Sunday, March 20, 2011

Supermoon - not all that special

I might be a little bit late to the party, but I wanted to make sure at least a few places on the internet had the correct science.

The "science" being reported on the "supermoon" makes me really sad sbout science education and science reporting in the United States. If one takes a look at a lunar calendar, you will see the moon has a perigee at this distance about every 2 1/2 years or so. In fact, the last one in December 2008 was also at a full moon. The minor difference is this year the close perigee happens right about the exact time of the full moon, where as the in 2008 it happened about 4 hours after the full moon. The irony is in 2011, the true full moon happened at about 4 pm in the Central Time Zone (when the moon was still hidden) whereas in 2008 the full moon happened about 7:30 pm in the Central Time Zone. That means the perigee happened about 11:30pm in the Central Time Zone. So during that night in 2008, you could actually see the moon be closer than you could in 2011.

Some want to call this the supermoon because it is happening right at the time of the full moon (within the hour the moon is truly "full").  Well, if you want to go by that, then 1993 doesn't work either.  In 1993 (which is when most are reporting the last time this happened), the perigee of the moon happened over an hour before the full moon.  Now in 1992, the perigee happened within the hour of the full moon, but it happened in January.  By my math, that is over 19 years ago.  It should also be noted it was even closer than it was this year by 29 km.

Before that, the new moon in 2005 was that close - so it would have been bigger during the day when the moon was visible due to earth shine. In 2003, 2001, 1998, 1994 all had large full moons as well (within 200 km of this year's supermoon). There is no way that 200 km would be noticeable when the moon is still over 350,000 km away. In 2008, the perigee was actually 10 km closer and would have actually been visible in our time zone when it occurred.


I checked the calendar for the next few years, and May 6, 2012 the full moon falls right on the perigee, although about 400 km farther than this year.  June 23, 2013, the same thing happens.  August 10, 2014, another full moon perigee and only 300 km farther than this year.  September 28, 2015 is yet another.  November 14, 2016 is a perigee even closer than this year, at 356,511 km (compared to 356,577 this year) .  The perigee precedes the full moon by 2 hours in this instance, but again it is unnoticeable compared to the "true" full moon.  Maybe we can call this one the ultra-moon?

While it is neat to think the moon is a couple percent larger visibly than average and
a good 8% or so larger [Update] can appear up to 14% larger (thanks NASA) than when it is farthest away, it is hardly a unique occurrence.  Every full moon perigee is roughly 14% larger than a full moon at apogee, give or take 1%. Note: Thanks to Brian Dunning's Skeptoid for pointing out that the 14% number refers to the visible area, whereas the diameter is about 8% visually bigger than an apogee full moon.

One other thing to note: people are often fooled to thinking the moon is very much larger by how it looks when it first rises.  This is simply an optical illusion as explained here.  If you want proof it is an illusion, when the moon is on the horizon, bend over and view it between your legs.  It will appear normal size.  When viewing it normally, our brains fool us because of buildings, trees, etc. in the foreground.

For all of you interested in astronomy, I recommend following Phil Plait or Neil deGrasse Tyson on Twitter, read Phil Plait's Bad Astronomy blog .  These guys are experts and some of the best personalities in science.

Thursday, March 10, 2011

Question and answers about the Wisconsin vote

My Twitter feed has just exploded with the Republicans in Wisconsin voting to remove collective bargaining rights from government workers on the issues of retirement and health care benefits.  I thought I'd post a few of my own questions I asked myself about this issue and the research I did to find answers.

Is this really a violation of workers' rights?

The simple answer is no.  The slightly more complex answer is no.

Wisconsin was the first state to allow government workers to organize and bargain collectively.  It was done through the legislative process, but it wasn't a unanimous vote.  The point is this isn't an innate human right or a Constitutional right.  It was a legal right granted by the legislature.  It is in their power to take it away.  Think of it more like a privilege, like a driver's license.  Not everyone can have a driver's license, and the legislature can change the rules depending on the needs of the state.  So again, it isn't really a right.  And the voters in November thought it was time for a change, and the legislature should follow the will of the people.

Why not just raise taxes and that will solve the problem?

As you will see in my previous posts, raising taxes does not translate to many more overall dollars.  Even when the top federal tax rates were over 90%, the tax revenues as a percentage of GDP were no different than they are now with a top rate just under 40%. Because we have messed with tax rates so often, it is a little harder to tell what tax rates do to GDP in the modern economy.  Our last real example was when President Reagan was elected and dramatically reduced taxes, we had some of the highest GDP rates in the last 50 years and a dramatic reduction in inflation and interest rates.  I am not a big fan of using that correlation because I don't feel it is enough data to confirm the tax rate/GDP correlation, but it should be studied further.  The main point is higher tax rates don't mean more tax dollars. I often think about it this way - if tax rates were 100%, how many dollars would the government take in?  $0.

But we all want to help out each other. Can't we just do a small tax increase? We won't even notice.

Because no matter how hard we try to say we want to help others, we are self-interested and self-preserving creatures.  Sure, we want to help, but only to a point.  How else do you explain the existence of gaming systems, luxury cars, big screen TVs, etc.?  Why do most of us shop at Wal-mart and Target?  If we were all truly interested in protecting unions, we would all demand products made by union shops.  You would stop shopping at these stores, demand union made jeans, TVs, cell phones, etc.  Of course, the wage difference between the overseas workers and the workers in the United States would mean we would have a lot less of these things.  We'd probably have to watch the Minnesota Wild on our old 23" tube TV and more of us would be patching our old jeans to make them last longer.

There is another way.  The U.S. Treasury, as well as any state treasury, will gladly accept your extra money.  If you look at the annual income rate for the 3rd quarter of 2010 in Wisconsin, it totals about $220 billion.  If we use the Wisconsin Senate as a guide to how voters break down (19 Republicans, 14 Democrats) and assume that it is the Democrats that want to raise taxes to pay the union workers (since they left town), then 42% of Wisconsin residents want the tax increase.  So, if those 42% of people want to pay an extra 3.9% of their income to the government, it would cover the projected $3.6 billion shortfall for next year in Wisconsin.  Write the check.

Michael Moore was in Wisconsin spouting about how it is time to take money back from the rich.  It is estimated his net worth is somewhere around $50-$100 million.  Why is he worth so much if this wealth isn't really his?  Shouldn't he give it back to the government so they can spend it properly?  In case you didn't pick it up, that was sarcasm.  Union leaders such as the president of the Wisconsin AFL-CIO  was in town saying it is "us vs. the Big Bucks."  Interestingly, Mr. Neuenfeldt made almost $150,000 in 2009.  In fact, there are many union leaders making well into 6-figures.  Personally, that's alot of money - and to me makes them part of the "Big Buck" crowd.

Modern rich people didn't get rich through inheritance or income.  Steve Jobs is CEO of the largest company in the world, yet he started by wiring circuit boards in his garage.  Bill Gates and Paul Allen started programming together because of a magazine article, and didn't even have a finished product before trying to sell it to IBM.  Warren Buffett started with a paper route and selling gum.  Their wealth accumulated in the value of their company and the products they create and services they provide.  A small percentage of their overall wealth is from income.  So, if we follow Michael Moore's philosophy, we should forcibly take their wealth and turn it over to the government to spend.  Previously, I sarcastically stated that perhaps we should just send all of our income to the government, they can spend what they want and return to us whatever they think we deserve.  Sounds to me like Michael Moore is serious about this.

What about the hard-fought victories of unions in regards to working conditions?

Here is where unions deserve credit. Private sector unions in the late 19th century and the first half of the 20th century worked hard to improve working conditions, often facing violence from our very government.  Unions are responsible for improving worker safety, the 40-hour work week, and protecting the less educated worker who historically came from a rural background.

The difference today is most of these things are now codified into law.  OSHA exists to protect all workers, even non-union ones.  President George W. Bush signed into law a strengthening of worker protections in regards to overtime (despite some groups that tried to say otherwise).  Regardless, there are rules providing more pay if you work beyond a "normal" work week.  We have a minimum wage.  If all unions were dissolved today, these basic protections would still exist in law.

Do we still need unions?

This is a complex issue.  Unions will probably always exist, as they should because we have freedom of association.  In the past, unions and employers have both done things wrong or even illegal.  Looking to the future, unions are going to have to modernize their focus and use their resources to not only help workers negotiate reasonable and fair wages and benefits, but to also find ways to support the American workforce and economy in general.  How can we keep more jobs here in the United States?  How can we better get union products on store shelves at Target and Wal-mart?  Perhaps if the unions spent less of their dues on elections and instead promoted the benefit of buying and supporting union products, the unions would gain more strength and leverage than trying to get more tax dollars for government workers.

I really do think unions could use their resources and help all of us.  Employers have to help too.  Although not a perfect deal, Harley-Davidson was able to ratify labor deals to give them long-term cost stability while saving jobs.  What unions in the private sector should be doing is pushing for less in wages and more in profit sharing.  Some companies do so voluntarily such as Hormel.  Public sector unions are not so easy.  Even FDR thought public sector unions shouldn't exist. This is more difficult because there is no real product and no profit.  However, this again is where unions could spend their money on research to find a better solution.  Perhaps putting together a group to design a formula for wage increases and even "bonuses" for government workers in a longer-term deal that would be tied to economic growth and tax revenues.  I am sure we have enough smart economists, mathematicians, and others that could work to figure this out.

So what does this mean for Wisconsin?

As I've said in a few previous posts, I don't like the way the Governor and legislature approached this situation.  I also think it is reprehensible that the Democrats left down to try to disrupt the legislative process.  The outcome is a step in the right direction in fixing the drain public pensions are putting on our economy and tax dollars.  But it also takes two steps in the wrong direction because it shows the government not willing to admit it messed-up in promising unrealistic benefits and not finding some concessions for that error and also shows the union members are not willing to budge and acknowledge the benefits are unrealistic.  Buffalo Springfield said it best, "Nobody's right if everybody's wrong."  That's about what we have here.

One additional comment now that the bill has been signed. update 3/11/11 2pm

The rough estimate of total government employees (federal, state, and local) is about 3 million people.  If we took a more reasonable approach and offered all employees a "buyout" of their pension where we turn over funds to an individual and put it into some kind of defined contribution plan (401(k), etc) and then offered an increased wage and a small matching contribution, I bet you would see a small but noticeable effect on the economy when all of those additional dollars are invested and spent because I would also bet over half would take that deal.  For new employees, they would only have that one choice.  It would save much more money later on, boost household incomes, and avoid the mess of trying to force changes.  I am happy we are finally having this conversation about unsustainable entitlements, but I am sad we can't find new solutions instead of the usual one said or the other solution.  I hope in the next election, we can start talking about these new ideas.  Can we all agree there is a way to meet, not in the middle, but off in a new and better direction?

Saturday, March 5, 2011

Pensions and Taxes - Take 2

So I had a discussion tonight with some friends about the Wisconsin situation, government pensions, and pensions in general. I can't say I am much more swayed in either direction. But the one thing I did realize is the issue with pensions in general is an individual doesn't really have to think about it - which is a scary thought. Do we really know what the costs and implications of pension plans are?

I ran a quick calculation. There are some great calculators at this Financial Calculators website. I started with a worker making $32,000 today. I assumed a 2% COLA adjustment and a 2% step adjustment every year for 30 years. At retirement, that worker is making just about $101,000/year. That totals about $1.8 million of total pay over 30 years (this number is important in a minute) Taking the "high five" of that same worker and starting at a 90% of the high five average, that worker will start making about $93,000 in retirement, and assuming a 30-year retirement with a 2% COLA adjustment would end at $169,000 and will have drawn $3.95 million in retirement. If the pension did not exist, to draw that kind of wage in retirement would require about $1.9 million in an annuity making a 5% return. To save $1.9 million, a person would have to save $1,500 per month and get a rate of return of 7.43% annually. So to pay for this person's pension, the company or government has to set aside an extra $18,000/year and get a pretty high rate of return in order to fund this person's retirement. So just in pay and retirement benefits, this person is getting an effective wage of $50,000 the very first year and is getting a guaranteed return of over 7% on investment. This doesn't include any other benefits such as health care.


I thought of 1 other interesting statistic to run today. Using the example of the above worker making $32,000 in the first year would require $18,000 per year deposited into an account making over 7% annual return, I thought I should see what that would add to the benefits as an average percentage. It comes out to about 32% of salary per year towards retirement benefits. The best retirement matching I ever had was 10% of my salary, and I had to be at that job 5 years before that took effect. I also didn't make $32,000 / year.

I also thought I should point out a couple of articles. This USA Today article is a summary of federal pay versus private sector pay (it does not include benefits). Here's one that takes into account education levels. And probably the best one is this one showing the comparison in each state of private and public compensation. I felt it was important to show the counter-point to those that claim government workers take lower pay now for the deferred compensation later. As I argue here, I think individuals should be responsible for their compensation later in life, and in exchange get paid what is appropriate now. It keeps things fair AND prevents long-term, unknown liabilities.

What does this all mean? I know for sure that in regards to the Wisconsin situation and government pensions in general, things have to change. This is an unsustainable model in the world of lengthening life-spans and increasing aging population. As I said in a previous post, the scariest part of the whole situation is we are at risk of leaving our parents and grandparents with nothing. People my age that continue to demand these type of benefits at this rate will eventually run everyone out of money. So what do we do?

A simple fix would be to start to immediately raise the retirement age. Now I am not saying this applies to everyone, but a nice steep graduation such that for every year you are away from retirement we add in the neighborhood of 1/3 to 1/2 a year to your retirement age. This would put pensions more in line with how they were intended - a 75% accumulation time to a 25% distribution time ratio. This would also go for social security and similar programs to keep them solvent as well.

A more dramatic fix would be to take pensions completely out of the realm of the employer. Pensions should be run by an association of participants or a similar organization. By leaving them with the employer, it subjects them to unknown liability. We end up with situations like GM or Chrysler where we all pay for those pensions through bailouts or a Wisconsin situation where the budget is beginning to be weighed down by retiree benefits. Instead, the pension fund would be funded with a finite negotiated dollar amount from the employer, and the association of employees would be responsible to keep it solvent and set the benefit levels. The other option is to leave individuals in charge of their funds, by having 401(k) or 403(b) accounts where an employer can match funds deposited, but again absolves the employer of long-term liability. Current pension participants could choose to either move their pensions to a group pension outside of the employer or move to individual plans and have a lump sum initial contribution made to their plan based on years of service.

The second option seems to work from an initial glance because employees and employers generally don't have contracts that span the entire length of an employee's tenure. Thus the pension, once implemented, becomes nearly impossible for an employer to change because of the long-term impact to the employee. This is one of the main reasons why airlines, car manufacturers, LTV steel and other mining operations, and other companies have all gone bankrupt. This leaves those employees without the benefits they were expecting. The only difference with government pensions is governments either can't or have a harder time filing bankruptcy (depending on the level of government), thus the taxpayers end up on the hook.

To focus again briefly on Wisconsin, I don't think the the Republicans or Democrats have handled themselves in a good way. Gov. Walker did indeed create the remaining shortfall for 2011 by cutting a few corporate taxes. However, those tax breaks only account for about 2% of 2012's shortfall in Wisconsin. I do think both sides should have met, made their case, and perhaps compromise or come up with an entirely new solution (see my solutions above).

Update 2

Just thought I should briefly comment on the "rights" to collectively bargain.  This certainly is a right as in the right to assembly, but then the employer also has a right not to associate with your association - meaning at the end of a CBA, they can choose not to renew it and hire other workers.  So this works both ways.  Let's make sure we have perspective.

Also, government unions have a conflict of interest.  Unions were the largest contributors to the last 2 elections.  Elections in turn are the choosing of the very boss/people they will later be negotiating with.  Imagine you are sitting across from the table from the person you just helped hire and will also have a say in rehiring a few years down the road.  Do you think that person would have an interest in giving in to whatever you want?  Of course.  This is why there needs to be a change with either unions involvement in elections or their involvement in government.

FDR, one of the pioneers of modern progressive policy was against public sector unions. Even the unions themselves thought this was absurd and beyond the scope of the purpose of unions.

I think as a general rule, we need to get the federal government and each state government to work together to create long-term tax stability. Basically, let's leave the rates alone and work our budgets around the dollars being collected. Then, as the economy grows, so to should the dollars flowing into government since most taxes are collected as a percentage. Tax stability is very important for business development and investment decision-making. The economy will have ups and downs, but its stability is further eroded by tax uncertainty.

Finally, a small word on government budgets and tax rates. They both need to be cut. But even before cutting taxes, we need to start with balancing the federal budget. This year we are expected to have a deficit of $1.6 trillion. Some justify it and saying we need it to stimulate the economy. Here's the thing... that money would end up in the economy anyway. If government borrows money, the people or countries doing the borrowing treat it as an investment. Let's just say the government balanced the budget right now. Those people with the $1.6 trillion still need a place for their money. So they put it in savings (which in turn can be borrowed to start new businesses, buy shares, etc), they buy stocks, they buy real it still stimulates the economy. There is only so much money that can fit under the mattress. Why does China borrow so much money to the US? Because we buy so much of their stuff. Think of it this way - when we buy stuff from China, we buy it in dollars (yes, it might get exchanged, but the reality is somehow they need to convert that money). So China needs to do something with those dollars - invest in American companies, buy American goods - or they can borrow it to us. If we stopped borrowing, they would have to find another place to put that money - which would be those very businesses that would stimulate the economy. We need a balanced budget and tax stability now.

I am really hopeful that people in America are starting to see we've over-promised and it's time we get back to the American way of hard work and reducing the entitlement mentality. I also hope we are starting to move away from this political elite class and we can get some real problem solvers in. I think everyone can be on board with that.