The Need for a Reserve Fund to Fund Underfunded Pensions

by Glen Wallace


Here is another one of my responses to another essay by John Mauldin about the looming pension crisis:

This is something that the federal government should be building a lock box rainy day reserve fund for.  We should be looking under every revenue sofa cushion for every extra potential revenue source and raising corporate tax rates and taxes on the wealthy -- those best able to absorb the increased tax rates.  There are all sorts of taxes that could be imposed on Wall Street such as a high frequency trading tax and special capital gains tax that would only be applied to stock gains realized by the wealthy one percent.

While some may claim that the looming pension crisis is not their problem, it may well become everyone's problem insofar as we are all tied to the overall economy that will be negatively effected when the crisis hits.  Part of the problem is that, as John touched on in his piece, if all these retirees have their pensions reduced or eliminated altogether, all those retirees will have less money in their pockets to spend on purchases -- a reduction in aggregate demand.

Additionally, don't forget that the last economic crisis almost sunk the entire economy.  Maybe the pension crisis, when it hits, will not be something that, like the last crisis, that we can muddle through and dig ourselves out of.  The pensions may be too big to bail.  And an economic disaster that the economists warned could have happened in 2008, if it were too happen, could lead to a physical disaster on the scale of a natural disaster.  All the goods and services we take for granted in a developed economy could be in jeopardy in an economic crisis because all the providers of those goods and services, and in turn their vendors, depend on the ability raise funds through the ability to borrow money.  If a pension crisis, perhaps combined with another crisis such as mass student loan default, a complete stalling of the economy could lead to an inability of the chain of suppliers of those goods and services, including groceries, to reach the everyday consumer.  But instead of engaging in massive financial reform and the building of a massive rainy day bailout fund, we've only seen some mild patchwork repairs and bracing that everyone can only hope, perhaps unrealistically, will safeguard us from another crisis like we saw in 2008.  People don't seem to realize how disastrous an economic disaster could be and how it could lead to a civil emergency or how close we came to that happening in '08.  

   We should be seeing any potential economic disaster as something that we need to invest big dollars in too defend against just as we invest big dollars in the military for defense -- whether we need to spend so much for military for defense is an open debate, but my point is that the public generally agrees that spending large sums on defense is considered worth while and so they should be considering the possibility that investing in defense against economic calamity is worth while as well.  Maybe we should be shunting towards economic defense reserve funds some of that massive sum currently spent on the military.

The Theft of America's Natural Resources

By Glen Wallace

When natural resources are obtained from federal land, the same financial relationship that exists between a private land owner and a business obtaining the resources from private land, should also exist when a business removes natural resources from federal land. That is, the US citizens should be treated from a financial perspective as the group that owns federal lands in the same way that an individual or business that owns private land.

Our legislative representatives, then, should be acting as just that, our representatives acting in our, the citizens, best financial interests in much the same way that a lawyer should, if retained to handle someone's financial affairs. But to the best of my knowledge, our best financial interests are not being looked after by our so called representatives. Instead, to my understanding, if, for instance, a lumbar company wants to do some logging on federal land, all the lumbar company has to do is pay a small fee for the logging rights to a particular parcel of land and in return gets to keep the entire bounty of the logging companies logging operation in that parcel. But if it were private land that the owner wanted to harvest the trees for lumbar, the owner would seek out bids to log it. Eventually the winning bid by the private logging company would be the amount that the private land owner would be paid and be an amount commensurate with the value of the timber minus the cost to cut and clear the timber from the land. If I am correct in the preceding analysis of how logging works, then this country and its citizens could be losing out on a large scale from the profiteering off of citizen owned federal lands. I'm sure some people would come up with arguments why it might be impractical to treat federal lands financially the same as private lands. I would counter that for every reason someone would give why it couldn't work I would ask then why does the system work just fine for private lands -- I would essentially turn their arguments around and try to use the same argument but replace the words 'federal' with 'private' and show that their argument makes just as much sense that the current system dealing with private land transactions shouldn't work then either, but of course it does work just fine and therefore should work just as well with federal lands.

An added benefit to contracting out federal land resource extraction in the same manner as done with private lands, is that the logging operation would be scrutinized more carefully due to the desire to be sure the people get their money's worth. That extra scrutiny could help insure that loggers do not remove more than what is allowed in the contract. As it stands, with the current system of paying small fees and being let loose on federal lands there is little scrutiny and a lot of incentive to exceed the limits of the specific logging rights, and remove trees that may be protected, such as some old growth forests. Or perhaps an even better system to protect protected lands is to set up a system where the US Forest service does the selling of the felled trees on the open market, selling them for whatever the market will bear. And then for the logging itself the bidding would be for what we would pay the logger to fell, clear and stack the logs. Then if the contractor extracts more resources than contracted they would just be doing more work than that they were paid for -- it wouldn't make any sense! Doing so would be akin to a builder that had been contracted to build an office tower and then, just for fun, decides to add a few extra floors to what they had been contracted to build.

I've focused mostly on logging with this essay but I believe we are being cheated out on most all of the resources being extracted from federal lands in the US. As it stands, it seems like we have a sort of wild west approach to private profiteering on public lands even though all the land has been carefully and specifically plotted as far as ownership rights are concerned. This no longer is the wild west and insofar as we do allow natural resources to be extracted from the peoples lands, we should be taking full advantage and reaping the financial windfall from doing so. But instead just a few large companies are reaping the benefits from our land while left with just the shaft.

The amount that the citizens are losing out with this, what could only be called a scam, is hard to calculate. But not only would our taxes most certainly would go down, the return from the natural resources from this bountiful land that are supposed to belong to us, could be significant enough that we could have all citizen taxation eliminated along with receiving a dividend check every year just for being a citizen.

Another possible area of lost revenue for the US citizen is in the area of communication airwaves.  To the best of my knowledge, a given block of bandwidth is first owned by the federal government and then is sold to a private company.  If that is how it works, then I don't believe our best interests are being looked after.  A much more fiscally prudent method would be for the federal government to retain ownership and simply rent out the airwaves for whatever the market will bear.  After all, the airwaves would present all the benefits for the owner of renting out without any of the usual hassles of maintenance and repair; no calls in the middle of the night by a tenant with a broken radiator or furnace.  Airwaves just don't suffer from wear and tear with use like regular material property usually does.  Additionally when renting out, the rental rates can keep pace with inflation and with the increased demand that the modern computer age is likely to continue to bring.  Couple that increased demand with a very limited supply of usable bandwidth, and an investment owner of that property, the US citizens, should be presented with a dream scenario that they will want to have the price structure nimbleness that renting out affords.