Should the public sector be subject to economic reality?

[A Dashing Blade]

"It is, of course, a nonsense number, a statistical prestidigitation done by adding all public sector pension liabilities for those now retired to a life-time obligation to every existing state employee. Roll up all the money and describe it as a debt owed in one year and you get silly numbers"

Er . . . no it's not. Looks to me like they're summing the net present value of all future cash flows. This is the standard method of valuing ANY debt-based financial instrument.

So not a red herring.

 

[ymu]

It's how those figures were used to misrepresent the size of the pensions liability that is the issue. I can quote you some really scary medical statistics, but if you forced me to explain what they actually meant they wouldn't be scary at all. For example, women being pressured into going for cervical screening by GPs who get bonuses for doing so are told that it will halve their risk of dying of cervical cancer. They are not told that 1000 women have to be screened for 30 years in order to prevent one death. It's a con, just like this public sector pensions nonsense.

Bosses in the 1970's were paid 15 times their lowest paid worker. Now it's 75 times. Incomes for the bottom 90% have stayed flat for the last 30 years, whilst the (largely phantom) economic growth has gone into the pockets of the rest, nearly all of it to the top 0.1%. Those greedy fuckers can pay back what they stole, rather than attempt to steal more from the rest of us.

 

[Barking_Mad]

I work an admin at a university. The healthcare department is looking to cut 40 teaching positions. The uni has no redundancy policy so it’s been trying to do it by voluntary cuts, but not enough people have come forward to take the packages they have offered. As a result they are going to have to develop a redundancy package and then sack people.

This comes when the number of people taking courses in Nursing is going through the roof this year and a uni that is well respected for having one of the top 5 courses in the country is going to have to run programmes with 40 less staff. Frankly I don’t know how they are going to do it.

 

[A Dashing Blade]

It's how those figures were used to misrepresent the size of the pensions liability that is the issue . . .

By lazy journo's who don't know what they're talking about and the piss-poor attempt by the Grauniad to debunk that report.

Bottom line, having just skimmed through the report your quote cited, it simply attempts to assign a market value based on current prices to public sector pension liablities. It make no value-jusdgements that I can see (willing to be corrected as I only looked at their methodology)

Personally . . .

1) I'd query their use of the index-linked gilt curve to derive discount rates, I'd have used a swap curve, but their methodology looks sound enough.

2) In a low interest rate environment, the discount factors derived from the discount rates are gonna be (historically) high and therefore overstate (on an historic basis) the npv.

 

[SpookyFrank]

'Economics' should not appear in the same sentence as 'reality' without the phrase 'bears no relation to' joining them together.

 

[The39thStep]

The economic reality is that the public sector will be asked to cut 15% off its budget to pay for the govt's bailing out the banking industry.

 

[kabbes]

Personally . . .

1) I'd query their use of the index-linked gilt curve to derive discount rates, I'd have used a swap curve, but their methodology looks sound enough.

2) In a low interest rate environment, the discount factors derived from the discount rates are gonna be (historically) high and therefore overstate (on an historic basis) the npv.

They're essentially using a buy-out basis for the liabilities, which is a standard thing to calculate in any pension scheme valuation. So it's fair enough. There isn't a pension scheme in the land that is fully funded on a buy-out basis, however. An ongoing basis would normally be based on the actual investment profile instead, which would typically include a lot of equities in a pension scheme.

 

[Jeff Robinson]

'Economics' should not appear in the same sentence as 'reality' without the phrase 'bears no relation to' joining them together.

Exactly - economists are just free market witch doctors who make shit up as they go along - personally speaking I just have them all culled. Had to listen to Cameron cunt pissing on about how "economic reality" meant that public spending cuts were "inevitable" this morning on the radio. It made me want to hunt him down and stamp his stupid Eton cunt face into the floor until it resembled something slightly less ugly. What can I say? I was in a good mood.

 

[A Dashing Blade]

They're essentially using a buy-out basis for the liabilities, which is a standard thing to calculate in any pension scheme valuation. So it's fair enough. . . .

True, however, their use of the index-linked curve, to me, seems the biggest pitfall.

Rather than this being a proxy for the market's perception of forward real interest rates, the IRG curve is massively bumped down by supply/demand constraints on those instruments (ie demand is massively skewed upwards due to legal constraints on fundmanagers => price of any and all IRG's is "inflated" = yield is too low => discount factors backed out from the curve are too high => npv's are overstated.)

 

[ymu]

By lazy journo's who don't know what they're talking about and the piss-poor attempt by the Grauniad to debunk that report.

Well, yeah - journos are lazy. That's why it's so easy to send out misleading press releases for them to regurgitate. It doesn't mean that the right-wing think tanks that are sending out these press releases are not intending to mislead. If they wanted people to understand the true figures, they'd express them in a way that makes sense to a non-specialist audience.

Treasury figures show Britain's public sector pensions are set to rocket to £3.8bn in 2009/10 from £1.2bn in 2006/07.

Big numbers, hey? But HMRC estimates that corporate tax fraud costs us £14 billion a year. Why are public sector pensions being attacked when the people who ruined the economy are stealing four times as much every year?

It's about context and honesty. This is dishonest. The private sector screwed up and now we have to let them raid our pensions to pay for it? Fuck the fuck off you greedy thieving lying cunts.

 

[kabbes]

True, however, their use of the index-linked curve, to me, seems the biggest pitfall.

Rather than this being a proxy for the market's perception of forward real interest rates, the IRG curve is massively bumped down by supply/demand constraints on those instruments (ie demand is massively skewed upwards due to legal constraints on fundmanagers => price of any and all IRG's is "inflated" = yield is too low => discount factors backed out from the curve are too high => npv's are overstated.)

A financial economist, however, would say that there is no such thing as incorrectly priced instruments and that the yield is what it is.

It's an argument I have all the time. I think that if you intend to hang on to your financial instruments, as pension schemes do, you should mark-to-model based on your actual expected income. This is something of a heresy in today's market-value world, however. It's standard practice for everything to be marked-to-market, on the grounds that you could sell everything tomorrow and reinvest it how you see fit. This approach should require you to use a risk-free yield, however, in discounting your liabilities, otherwise you aren't pricing the market risk into your discount, hence the use of gilts.

A further issue is that pension schemes arguably shouldn't be taking investment risk at all, since the shareholders of the sponsor company aren't wanting a secondary stock market investment. But that's another argument completely.

 

[kabbes]

The other reason for using index-linked gilts is, as I already said, that this is the buy-out basis. If you wanted to buy out your liabilities with an insurance company, this is the basis it would be priced on. So this is the real market price of your risk.

 

[Gromit]

My final salary pension is about the only thing keeping me in the civil service.

My pay is shite compared to the private sector but if you add on my pension its just about reasonable.
I'd be far better off being a tube driver where the pay is good and they get the final salary pension too.

Who does society value more financial? Someone responsable for a budget of millions who does a really stressful job in the hopes of making some sort of difference to society or the guy who gets you to work in the morning?

Not that I'd want the job of a train driver as my mate does it and it seems you have to stay alert to safety risks at all times whilst fighting mind numbing boredom.

I do find it ironic that during a recession the economy needs the public services the government require a lot more than than during the good times, but its during the bad times that people want to cut those services. Ever decreasing circles of downward spiral.

 

[The39thStep]

The other economic reality is that New Labour are looking not at just cutting public expenditure but getting the private sector to deliver a lot more of the public sector services.

http://www.ft.com/cms/s/0/02ebd648-6742-11de-925f-00144feabdc0.html

 

[ymu]

How can you simultaneously think you're worth more than a train-driver, but not want to be a train driver because you have to concentrate a lot and it's boring?

If you do your job for less pay than a train driver but do not want to become a train driver instead, this suggests that train drivers do indeed deserve to be paid more. Is responsibility for millions of pounds more important than responsibility for the lives of millions of passengers? Really?

 

[Belushi]

Someone responsable for a budget of millions who does a really stressful job in the hopes of making some sort of difference to society or the guy who gets you to work in the morning?

Tube Driving can be very stressful, just ask the poster who had the misfortune to have someone jump in front of his train.

And you wouldnt be able to get to work in the morning to make a difference without them.

 

[kabbes]

Why are things always compared with tube driver wages? Tube drivers' wages can be easily assessed by capitalism. They work in a field in which their value-add is transparent -- they carry fare-paying passengers. No drivers, no passengers, no income. Furthermore, it is skilled labour, which means supply-and-demand is transparent too. So they're a terrible comparison for anything, really.

Public sector pay is so tricky precisely because capitalism has no clue how to price it properly. It's all about externalities, which is exactly where capitalist pricing breaks down. Comparisons with a supply-and-demand type of wage are fatuous at best.

 

[ymu]

Here's a bit of reality for ya. There's 6 billion of us, and more than enough lamp-posts to take care of them. What are we waiting for?

 

[kabbes]

Really enough lampposts across the whole world?

(I know that this is the most pointless quibble ever, but what the hey).

 

[DotCommunist]

Really enough lampposts across the whole world?

(I know that this is the most pointless quibble ever, but what the hey).

other countries can improvise. Use trees or tall peoples arms

 

[ymu]

6 million lamp-posts takes care of the top 0.1%. If we run out, we'll just have to improvise. Brazil has lots of trees, and Asia has shed-loads of tall buildings. I think we'll cope.

We'll stop when they start handing back what they stole, obv. Prison is adequate for those who show remorse.

 

[kabbes]

How about pylons?

 

[ericjarvis]

"Subject to economic reality" is one of those phrases that has to be translated into English before it can really be understood. The words themselves are familiar, but in the context of the phrase have meanings that may be unfamiliar to some. Taking the phrase as a whole it generally means "forced to be remunerated in a way that suits me". This is because the word "economic" in this context only refers to the sub-branch of economics dedicated to proving that the wealthy and powerful can only be motivated by giving them more money, whilst everyone else can only be motivated by paying them less. This is the carrot and stick approach to motivation. In which the person in charge first beats those under them with a stick, and if that fails then beats them with a carrot, after which they sell the carrot and stick at a huge profit and pocket most of the proceeds as a "performance bonus". The word "reality" is used here in it's common context of "what me and my closest mates think should be the case".

 

[ericjarvis]

How about pylons?

No. We'll let the pylons live.

 

[Santino]

Let pylons be pylons.

 

[littlebabyjesus]

"Subject to economic reality" is one of those phrases that has to be translated into English before it can really be understood. The words themselves are familiar, but in the context of the phrase have meanings that may be unfamiliar to some. Taking the phrase as a whole it generally means "forced to be remunerated in a way that suits me". This is because the word "economic" in this context only refers to the sub-branch of economics dedicated to proving that the wealthy and powerful can only be motivated by giving them more money, whilst everyone else can only be motivated by paying them less. This is the carrot and stick approach to motivation. In which the person in charge first beats those under them with a stick, and if that fails then beats them with a carrot, after which they sell the carrot and stick at a huge profit and pocket most of the proceeds as a "performance bonus". The word "reality" is used here in it's common context of "what me and my closest mates think should be the case".

Nail and head.

 

[ymu]

Pylons are a bit few and far between. Although ... they could take a few more than a lamp-post. I'll note that one down in case we run a bit short, ta.

 

[two sheds]

The other thing they like to ignore is that people have actually been paying in for their pensions for all those years. Successive governments should have been investing that money *that they have already received* to pay out the pensions. However, they've used the money to pay out the last generations' pensions. Another case of legalised theft .

 

[Almor]

other countries can improvise. Use trees or tall peoples arms

Or

An immigration policy that we can all get behind?

Send us your corrupt, your grasping and greedy elites and we'll put our lamposts to work for you!

Western intervention that might really benefit the rest of the world?

"Subject to economic reality" is one of those phrases that has to be translated into English before it can really be understood. The words themselves are familiar, but in the context of the phrase have meanings that may be unfamiliar to some. Taking the phrase as a whole it generally means "forced to be remunerated in a way that suits me". This is because the word "economic" in this context only refers to the sub-branch of economics dedicated to proving that the wealthy and powerful can only be motivated by giving them more money, whilst everyone else can only be motivated by paying them less. This is the carrot and stick approach to motivation. In which the person in charge first beats those under them with a stick, and if that fails then beats them with a carrot, after which they sell the carrot and stick at a huge profit and pocket most of the proceeds as a "performance bonus". The word "reality" is used here in it's common context of "what me and my closest mates think should be the case".

I'm with ericjarvis on this too.
Nice one.

 

[A Dashing Blade]

Well, yeah - journos are lazy. That's why it's so easy to send out misleading press releases for them to regurgitate. It doesn't mean that the right-wing think tanks that are sending out these press releases are not intending to mislead. If they wanted people to understand the true figures, they'd express them in a way that makes sense to a non-specialist audience.

Treasury figures show Britain's public sector pensions are set to rocket to £3.8bn in 2009/10 from £1.2bn in 2006/07.

Here is the press release, your quote is NOT from that press release, it's a quote from the Grauniad.
Read the press release and it's associated report, looks to me as if it's arguing for transparancy in the public sector accounts . . . surely no bad thing?

Big numbers, hey? But HMRC estimates that corporate tax fraud costs us £14 billion a year. Why are public sector pensions being attacked when the people who ruined the economy are stealing four times as much every year?

Personally I would add a commission element to every tax-inspectors pay packet when they investigate large corporations . . .

It's about context and honesty. This is dishonest. The private sector screwed up and now we have to let them raid our pensions to pay for it? Fuck the fuck off you greedy thieving lying cunts.

Seems to me it's just as much a fault of Gordon Browns inept policies since '97that's as much to blame