Sunday, September 16, 2012

California Still Leads the Way: Retirement, Healthcare, and Dysfunctional Government

California always seemed to be the biggest state with the biggest problems, and also the biggest solutions. If some trend was going to begin—good or bad—it seemed like California was the first place it would be spotted. California led the way in demonstrating to the rest of the nation how to feed and nourish a housing bubble. It has also been a groundbreaker in the art of utilizing the tools of democracy to make democracy dysfunctional. California is the example the US Senate followed in using super-majority voting requirements and the ensuing minority rule to impose that dysfunctionality on the entire federal government. Until Greece came along, California was definitely in the running for the title of "state most incapable of governing itself."

It was encouraging to come across several indications that California was not only not dead yet, but that it was out there trying to lead the way again.

The problem of providing pensions for US workers needs some serious consideration. Company-provided defined-benefit plans are disappearing. Defined-contribution plans via 401Ks have not proved effective. Most people do not, or cannot, save enough; they don’t know how to invest wisely; and excessive fees bleed their earnings away. California is going to implement a first step towards a possible solution. The Economic Policy Institute provides an article: California retirement plan could serve as a national plan.

"A bill to create a publicly administered retirement savings program for private-sector workers in California who do not have access to an employer-sponsored plan has passed both houses of the state legislature and awaits the signature of Governor Jerry Brown. The California Secure Choice Retirement Savings Program (SB 1234), co-authored by California State Senators Kevin de León (D-Los Angeles) and Senate President Pro Tempore Darrell Steinberg (D-Sacramento), would require employers who do not offer a retirement plan to implement automatic paycheck deduction for employee contributions to a low-fee and relatively low-risk retirement savings plan."

The goal is to provide the equivalent of a defined-contribution pension plan to workers who are not provided access to one by their employers. The current notion is to make the plan voluntary and have employers deduct 3% from a worker’s paycheck and deposit the amount in a state-run fund. The fund would be administered by professional investors and fees would be controlled. The concept assumes that professional will always outperform amateurs. It also will eliminate the large fees companies pay to have 401K plans administered. These annual fees can exceed 1% of the funds administered. That means if a portfolio earns 4% over a 30 year worker’s career, he/she will only see a yield of 3%. The difference between 4% and 3% compounded over 30 years represents a lot of lost money.

The simplest option for California would be to have this plan administered by the organization that runs the pension plan for the state employees. Probably every state has a similar organization in place to cover its public employees. This is one way in which the plan could be transported nationally.

But consider: if this arrangement can be made to work for workers without a 401K plan, why not just replace 401Ks with this plan? It would simplify and save money for everyone involved—except for some financial institutions that nobody cares about anymore. This latter concept is another way in which this idea could be taken nationally.

While most states fuss and fret about the recent healthcare law, California is jumping in with both feet. The New York Times provided an article on California’s actions: California Tries to Guide the Way on Health Law.

"Delay and outright resistance to the health care overhaul might be the norm in much of the country, but not here. California — home to seven million uninsured people, more than any other state — is at the forefront of preparations for January 2014, when a controversial requirement that most Americans have medical coverage or pay a penalty takes effect."

"So far, only 13 states and the District of Columbia have told the Obama administration they intend to set up the insurance exchanges that are supposed to provide a marketplace for people to buy health plans. None are being watched as closely as California, whose singular challenges, from the size, diversity and geographic spread of its uninsured population to its vast budget problems, make it stand out. Many feel a successful rollout here could convince other states with high numbers of uninsured residents that the law can be made to work for them."

Commissions are deliberating, web pages are being built, and Hollywood is being recruited to help get the word out. California believes this effort is necessary and they are determined to show others how it should be done.

It doesn’t hurt that the citizenry is generally supportive of the reform plan.

"In a Field Poll released on Aug. 20, 54 percent of California voters said they supported the health care law, compared with 37 percent who said they were opposed. Support was strongest among blacks (88 percent) and Hispanics (67 percent), who together make up more than 44 percent of the state’s population. Voters of Vietnamese and Korean descent also firmly supported the law, but white and Chinese voters were more divided."

California is also taking a lead role in high-speed rail. This is an expensive and controversial contribution to the nation’s infrastructure. It is impressive and encouraging that California, with all its fiscal challenges, can still see the big picture and take giant steps forward. Let us wish them well.

What is impressive about all this government activity is that it is taking place under the same dysfunctional situation that exists in Washington. A Republican minority uses legislative rules to try to prohibit any increase in revenue and inhibit any sort of progress. Perhaps the Republican minority has become sufficiently out of touch with the population that their relevance has begun to vanish. One can play the role of troublemaker only so long before voters get the message. Perhaps by holding on and enduring the conservative attack California has demonstrated that perseverance wins in the end. Perhaps it is only a matter of time before the national Republicans are made to realize that they must recast themselves into something that is of some value. Perhaps our national government will soon regain functionality.

Finally, there is this article in Bloomberg Businessweek: California’s Job Growth Outpaces Texas.

This chart was provided:

In the past year the biggest progressive blue state stomped the biggest conservative red state—economically speaking.

Keep the faith progressives!

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