a party loses its mathematical bearings – well, that’s a little shocking.
Yet that’s what’s happened to the Republican Party. The debt ceiling endgame has exposed the denial gripping the GOP in the face of the inevitable loss of “lower taxes” as the core of the party’s identity. You can feel the Republicans’ pain; tax cuts have been the party’s defining issue since Ronald Reagan rode them to power in 1980. But in an aging America, the numbers no longer work, and Republicans have failed to develop a new conservative vision to replace their fading mantra.
The “cap, cut and balance” plan passed by the House Tuesday night captures Republican denial perfectly. The plan would cap federal spending at 19.9 percent of GDP by 2018, with the goal of lowering it to18 percent over time. Similar caps have been endorsed by most of the GOP’s presidential candidates.
You’d never know from listening to Republicans that these goals are mathematically and politically unattainable.
But they are. Why? If there’s one fact you need to emblazon in your mind to make sense of the current debate, it is that Ronald Reagan ran the federal government at 22 percent of GDP back when our population was much younger. (Under President Obama, the extraordinary measures enacted to fight the recession – plus a collapse in the denominator, GDP -- have boosted spending to around 24 percent, while revenue has dropped to 15 percent from its 18-19 percent longtime average).
It is simply not plausible to argue that as we double the number of seniors on Social Security and Medicare, Uncle Sam will be able to operate at spending levels 10 to 20 percent below those over which America’s modern conservative icon presided. (Though, as my colleague Dana Milbank notes, Reagan agreed to raise taxes 11 times.) Today there’s no question: Taxes must rise.
Republican “thinking” about these facts is telling. According to the Wall Street Journal, House leaders picked 19.9 percent as their cap “because it is in line with the average spending level over the last thirty years.”
Well, sorry, GOP: The average spending levels of the last 30 years are irrelevant because we weren’t retiring 76 million baby boomers over the last 30 years. And decades ago per capita health costs for seniors were far smaller than they are today.
Let me pause so there’s no caricaturing of these views as belonging to some “tax and spend liberal.” I’ve advocated more “conservative” changes to Social Security than Paul Ryan did in his budget or his prior “roadmap.” I’ve urged progressives to realize that if we don’t slow Medicare’s outsized growth, there will be no money left for poor children, infrastructure, or R&D. And I’ve said we need to learn from countries like Singapore that get outstanding results in health care while spending a fraction of what we spend. So count me as a longtime entitlement reformer who has the arrows from my friends on the left to prove it.
Here’s the point: Even if we enacted the platonic ideal of sane entitlement reform, and trimmed defense (as we need to), Republican budget math still doesn’t come close to adding up. Instead, as my colleagues at the Center for American Progress have shown, shrinking spending to sub-Reagan levels while retiring the boomers would involve dramatic cuts in everything else Americans think of as government – from national parks to NASA to the FBI to cancer research to student loans.
So why does the GOP pretend otherwise? Because acknowledging mathematical reality is too politically painful. Because uttering this simple phrase – “to accommodate the retirement of the baby boomers, taxes will need to rise” – is forbidden by official Republican doctrine.
Because official Republican doctrine has banned honest math.
Aversion to honest math explains why the Ryan budget embraced by the GOP doesn’t balance the budget — even after Medicare changes that may prove fatal to the party -- until the 2030s and racks up at least $14 trillion in debt between now and then.
That’s because the Ryan budget cuts taxes. Balanced budget math in an aging America doesn’t work without higher taxes.
This doesn’t mean we shouldn’t cut taxes in the near-term to goose the economy. But when it comes to a long-term fiscal fix, the GOP’s math anxiety has produced months of debt ceiling charades instead of framing the debate we really need, which is this: Once the economy has more fully recovered, how do we lift taxes to fund the boomers’ retirement in ways least harmful to economic growth?
My own view is that this means slashing payroll taxes and corporate income taxes, while more than offsetting those tax cuts with higher taxes on consumption and dirty energy. But we can’t even get to this conversation until Republicans relinquish the fantasy that we can keep cutting overall taxes as America ages.
At bottom, this fantasy masks fear. Republicans’ refusal to let go of the old time religion shows how little work the party has done to craft an agenda equal to America’s current challenges. The party has abandoned problem-solving for brand preservation. If tax cuts aren’t our defining issue, Republican pols ask themselves, what distinguishes us from Democrats? Why should voters choose us?
Maybe the Gang of Six can end the GOP’s war on math, but I’m skeptical. For now, if it’s a choice between defying math and staring into this policy and political abyss, Republicans choose defiance.
Thursday, July 07, 2011
The Unexamined Society By DAVID BROOKS
The Unexamined Society By DAVID BROOKS
Over the past 50 years, we’ve seen a number of gigantic policies produce disappointing results — policies to reduce poverty, homelessness, dropout rates, single-parenting and drug addiction. Many of these policies failed because they were based on an overly simplistic view of human nature. They assumed that people responded in straightforward ways to incentives. Often, they assumed that money could cure behavior problems.Fortunately, today we are in the middle of a golden age of behavioral research. Thousands of researchers are studying the way actual behavior differs from the way we assume people behave. They are coming up with more accurate theories of who we are, and scores of real-world applications. Here’s one simple example:
When you renew your driver’s license, you have a chance to enroll in an organ donation program. In countries like Germany and the U.S., you have to check a box if you want to opt in. Roughly 14 percent of people do. But behavioral scientists have discovered that how you set the defaults is really important. So in other countries, like Poland or France, you have to check a box if you want to opt out. In these countries, more than 90 percent of people participate.
This is a gigantic behavior difference cued by one tiny and costless change in procedure.
Yet in the middle of this golden age of behavioral research, there is a bill working through Congress that would eliminate the National Science Foundation’s Directorate for Social, Behavioral and Economic Sciences. This is exactly how budgets should not be balanced — by cutting cheap things that produce enormous future benefits.
Let’s say you want to reduce poverty. We have two traditional understandings of poverty. The first presumes people are rational. They are pursuing their goals effectively and don’t need much help in changing their behavior. The second presumes that the poor are afflicted by cultural or psychological dysfunctions that sometimes lead them to behave in shortsighted ways. Neither of these theories has produced much in the way of effective policies.
Eldar Shafir of Princeton and Sendhil Mullainathan of Harvard have recently, with federal help, been exploring a third theory, that scarcity produces its own cognitive traits.
A quick question: What is the starting taxi fare in your city? If you are like most upper-middle-class people, you don’t know. If you are like many struggling people, you do know. Poorer people have to think hard about a million things that affluent people don’t. They have to make complicated trade-offs when buying a carton of milk: If I buy milk, I can’t afford orange juice. They have to decide which utility not to pay.
These questions impose enormous cognitive demands. The brain has limited capacities. If you increase demands on one sort of question, it performs less well on other sorts of questions.
Shafir and Mullainathan gave batteries of tests to Indian sugar farmers. After they sell their harvest, they live in relative prosperity. During this season, the farmers do well on the I.Q. and other tests. But before the harvest, they live amid scarcity and have to think hard about a thousand daily decisions. During these seasons, these same farmers do much worse on the tests. They appear to have lower I.Q.’s. They have more trouble controlling their attention. They are more shortsighted. Scarcity creates its own psychology.
Princeton students don’t usually face extreme financial scarcity, but they do face time scarcity. In one game, they had to answer questions in a series of timed rounds, but they could borrow time from future rounds. When they were scrambling amid time scarcity, they were quick to borrow time, and they were nearly oblivious to the usurious interest rates the game organizers were charging. These brilliant Princeton kids were rushing to the equivalent of payday lenders, to their own long-term detriment.
Shafir and Mullainathan have a book coming out next year, exploring how scarcity — whether of time, money or calories (while dieting) — affects your psychology. They are also studying how poor people’s self-perceptions shape behavior. Many people don’t sign up for the welfare benefits because they are intimidated by the forms. Shafir and Mullainathan asked some people at a Trenton soup kitchen to relive a moment when they felt competent and others to recount a neutral experience. Nearly half of the self-affirming group picked up an available benefits package afterward. Only 16 percent of the neutral group did.
People are complicated. We each have multiple selves, which emerge or don’t depending on context. If we’re going to address problems, we need to understand the contexts and how these tendencies emerge or don’t emerge. We need to design policies around that knowledge. Cutting off financing for this sort of research now is like cutting off navigation financing just as Christopher Columbus hit the shoreline of the New World.
Monday, June 06, 2011
Where Wisdom Lives By DAVID BROOKS
Where Wisdom Lives By DAVID BROOKS
Sometimes life presents you with a basic philosophical choice. Americans are going to have to confront a giant one over the next several years.
It starts in the wonky world of Medicare. As presently constructed, Medicare is based on an open-ended fee-for-service system. The government pays providers each time they deliver a service. The more services they provide, the more money they get.
The fee-for-service system is incredibly popular. Recipients don’t have to think about the costs of their treatment, and they get lots of free money. The average 56-year-old couple pays about $140,000 into the Medicare system over a lifetime and receives about $430,000 in benefits back. The program is also completely unaffordable. Medicare has unfinanced liabilities of more than $30 trillion. The Medicare trustees say the program is about a decade from insolvency.
Some Democrats simply want to do nothing as Medicare careens toward bankruptcy. Last Sunday on “Face the Nation,” for example, Nancy Pelosi said, “I could never support any arrangement that reduced benefits for Medicare.”
Fortunately, more responsible Democrats are looking for ways to save the system. This is where the philosophical issues come in. They involve questions like: Who should make the crucial decisions? Where does wisdom reside?
Democrats tend to be skeptical that dispersed consumers can get enough information to make smart decisions. Health care is phenomenally complicated. Providers have much more information than consumers. Insurance companies are rapacious and are not in the business of optimizing care.
Given these limitations, Democrats generally seek to concentrate decision-making and cost-control power in the hands of centralized experts. Under the Obama health care law, a team of 15 officials will be created to discover best practices and come up with cost-cutting measures. There will also be a Center for Medicare and Medicaid Innovation in Washington to organize medical innovation. Centralized officials will decide how to set national reimbursement rates.
Republicans at their best are skeptical about top-down decision-making. They are skeptical that centralized experts can accurately predict costs. In 1967, the House Ways and Means Committee projected that Medicare would cost $12 billion by 1990. It actually cost $110 billion. They are skeptical that centralized experts can predict human behavior accurately enough to socially engineer new programs. Medicare’s chief actuary predicted that 400,000 people would sign up for the new health care law’s high-risk pools. In fact, only 18,000 have.
They are skeptical that political authorities can, in the long run, resist pressure to hand out free goodies. They are also skeptical that planners can control the unintended effects of their decisions.
Republicans point out that Medicare has tried to control costs centrally for decades with terrible results. They argue that a decentralized process of trial and error will work better, as long as the underlying incentives are right. They suggest replacing the fee-for-service with a premium support system. Seniors would select from a menu of insurance plans. Their consumer choices would drive a continual, bottom-up process of innovation. Providers could use local knowledge to meet specific circumstances.
Representative Paul Ryan’s Republican plan is controversial because of the amount of public money he would dedicate to his premium support plan, but the basic architecture of the plan has been around for decades. In less rigidly ideological times, many Democrats supported variations of this basic approach.
Advocates, like Alain Enthoven of Stanford, point out that competition-based plans have improved outcomes in many places. Such plans cover employees of the University of California and state employees in California, Wisconsin and Minnesota. They also note that the Medicare prescription drug benefit also uses a competition model. Consumers have been adept at negotiating a complex marketplace, and costs are 41 percent below expectations.
The fact is, there is no dispositive empirical proof about which method is best — the centralized technocratic one or the decentralized market-based one. Politicians wave studies, but they’re really just reflecting their overall worldviews. Democrats have much greater faith in centralized expertise. Republicans (at least the most honest among them) believe that the world is too complicated, knowledge is too imperfect. They have much greater faith in the decentralized discovery process of the market.
I’d only add two things. This basic debate will define the identities of the two parties for decades. In the age of the Internet and open-source technology, the Democrats are mad to define themselves as the party of top-down centralized planning. Moreover, if 15 Washington-based experts really can save a system as vast as Medicare through a process of top-down control, then this will be the only realm of human endeavor where that sort of engineering actually works.
Saturday, June 26, 2010
Moratorium Won’t Reduce Drilling Risks By JOE NOCERA
June 25, 2010
Moratorium Won’t Reduce Drilling Risks By JOE NOCERA
“This case asks whether the federal government’s imposition of a general moratorium on deepwater drilling for oil in the Gulf of Mexico was imposed contrary to law. Before the Court is the plaintiffs’ motion for preliminary injunction. For the following reasons, the motion is GRANTED."
So began a stinging 22-page decision, issued this week by a Federal District Court judge, Martin L. C. Feldman. He was rejecting, pretty much out of hand, the Obama administration’s plan to place a six-month moratorium on all drilling projects in the Gulf of Mexico. It would have amounted to a shutdown of 33 deepwater rigs, the kind that can drill the deepest and are the most complex to operate — and the kind that can cost well over $500,000 a day even when they’re just sitting idle.
The plaintiffs consisted of a group of companies that make their money servicing gulf drilling operations; they were led by a shipping company, Hornbeck Offshore Services, which employs 1,300 and has spent nearly $700 million in the last five years building a new generation of ships for use in the gulf. “We saw this as putting our Gulf of Mexico business model at risk,” said Samuel Giberga, the company’s general counsel.
But he also believed that the administration’s edict violated the law. The secretary of the interior, Ken Salazar, had failed to take into account the enormous economic pain that would be inflicted on the gulf region by such a moratorium, as he was required to under the law, Hornbeck argued. The administration was punishing deepwater drillers that had complied with all the regulations surrounding deepwater drilling — and had gotten their permits fair and square. Right after the spill, Mr. Giberga told me, a government SWAT team had inspected all the other rigs — and found them to be safe. The Deepwater Horizon disaster notwithstanding, the federal government had failed to articulate any good reason why all the other rigs in the gulf had to be stopped as well.
And Judge Feldman agreed with Hornbeck on every count. Concluding that the decision to impose the moratorium was “arbitrary and capricious,” he wrote, “An invalid agency decision to suspend drilling of wells in depths of over 500 feet simply cannot justify the immeasurable effect on the plaintiffs, the local economy, the gulf region, and the critical present-day aspect of the availability of domestic energy in this country.”
Over the next few days, three things happened, all of them completely predicable. The Interior Department vowed to appeal. Gulf state politicians, starting with Bobby Jindal, the governor of Louisiana — whose state has suffered tremendously as a result of the BP accident — pleaded with the federal government to drop the appeal and allow drilling to continue. And environmentalists derided Judge Feldman’s decision.
“This is the Ninth Circuit, which is the go-to court for the oil and gas industry,” said Elgie Holstein, the oil spill response coordinator for the Environmental Defense Fund. “I fully expect it to be overturned on appeal.”
Robert F. Kennedy Jr., the president of Waterkeeper Alliance, told The Mobile Press-Register that drilling deepwater wells right now, “when we don’t even know what caused this accident, seems insane.” He added, “I don’t think anybody responsible would advocate more drilling right now.” And so on.
A simple six-month drilling moratorium. It sounds like such a sensible, obvious, uncontroversial thing to do in the wake of the worst environmental disaster in this nation’s history, doesn’t it? Turns out, it’s anything but.
•
As a percentage of the world’s oil production — some 84.5 million barrels a day — the 1.75 million barrels a day that is extracted from the Gulf of Mexico is not a huge number. (That’s why oil prices haven’t risen as a result of the Deepwater Horizon disaster.) But in terms of the country’s domestic production, it is extremely important. According to Gibson Consulting, a third of all United States oil production comes from the Gulf of Mexico.
What’s more, virtually every new well being drilled in the gulf is a deepwater well — because, after all, that’s where the oil is. “Oil from shallow waters peaked in the 1990s,” said Cutler Cleveland, a professor of geography and environment at Boston University. “And deepwater peaked five or six years ago. So now we are moving into ultra deepwater — over 5,000 feet.” And, he adds, 80 percent of the reserves that remain in the gulf are either in deep or ultra deepwater.
So the first point is: Until that glorious day comes that our cars are fueled by batteries and our homes are heated by solar power, we need as much domestic oil as we can get our hands on, oil that exists in the deep waters of the Gulf of Mexico. Shutting down drilling in the gulf — even temporarily — means we’ll be importing even more oil from other countries than we already do.
Nor is it clear, if the moratorium went into effect, the pullback would be all that temporary. For one thing, the moratorium is contingent on a special commission making yet more safety recommendations in six months, but there is no guarantee they’ll be done by then. Meanwhile, there are only so many floating rigs in the world, and Brazil, for instance, has just embarked on a $200 billion drilling program. (You read that right: $200 billion.) It takes a month to move an idle rig from the Gulf of Mexico to Brazil, where it will likely stay for years. So a six-month moratorium would quite likely have far greater effect on American oil production that it would seem at first glance.
Which also leads to a great irony: importing more oil via tankers will actually create more risk, not less. Between the 1970s and the Deepwater Horizon accident, a grand total of 1,800 barrels of oil were lost from rig accidents — an average of 45 barrels a year. That is an astonishing record. Ken Arnold, an expert who consulted with the Interior Department right after the BP spill — and a big critic of the moratorium — told me that much more oil is spilled in tanker accidents annually than from drilling rig accidents.
What’s more, he added: “The oil in those tankers was produced somewhere — somewhere that most likely has less regulation and less oversight than we have. We are not lessening the chance of a spill; we’re just transferring that risk to Nigeria and Brazil. We are not helping the world. We are just saying, ‘Brazil, we prefer to despoil your beaches, but not ours.’ ”
Then there are the battered gulf economies. It is easy enough, sitting here in New York, to argue that we should shut down oil drilling in the Gulf of Mexico for as long as it takes, to be absolutely sure we’ll never have another accident like the one we’ve just had. I hear Rachel Maddow making that point most every night these days.
But a shutdown doesn’t really affect our daily lives up here on the East Coast. In the gulf, one mainstay of the economy — fishing — has already been devastated. Do we really want to finish off the rest of the Gulf Coast economy by sidelining its other pillar, oil drilling? There is a reason politicians like Mr. Jindal are pleading for drilling to continue, despite the spill’s terrible effect on his state. They’re desperate. When an airplane crashes, and several hundred people die, the government doesn’t ground every airplane until it is sure all airplanes are safe. It would be too disruptive to the economy. Shouldn’t the same logic apply here?
What has become obvious in the aftermath of the accident is not so much that offshore drilling — even deepwater offshore drilling — is inherently unsafe. It is, certainly, risky, but so are many activities, like mining or flying an airplane. One reason there have been so few accidents over the years is that the incentive for doing things safely is enormous: mistakes can lead to death.
None of which is to say that the Deepwater Horizon disaster hasn’t pointed to problems with drilling, or that new safety measures don’t need to be added. Most of all, it shows the utter inadequacy on the part of both industry and government in containing accidents when they do happen. Precisely because of the industry’s incredible safety record over the years, everyone got complacent. But a six-month moratorium isn’t going to fix that either. What are needed are new ideas that can be debated and then enacted into regulation. One appealing idea I’ve heard is that deepwater rigs should be required to drill a relief well at the same time the exploratory well is being drilled. But that would also, of course, increase the cost of drilling for oil in the gulf.
In the end, the real problem with the six-month moratorium is that it allows us to continue to kid ourselves. It helps us create the illusion that, by regulatory fiat, we can make the extraction of fossil fuels a riskless endeavor. But that can never be true. Six months from now, whether or not the Interior Department succeeds getting Judge Feldman’s decision overturned on appeal, deepwater drilling will still be risky. Drilling thousands of feet into water, searching for dangerous natural gas and oil, contained in the earth under immense pressure, is inherently risky.
We would all be better off facing that fact squarely, instead of wishing it away under the guise of a moratorium.
Moratorium Won’t Reduce Drilling Risks By JOE NOCERA
“This case asks whether the federal government’s imposition of a general moratorium on deepwater drilling for oil in the Gulf of Mexico was imposed contrary to law. Before the Court is the plaintiffs’ motion for preliminary injunction. For the following reasons, the motion is GRANTED."
So began a stinging 22-page decision, issued this week by a Federal District Court judge, Martin L. C. Feldman. He was rejecting, pretty much out of hand, the Obama administration’s plan to place a six-month moratorium on all drilling projects in the Gulf of Mexico. It would have amounted to a shutdown of 33 deepwater rigs, the kind that can drill the deepest and are the most complex to operate — and the kind that can cost well over $500,000 a day even when they’re just sitting idle.
The plaintiffs consisted of a group of companies that make their money servicing gulf drilling operations; they were led by a shipping company, Hornbeck Offshore Services, which employs 1,300 and has spent nearly $700 million in the last five years building a new generation of ships for use in the gulf. “We saw this as putting our Gulf of Mexico business model at risk,” said Samuel Giberga, the company’s general counsel.
But he also believed that the administration’s edict violated the law. The secretary of the interior, Ken Salazar, had failed to take into account the enormous economic pain that would be inflicted on the gulf region by such a moratorium, as he was required to under the law, Hornbeck argued. The administration was punishing deepwater drillers that had complied with all the regulations surrounding deepwater drilling — and had gotten their permits fair and square. Right after the spill, Mr. Giberga told me, a government SWAT team had inspected all the other rigs — and found them to be safe. The Deepwater Horizon disaster notwithstanding, the federal government had failed to articulate any good reason why all the other rigs in the gulf had to be stopped as well.
And Judge Feldman agreed with Hornbeck on every count. Concluding that the decision to impose the moratorium was “arbitrary and capricious,” he wrote, “An invalid agency decision to suspend drilling of wells in depths of over 500 feet simply cannot justify the immeasurable effect on the plaintiffs, the local economy, the gulf region, and the critical present-day aspect of the availability of domestic energy in this country.”
Over the next few days, three things happened, all of them completely predicable. The Interior Department vowed to appeal. Gulf state politicians, starting with Bobby Jindal, the governor of Louisiana — whose state has suffered tremendously as a result of the BP accident — pleaded with the federal government to drop the appeal and allow drilling to continue. And environmentalists derided Judge Feldman’s decision.
“This is the Ninth Circuit, which is the go-to court for the oil and gas industry,” said Elgie Holstein, the oil spill response coordinator for the Environmental Defense Fund. “I fully expect it to be overturned on appeal.”
Robert F. Kennedy Jr., the president of Waterkeeper Alliance, told The Mobile Press-Register that drilling deepwater wells right now, “when we don’t even know what caused this accident, seems insane.” He added, “I don’t think anybody responsible would advocate more drilling right now.” And so on.
A simple six-month drilling moratorium. It sounds like such a sensible, obvious, uncontroversial thing to do in the wake of the worst environmental disaster in this nation’s history, doesn’t it? Turns out, it’s anything but.
•
As a percentage of the world’s oil production — some 84.5 million barrels a day — the 1.75 million barrels a day that is extracted from the Gulf of Mexico is not a huge number. (That’s why oil prices haven’t risen as a result of the Deepwater Horizon disaster.) But in terms of the country’s domestic production, it is extremely important. According to Gibson Consulting, a third of all United States oil production comes from the Gulf of Mexico.
What’s more, virtually every new well being drilled in the gulf is a deepwater well — because, after all, that’s where the oil is. “Oil from shallow waters peaked in the 1990s,” said Cutler Cleveland, a professor of geography and environment at Boston University. “And deepwater peaked five or six years ago. So now we are moving into ultra deepwater — over 5,000 feet.” And, he adds, 80 percent of the reserves that remain in the gulf are either in deep or ultra deepwater.
So the first point is: Until that glorious day comes that our cars are fueled by batteries and our homes are heated by solar power, we need as much domestic oil as we can get our hands on, oil that exists in the deep waters of the Gulf of Mexico. Shutting down drilling in the gulf — even temporarily — means we’ll be importing even more oil from other countries than we already do.
Nor is it clear, if the moratorium went into effect, the pullback would be all that temporary. For one thing, the moratorium is contingent on a special commission making yet more safety recommendations in six months, but there is no guarantee they’ll be done by then. Meanwhile, there are only so many floating rigs in the world, and Brazil, for instance, has just embarked on a $200 billion drilling program. (You read that right: $200 billion.) It takes a month to move an idle rig from the Gulf of Mexico to Brazil, where it will likely stay for years. So a six-month moratorium would quite likely have far greater effect on American oil production that it would seem at first glance.
Which also leads to a great irony: importing more oil via tankers will actually create more risk, not less. Between the 1970s and the Deepwater Horizon accident, a grand total of 1,800 barrels of oil were lost from rig accidents — an average of 45 barrels a year. That is an astonishing record. Ken Arnold, an expert who consulted with the Interior Department right after the BP spill — and a big critic of the moratorium — told me that much more oil is spilled in tanker accidents annually than from drilling rig accidents.
What’s more, he added: “The oil in those tankers was produced somewhere — somewhere that most likely has less regulation and less oversight than we have. We are not lessening the chance of a spill; we’re just transferring that risk to Nigeria and Brazil. We are not helping the world. We are just saying, ‘Brazil, we prefer to despoil your beaches, but not ours.’ ”
Then there are the battered gulf economies. It is easy enough, sitting here in New York, to argue that we should shut down oil drilling in the Gulf of Mexico for as long as it takes, to be absolutely sure we’ll never have another accident like the one we’ve just had. I hear Rachel Maddow making that point most every night these days.
But a shutdown doesn’t really affect our daily lives up here on the East Coast. In the gulf, one mainstay of the economy — fishing — has already been devastated. Do we really want to finish off the rest of the Gulf Coast economy by sidelining its other pillar, oil drilling? There is a reason politicians like Mr. Jindal are pleading for drilling to continue, despite the spill’s terrible effect on his state. They’re desperate. When an airplane crashes, and several hundred people die, the government doesn’t ground every airplane until it is sure all airplanes are safe. It would be too disruptive to the economy. Shouldn’t the same logic apply here?
What has become obvious in the aftermath of the accident is not so much that offshore drilling — even deepwater offshore drilling — is inherently unsafe. It is, certainly, risky, but so are many activities, like mining or flying an airplane. One reason there have been so few accidents over the years is that the incentive for doing things safely is enormous: mistakes can lead to death.
None of which is to say that the Deepwater Horizon disaster hasn’t pointed to problems with drilling, or that new safety measures don’t need to be added. Most of all, it shows the utter inadequacy on the part of both industry and government in containing accidents when they do happen. Precisely because of the industry’s incredible safety record over the years, everyone got complacent. But a six-month moratorium isn’t going to fix that either. What are needed are new ideas that can be debated and then enacted into regulation. One appealing idea I’ve heard is that deepwater rigs should be required to drill a relief well at the same time the exploratory well is being drilled. But that would also, of course, increase the cost of drilling for oil in the gulf.
In the end, the real problem with the six-month moratorium is that it allows us to continue to kid ourselves. It helps us create the illusion that, by regulatory fiat, we can make the extraction of fossil fuels a riskless endeavor. But that can never be true. Six months from now, whether or not the Interior Department succeeds getting Judge Feldman’s decision overturned on appeal, deepwater drilling will still be risky. Drilling thousands of feet into water, searching for dangerous natural gas and oil, contained in the earth under immense pressure, is inherently risky.
We would all be better off facing that fact squarely, instead of wishing it away under the guise of a moratorium.
Saturday, August 08, 2009
It’s Time to Stay the Courier By JOE NOCERA
August 8, 2009
Talking Business
It’s Time to Stay the Courier By JOE NOCERA
So you think your business has problems.
Consider the plight of John E. Potter, the chief executive of the second-largest employer in America. On the one hand, he has a guaranteed monopoly for much of his business. On the other hand, monopoly or not, the combination of the Internet and the recession is absolutely crushing his company, just as it is for so many other companies across the country. His last quarter’s results, which were announced on Wednesday, revealed a loss of $2.4 billion. The business is on track to lose a staggering $7 billion in 2009, on around $68 billion in revenue. That’s practically General Motors territory.
What can he do to fix the situation? Surprisingly little. His employees have clauses in their union contracts that forbid layoffs. Nor can he renegotiate their gold-plated benefits, the way, say, the auto companies did when their backs were against the wall. Political pressure makes it nearly impossible to shut down any of his company’s 34,000 facilities, no matter how outmoded or little used. He can borrow money, but under the law, he can add only $3 billion in debt a year — an amount that isn’t going to come close to covering his losses.
Oh, and get this. Every year between now and 2016, he has to put aside over $5 billion to finance health benefits for future employees. You read that right: future employees. There isn’t another business in the country that finances benefits for employees it hasn’t even hired yet.
Welcome to John Potter’s world. He’s the nation’s postmaster general. Yes, that’s right: for the last nine years, he has run the United States Postal Service, which, since 1970, when it stopped being a government department and started becoming self-sufficient, has been the oddest of ducks. It is expected to operate as a business, turning a profit and so on, and yet it is still subject to Congressional oversight and all sorts of legal constraints, like that ridiculous health benefit prefinancing for future employees, which was part of a big 2006 postal reorganization bill. (Its main purpose, it would seem, is government accounting: those funds get counted against the federal deficit.)
Even so, until recently, Mr. Potter had had a pretty successful run. A smart, likable, lifelong Postal Service executive, he got it through the anthrax crisis early in his tenure. He saw it through 9/11 (in no small part by engaging Federal Express to fly long-distance mail during the day, when its planes were empty, something it still does). He has overseen productivity gains and, according to a poll conducted by Rasmussen Reports, a rise in customer satisfaction. Between 2001 and 2006, he even eliminated the Postal Service’s $11.3 billion debt. That year, 2006, was also when demand for mail service peaked, with 210 billion pieces delivered.
But the last few years have been brutal. The Postal Service lost more than $5 billion in 2007, and another $2.4 billion in 2008. And, of course, it is on track to lose that whopping $7 billion in the current fiscal year. (Its fiscal year ends in September.) The amount of mail being sent is dropping like a stone — it will be down to 175 billion pieces in 2009. Mr. Potter has reduced the Postal Service’s head count to 650,000, from 800,000, almost entirely through attrition. He has cut costs every way he can think of. And still the losses mount.
A few weeks ago, the Government Accountability Office added the Postal Service to its list of “high risk” federal agencies, meaning that it is in such dire straits that it needs “to restructure to address its current and long-term financial viability.” Indeed, if something doesn’t change by the fall, the Postal Service will have to renege on those health benefit prepayments — despite its legal obligation to pay them — or start missing payroll. “U.S.P.S. must align its costs with revenues, generate sufficient earnings to finance capital investments, and manage its debt,” the G.A.O. said. Just like any real business would.
“If you are asking me to run it like a business, give me the same tools that someone would have in the private sector,” Mr. Potter said when I spoke to him recently.
But as I discovered on Thursday, when I watched a Senate hearing on the current Postal Service crisis, that’s not likely to happen. For one thing, Mr. Potter isn’t really asking for the tools he needs to turn the Postal Service into a real business. He is asking Congress to relieve it from the health prepayments, which he is likely to get, at least temporarily. He is also asking that the Postal Service be allowed to reduce mail service to five days a week, and to eliminate some postal branches. These aren’t exactly revolutionary ideas — yet they are viewed as highly controversial in Congress, which frets that constituents might get angry if the local postal branch closes.
But even if Mr. Potter were to get his way on these two items, they would still be only stop-gap measures that fail to tackle the bigger question. As the Internet continues to erode the use of snail mail, does the Postal Service’s business model still make sense? Do we even still need the government to deliver the mail anymore?
•
To me, the answer is obvious: no.
Think for a minute about the mail that comes into your home. In the modern age, very little of it is personal mail. The vast majority is commercial mail of some sort — advertisements, bills, movies from Netflix or catalogs. Once upon a time, said Rick Geddes, an associate professor in the department of policy analysis and management at Cornell University, the postal service was viewed as “a way to bind together the nation. In subsidizing mail service to rural communities you were keeping them connected to the rest of the country.” But today, he added, “it is kind of silly to say we are binding together the nation through advertisements and catalogs.”
These days, the main justification for keeping the postal service as a quasi-government entity is the belief that no private company would be willing to deliver the mail to sparsely populated rural areas of the country. People fear that it would be a little like airline deregulation: communities that weren’t large enough to justify flights in the newly deregulated environment lost their carriers.
But that mission of universal service has all but blinded just about everyone connected with the Postal Service. Congressmen — many of whom, after all, come from rural areas — are loath to give the Postal Service too much free rein for fear that Mr. Potter’s minions will start shutting down post offices. (Never mind that 2,000 of them serve fewer than 100 people each.) The postal unions, with their no-layoff clauses, have used universal service to justify benefits so generous the Postal Service would save $600 million just by bringing them in line with other federal employees.
As for Mr. Potter himself, while he may want more freedom to run the Postal Service like a real business, he, too, seemed surprisingly wedded to outmoded ideas about mail service in America. “This country needs to have and to protect universal service,” he said. “Our business is all about making sure every American can stay connected with every other American.”
I failed to ask him the obvious follow-up question: Don’t e-mail messages now do that?
For most of us, of course, it does — and that will increasingly to be the case, as broadband makes it way into, yes, even those rural areas that everyone is so worried about. Michael A. Crew, a professor of regulatory economics at Rutgers told me that that while the Postal Service’s “short-term situation is bleak, its long-term situation is really bleak.” He is one of a number of experts who say they believe that even when the recession ends, the Postal Service’s woes won’t be over. As businesses look to save money in the recession, for instance, they are starting to do end-arounds the Postal Service. Online bill-paying is become ever more popular. Evite is starting to replace mailed invitations to parties. None of that business is ever coming back.
Which is why, instead of trying to find short-term, piecemeal solutions to the current crisis, those involved in managing and overseeing the Postal Service ought to be thinking harder thoughts about blowing up its business model. Maybe the Postal Service should turn itself into a giant outsourcer, handling some tasks but handing out others, for a fee, to more efficient companies. Maybe the government should allow companies to bid on lucrative urban delivery — with the proviso that they also deliver to rural areas. Maybe some areas should get mail deliveries less frequently than others. Maybe there should be radically different pricing structures. Maybe it should even lose its monopoly on first-class mail. I mean, why not?
Mr. Geddes, the Cornell professor, says he believes that the only solution is for the Postal Service to become “just another company” — lose its monopoly, shed its bureaucratic mind-set, become able to negotiate freely with its unions, and answer to shareholders instead of Congress, which is always going to resist significant change that might upset a constituent. Only when that happens will it be able to bring its costs in line with its revenue.
“The post office is not broken,” Mr. Potter insisted. But surely it is. And its current crisis brings to mind Rahm Emanuel’s line that you never want a serious crisis to go to waste.
Alas, here in the middle of its worst financial crisis ever, the Postal Service and Congress seem utterly intent on wasting it.
Talking Business
It’s Time to Stay the Courier By JOE NOCERA
So you think your business has problems.
Consider the plight of John E. Potter, the chief executive of the second-largest employer in America. On the one hand, he has a guaranteed monopoly for much of his business. On the other hand, monopoly or not, the combination of the Internet and the recession is absolutely crushing his company, just as it is for so many other companies across the country. His last quarter’s results, which were announced on Wednesday, revealed a loss of $2.4 billion. The business is on track to lose a staggering $7 billion in 2009, on around $68 billion in revenue. That’s practically General Motors territory.
What can he do to fix the situation? Surprisingly little. His employees have clauses in their union contracts that forbid layoffs. Nor can he renegotiate their gold-plated benefits, the way, say, the auto companies did when their backs were against the wall. Political pressure makes it nearly impossible to shut down any of his company’s 34,000 facilities, no matter how outmoded or little used. He can borrow money, but under the law, he can add only $3 billion in debt a year — an amount that isn’t going to come close to covering his losses.
Oh, and get this. Every year between now and 2016, he has to put aside over $5 billion to finance health benefits for future employees. You read that right: future employees. There isn’t another business in the country that finances benefits for employees it hasn’t even hired yet.
Welcome to John Potter’s world. He’s the nation’s postmaster general. Yes, that’s right: for the last nine years, he has run the United States Postal Service, which, since 1970, when it stopped being a government department and started becoming self-sufficient, has been the oddest of ducks. It is expected to operate as a business, turning a profit and so on, and yet it is still subject to Congressional oversight and all sorts of legal constraints, like that ridiculous health benefit prefinancing for future employees, which was part of a big 2006 postal reorganization bill. (Its main purpose, it would seem, is government accounting: those funds get counted against the federal deficit.)
Even so, until recently, Mr. Potter had had a pretty successful run. A smart, likable, lifelong Postal Service executive, he got it through the anthrax crisis early in his tenure. He saw it through 9/11 (in no small part by engaging Federal Express to fly long-distance mail during the day, when its planes were empty, something it still does). He has overseen productivity gains and, according to a poll conducted by Rasmussen Reports, a rise in customer satisfaction. Between 2001 and 2006, he even eliminated the Postal Service’s $11.3 billion debt. That year, 2006, was also when demand for mail service peaked, with 210 billion pieces delivered.
But the last few years have been brutal. The Postal Service lost more than $5 billion in 2007, and another $2.4 billion in 2008. And, of course, it is on track to lose that whopping $7 billion in the current fiscal year. (Its fiscal year ends in September.) The amount of mail being sent is dropping like a stone — it will be down to 175 billion pieces in 2009. Mr. Potter has reduced the Postal Service’s head count to 650,000, from 800,000, almost entirely through attrition. He has cut costs every way he can think of. And still the losses mount.
A few weeks ago, the Government Accountability Office added the Postal Service to its list of “high risk” federal agencies, meaning that it is in such dire straits that it needs “to restructure to address its current and long-term financial viability.” Indeed, if something doesn’t change by the fall, the Postal Service will have to renege on those health benefit prepayments — despite its legal obligation to pay them — or start missing payroll. “U.S.P.S. must align its costs with revenues, generate sufficient earnings to finance capital investments, and manage its debt,” the G.A.O. said. Just like any real business would.
“If you are asking me to run it like a business, give me the same tools that someone would have in the private sector,” Mr. Potter said when I spoke to him recently.
But as I discovered on Thursday, when I watched a Senate hearing on the current Postal Service crisis, that’s not likely to happen. For one thing, Mr. Potter isn’t really asking for the tools he needs to turn the Postal Service into a real business. He is asking Congress to relieve it from the health prepayments, which he is likely to get, at least temporarily. He is also asking that the Postal Service be allowed to reduce mail service to five days a week, and to eliminate some postal branches. These aren’t exactly revolutionary ideas — yet they are viewed as highly controversial in Congress, which frets that constituents might get angry if the local postal branch closes.
But even if Mr. Potter were to get his way on these two items, they would still be only stop-gap measures that fail to tackle the bigger question. As the Internet continues to erode the use of snail mail, does the Postal Service’s business model still make sense? Do we even still need the government to deliver the mail anymore?
•
To me, the answer is obvious: no.
Think for a minute about the mail that comes into your home. In the modern age, very little of it is personal mail. The vast majority is commercial mail of some sort — advertisements, bills, movies from Netflix or catalogs. Once upon a time, said Rick Geddes, an associate professor in the department of policy analysis and management at Cornell University, the postal service was viewed as “a way to bind together the nation. In subsidizing mail service to rural communities you were keeping them connected to the rest of the country.” But today, he added, “it is kind of silly to say we are binding together the nation through advertisements and catalogs.”
These days, the main justification for keeping the postal service as a quasi-government entity is the belief that no private company would be willing to deliver the mail to sparsely populated rural areas of the country. People fear that it would be a little like airline deregulation: communities that weren’t large enough to justify flights in the newly deregulated environment lost their carriers.
But that mission of universal service has all but blinded just about everyone connected with the Postal Service. Congressmen — many of whom, after all, come from rural areas — are loath to give the Postal Service too much free rein for fear that Mr. Potter’s minions will start shutting down post offices. (Never mind that 2,000 of them serve fewer than 100 people each.) The postal unions, with their no-layoff clauses, have used universal service to justify benefits so generous the Postal Service would save $600 million just by bringing them in line with other federal employees.
As for Mr. Potter himself, while he may want more freedom to run the Postal Service like a real business, he, too, seemed surprisingly wedded to outmoded ideas about mail service in America. “This country needs to have and to protect universal service,” he said. “Our business is all about making sure every American can stay connected with every other American.”
I failed to ask him the obvious follow-up question: Don’t e-mail messages now do that?
For most of us, of course, it does — and that will increasingly to be the case, as broadband makes it way into, yes, even those rural areas that everyone is so worried about. Michael A. Crew, a professor of regulatory economics at Rutgers told me that that while the Postal Service’s “short-term situation is bleak, its long-term situation is really bleak.” He is one of a number of experts who say they believe that even when the recession ends, the Postal Service’s woes won’t be over. As businesses look to save money in the recession, for instance, they are starting to do end-arounds the Postal Service. Online bill-paying is become ever more popular. Evite is starting to replace mailed invitations to parties. None of that business is ever coming back.
Which is why, instead of trying to find short-term, piecemeal solutions to the current crisis, those involved in managing and overseeing the Postal Service ought to be thinking harder thoughts about blowing up its business model. Maybe the Postal Service should turn itself into a giant outsourcer, handling some tasks but handing out others, for a fee, to more efficient companies. Maybe the government should allow companies to bid on lucrative urban delivery — with the proviso that they also deliver to rural areas. Maybe some areas should get mail deliveries less frequently than others. Maybe there should be radically different pricing structures. Maybe it should even lose its monopoly on first-class mail. I mean, why not?
Mr. Geddes, the Cornell professor, says he believes that the only solution is for the Postal Service to become “just another company” — lose its monopoly, shed its bureaucratic mind-set, become able to negotiate freely with its unions, and answer to shareholders instead of Congress, which is always going to resist significant change that might upset a constituent. Only when that happens will it be able to bring its costs in line with its revenue.
“The post office is not broken,” Mr. Potter insisted. But surely it is. And its current crisis brings to mind Rahm Emanuel’s line that you never want a serious crisis to go to waste.
Alas, here in the middle of its worst financial crisis ever, the Postal Service and Congress seem utterly intent on wasting it.
Subscribe to:
Posts (Atom)