The Lighthouse^®

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The Lighthouse^® is the weekly email newsletter of the Independent Institute.
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Volume 17, Issue 39: September 29, 2015

1. Schools to Pay Dearly for Underfunded Pension Plans
2. Limited Benefit Insurance: An Alternative to Obamacare
3. Understanding the Climate Science Boom
4. Falling Fuel Prices Have Yet to Fuel Better Energy Policies
5. New Blog Posts
6. Selected News Alerts

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California school districts are heading for troubled times. According to Independent Institute Senior Fellow Lawrence J. McQuillan, the California State Teachers’ Retirement System (CalSTRS) promised public school teachers generous pension benefits, but it is short the estimated $74 billion to $104 billion necessary to pay for them. Governor Jerry Brown’s signing of Assembly Bill 1469 last year will help cover the shortfall by requiring larger contributions from teachers (28 percent more) and especially from school districts (132 percent more). Teacher hiring, school maintenance, and classroom resources will suffer.

The pension tsunami will devastate voters. “When politicians and bureaucrats compromise education to bail out an obviously broken pension system, a moral tipping point is reached,” McQuillan writes in an op-ed for the San Francisco Chronicle. “You can see the predictable results in Chicago, where the Chicago Public Schools system laid off 500 teachers and more than 1,000 support staff in August in response to out-of-control pension costs and a $10 billion unfunded liability. California is heading for a similar meltdown.”

The best way to reform California’s public pension system is to switch from defined-benefit plans to defined-contribution plans, like the 401(k) retirement plans common in the private sector. “Because government wouldn’t be locked into long-term, uncertain funding commitments, California could cap its unfunded pension liability and produce significant budget savings, which should be used to pay off the CalSTRS debt quickly,” McQuillan writes. “This would spare our children and grandchildren from the pension pain that schools and parents are feeling today.”

Switch Teachers to 401(k)-style Pensions, by Lawrence J. McQuillan (San Francisco Chronicle, 9/22/15)

California Dreaming: Lessons on How to Resolve America’s Public Pension Crisis, by Lawrence J. McQuillan

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Obamacare has forced millions of families to obtain the kind of insurance coverage they don’t need. In a recent op-ed for Forbes, Independent Institute Senior Fellow John C. Goodman and co-author Linda Gorman propose an alternative to mandatory, one-size-fits all coverage: limited benefit insurance. As Goodman and Gorman explain, limited benefit insurance wouldn’t cover every expense a young, healthy family might face, but it would generally better meet its budgetary and coverage needs. Among other features, it would enable a family to adjust its benefit level to meet its specific needs for asset protection. As household assets grow, it would need, and could better afford, more coverage to protect its savings, automobiles, home, and other assets.

But if limited benefit insurance were very desirable for so many families, why didn’t the healthcare reform legislation of 2010 enable it? The answer may be that many members of Congress simply don’t understand the needs of families less wealthy than their own. “It’s becoming increasingly obvious to everyone in health policy that the Affordable Care Act was designed by above-average income people to meet the needs of people who are just like they are,” Goodman and Gorman write.

Coverage without annual limits is especially attractive for wealthy families; high deductible policies make more sense for high-income earners. “Obamacare takes care of the needs of the upper income special interest representatives who designed it,” Goodman and Gorman continue. “Now it’s time to create an insurance plan that meets the needs of the bottom half of the income ladder.”

Limited Benefit Insurance: An Alternative to Obamacare, by John C. Goodman and Linda Gorman (Forbes, 9/2/15)

A Better Choice: Healthcare Solutions for America, by John C. Goodman

Priceless: Curing the Healthcare Crisis by John C. Goodman

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Like an economy, a scientific discipline can undergo periods of boom and bust. Is climate science experiencing an unsustainable boom? Certainly its growth has been astounding. Over the past 20 years, the number of scientific papers related to “anthropogenic climate change” has risen twelve-fold, according to a search using Google Scholar. But whether or not climate science will ultimately suffer a bust may depend on the causes of its surge. While several factors have contributed, the role of Big Players—namely, the Intergovernmental Panel on Climate Change and various government agencies that dole out huge sums as research grants—has been critical. It also raises a red flag.

One reason is that a change in the priorities, funding, or prestige of Big Players can turn a boom into a bust. But another reason may yield greater cause for concern, William N. Butos and Thomas J. McQuade explain in the Fall 2015 issue of The Independent Review. Although large organizations that set the direction for scientific inquiry or business activity can conceivably accelerate progress, their tremendous size and influence—and the way they interact with social phenomena such as opportunism and ideology—distorts the feedback loops that otherwise help make science and markets self-correcting processes.

Climate science may or may not be experiencing a bubble that will burst in the foreseeable future. But this uncertainty is beside the point. The major lesson, Butos and McQuade write, “is that in science, as in the economy, Big Players of any sort distort normal systemic activity, render the emergent outcomes unstable and unreliable, and create an ideal breeding ground for incentives that motivate ideologically biased people to circumvent normal constraints in the name of pursing a ‘greater good.’”

Causes and Consequences of the Climate Science Boom, by William N. Butos and Thomas J. McQuade (The Independent Review, Fall 2015)

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U.S. manufacturing is rebounding—reversing a long-term decline—thanks to lower costs resulting from a surge in domestic oil and natural gas production. Over the past five years, the manufacturing sector has added 1 million jobs. Meanwhile, business rivals in China and Europe are feeling pressure from American competitiveness that they haven’t felt in years. This is great news for consumers. Unfortunately, policymakers haven’t made policies that would leverage the opportunities the boom in shale-derived energy presents.

“We are seeing the fruits of the shale revolution, but to capitalize on this trend we must adopt energy policies that put expanded domestic production and affordable energy first,” Independent Institute Senior Fellow and Research Director William F. Shughart II writes in an op-ed that ran Thursday in the San Diego Union-Tribune.

Instead of enacting policies that would increase the benefits from the drop in energy prices, the Obama administration and many state governments are increasing regulations to discourage fossil fuels and raising subsidies to encourage “renewable” energy sources. “I would accept the replacement of fossil fuels by renewables if that substitution were driven by market forces rather than by regulations and subsidies,” Shughart continues. “But I cannot agree to a shift toward ‘green’ energy if politicians and pressure groups in Washington or state capitols put their collective thumb on the scale.”

Thank the Shale Revolution for Revitalizing U.S. Manufacturing, by William F. Shughart II (San Diego Union-Tribune, 9/24/15)

Taxing Choice: The Predatory Politics of Fiscal Discrimination, edited by William F. Shughart II

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From The Beacon:

From MyGovCost News & Blog:

You can find the Independent Institute’s Spanish-language website here and blog here.

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