The Commons is a weblog for concerned citizens of southeast Iowa and their friends around the world. It was created to encourage grassroots networking and to share information and ideas which have either been suppressed or drowned out in the mainstream media.

"But if the cause be not good, the king himself hath a heavy reckoning to make, when all those legs and arms and heads, chopped off in battle, shall join together at the latter day and cry all 'We died at such a place;' some swearing, some crying for a surgeon, some upon their wives left poor behind them, some upon the debts they owe, some upon their children rawly left. I am afeard there are few die well that die in a battle; for how can they charitably dispose of any thing, when blood is their argument? Now, if these men do not die well, it will be a black matter for the king that led them to it; whom to disobey were against all proportion of subjection." (Henry V, Act V, Scene 4)

Saturday, March 12, 2005

David Barstow and Robin Stein - News or Public Relations? For Bush It's a Blur

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March 13, 2005
News or Public Relations? For Bush It's a Blur
By DAVID BARSTOW
and ROBIN STEIN

It is the kind of TV news coverage every president covets.

"Thank you, Bush. Thank you, U.S.A.," a jubilant Iraqi-American told a camera crew in Kansas City for a segment about reaction to the fall of Baghdad. A second report told of "another success" in the Bush administration's "drive to strengthen aviation security"; the reporter called it "one of the most remarkable campaigns in aviation history." A third segment, broadcast in January, described the administration's determination to open markets for American farmers.

To a viewer, each report looked like any other 90-second segment on the local news. In fact, the federal government produced all three. The report from Kansas City was made by the State Department. The "reporter" covering airport safety was actually a public-relations professional working under a false name for the Transportation Security Administration. The farming segment was done by the Agriculture Department's office of communications.

Under the Bush administration, the federal government has aggressively used a well-established tool of public relations: the prepackaged, ready-to-serve news report that major corporations have long distributed to TV stations to pitch everything from headache remedies to auto insurance. In all, at least 20 different federal agencies, including the Defense Department and the Census Bureau, have made and distributed hundreds of television news segments in the past four years, records and interviews show. Many were subsequently broadcast on local stations across the country without any acknowledgement of the government's role in their production.

This winter, Washington has been roiled by revelations that a handful of columnists wrote in support of administration policies without disclosing they had accepted payments from the government. But the administration's efforts to generate positive news coverage have been considerably more pervasive than previously known. At the same time, records and interviews suggest widespread complicity or negligence by television stations, given industry ethics standards that discourage the broadcast of prepackaged news segments from any outside group without revealing the source.

Federal agencies are forthright with broadcasters about the origin of the news segments they distribute. The reports themselves, though, are designed to fit seamlessly into the typical local news broadcast. In most cases, the "reporters" are careful not to state in the segment that they work for the government. Their reports generally avoid overt ideological appeals. Instead, the government's news-making apparatus has produced a quiet drumbeat of broadcasts describing a vigilant and compassionate administration.

Some reports were produced to support the administration's most cherished policy objectives, like regime change in Iraq or Medicare reform. Others focused on less prominent matters, such as the administration's efforts to offer free after-school tutoring, its campaign to curb childhood obesity, its initiatives to preserve forests and wetlands, its plans to fight computer viruses, even its attempts to fight holiday drunken driving. They often feature "interviews" with senior administration officials in which questions are scripted and answers rehearsed. Critics, though, are excluded, as are any hints of mismanagement, waste or controversy.

Some of the segments were broadcast in some of nation's largest TV markets, including New York, Los Angeles, Chicago, Dallas and Atlanta.

An examination of government-produced news reports offers a look inside a world where the traditional lines between public relations and journalism have become tangled, where local anchors introduce prepackaged segments with "suggested" lead-ins written by public relations experts. It is a world where government-produced reports disappear into a maze of satellite transmissions, Web portals, syndicated news programs and network feeds, only to emerge cleansed on the other side as "independent" journalism.

It is also a world where all participants benefit.

Local affiliates are spared the expense of digging up original material. Public relations firms secure government contracts worth millions of dollars. The major networks, which help distribute the releases, collect fees from the government agencies that produce segments and the affiliates that show them. The administration, meanwhile, gets out an unfiltered message, delivered in the guise of traditional reporting.

The practice, which also occurred in the Clinton administration, is continuing despite President Bush's recent call for a clearer demarcation between journalism and government publicity efforts. "There needs to be a nice independent relationship between the White House and the press," Mr. Bush told reporters in January, explaining why his administration would no longer pay pundits to support his policies.

In interviews, though, press officers for several federal agencies said the president's prohibition did not apply to government-made TV news segments, also known as video news releases. They described the segments as factual, politically neutral and useful to viewers. They insisted that there was no similarity to the case of Armstrong Williams, a conservative columnist who promoted the administration's chief education initiative, the No Child Left Behind legislation, without disclosing $240,000 in payments from the Department of Education.

What is more, these officials argued, it is the responsibility of television news directors to inform viewers that a segment about the government was in fact written by the government.

"Talk to the television stations that ran it without attribution," said William A. Pierce, spokesman for the Department of Health and Human Services. "This is not our problem. We can't be held responsible for their actions."

Yet in three separate opinions in the past year, the Government Accountability Office, an investigative arm of Congress that studies the federal government and its expenditures, has held that government-made news segments may constitute improper "covert propaganda" even if their origin is made clear to the television stations. The point, the office said, is whether viewers know the origin. Last month, in its most recent finding, the G.A.O. said federal agencies may not produce prepackaged news reports "that conceal or do not clearly identify for the television viewing audience that the agency was the source of those materials."

It is not certain, though, whether the office's pronouncements will have much practical effect. Although a few federal agencies have stopped making television news segments, others continue. And on Friday, the Justice Department and the Office of Management and Budget circulated a memorandum instructing all executive branch agencies to ignore the G.A.O. findings. The memorandum said the G.A.O. failed to distinguish between covert propaganda and "purely informational" news segments made by the government. Such informational segments are legal, the memorandum said, whether or not an agency's role in producing them is disclosed to viewers.

Even if agencies do disclose their role, those efforts can easily be undone in a broadcaster's editing room. Some news organizations, for example, simply identify the government's "reporter" as one of their own and then edit out any phrase suggesting the segment was not of their making.

So in a recent segment produced by the Agriculture Department, the agency's narrator ended the report by saying "In Princess Anne, Maryland, I'm Pat O'Leary reporting for the U.S. Department of Agriculture." Yet AgDay, a syndicated farm news program that is shown on some 160 stations, simply introduced the segment as being by "AgDay's Pat O'Leary." The final sentence was then trimmed to "In Princess Anne, Maryland, I'm Pat O'Leary reporting."

Brian Conrady, executive producer of AgDay, defended the changes. "We can clip 'Department of Agriculture' at our choosing," he said. "The material we get from the U.S.D.A., if we choose to air it and how we choose to air it is our choice."

Spreading the Word
Government Efforts and One Woman's Role


Karen Ryan cringes at the phrase "covert propaganda." These are words for dictators and spies, and yet they have attached themselves to her like a pair of handcuffs.

Not long ago, Ms. Ryan was a much sought-after "reporter" for news segments produced by the federal government. A journalist at ABC and PBS who became a public relations consultant, Ms. Ryan worked on about a dozen reports for seven federal agencies in 2003 and early 2004. Her segments for the Department of Health and Human Services and the Office of National Drug Control Policy were a subject of the accountability office's recent inquiries.

The G.A.O. concluded that the two agencies "designed and executed" their segments "to be indistinguishable from news stories produced by private sector television news organizations." A significant part of that execution, the office found, was Ms. Ryan's expert narration, including her typical sign-off - "In Washington, I'm Karen Ryan reporting" - delivered in a tone and cadence familiar to television reporters everywhere.

Last March, when The New York Times first described her role in a segment about new prescription drug benefits for Medicare patients, reaction was harsh. The Cleveland Plain Dealer ran an editorial under the headline "Karen Ryan, You're a Phony," and she was the object of late night jokes by Jon Stewart and received hate mail.

"I'm like the Marlboro man," she said in a recent interview.

In fact, Ms. Ryan was a bit player who made less than $5,000 for her work on government reports. She was also playing an accepted role in a lucrative art form, the video news release.

"I just don't feel I did anything wrong," she said. "I just did what everyone else in the industry was doing."

It is a sizeable industry. One of its largest players, Medialink Worldwide Inc., has about 200 employees, with offices in New York and London. It produces and distributes about 1,000 video news releases a year, most commissioned by major corporations. The Public Relations Society of America even gives an award, the Bronze Anvil, for the year's best video news release.

Several major TV networks play crucial intermediary roles in the business. Fox, for example, has an arrangement with Medialink to distribute video news releases to 130 affiliates through its video feed service, Fox News Edge. CNN distributes releases to 750 stations in the United States and Canada through a similar feed service, CNN Newsource. Associated Press Television News does the same thing worldwide with its Global Video Wire.

"We look at them and determine whether we want them to be on the feed," David M. Winstrom, director of Fox News Edge, said of video news releases. "If I got one that said tobacco cures cancer or something like that, I would kill it."

In essence, video news releases seek to exploit a growing vulnerability of television news: Even as news staffs at the major networks are shrinking, many local stations are expanding their hours of news coverage without adding reporters.

"No TV news organization has the resources in labor, time or funds to cover every worthy story," one video news release company, TVA Productions, said in a sales pitch to potential clients, adding that "90 percent of TV newsrooms now rely on video news releases."

Federal agencies have been commissioning video news releases since at least the first Clinton administration. An increasing number of state agencies are producing television news reports, too; the Texas Parks and Wildlife Department alone has produced some 500 video news releases since 1993.

Under the Bush administration, federal agencies appear to be producing more releases, and on a broader array of topics.

A definitive accounting is nearly impossible. There is no comprehensive archive of local television news reports, as there is in print journalism, so there is no easy way to determine what has been broadcast, and when and where.

Still, several large agencies, including the Defense Department, the State Department and the Department of Health and Human Services, acknowledge expanded efforts to produce news segments. Many members of Mr. Bush's first-term cabinet appeared in such segments.

A recent study by Congressional Democrats offers another rough indicator: the Bush administration spent $254 million in its first term on public relations contracts, nearly double what the last Clinton administration spent.

Karen Ryan was part of this push - a "paid shill for the Bush administration," as she self-mockingly puts it. It is, she acknowledges, an uncomfortable title.

Ms. Ryan, 48, describes herself as not especially political, and certainly no Bush die-hard. She had hoped for a long career in journalism. But over time, she said, she grew dismayed by what she saw as the decline of television news - too many cut corners, too many ratings stunts.

In the end, she said, the jump to video news releases from journalism was not as far as one might expect. "It's almost the same thing," she said.

There are differences, though. When she went to interview Tommy G. Thompson, then the health and human services secretary, about the new Medicare drug benefit, it was not the usual reporter-source exchange. First, she said, he already knew the questions, and she was there mostly to help him give better, snappier answers. And second, she said, everyone involved is aware of a segment's potential political benefits.

Her Medicare report, for example, was distributed in January 2004, not long before Mr. Bush hit the campaign trail and cited the drug benefit as one of his major accomplishments.

The script suggested that local anchors lead into the report with this line: "In December, President Bush signed into law the first-ever prescription drug benefit for people with Medicare." In the segment, Mr. Bush is shown signing the legislation as Ms. Ryan describes the new benefits and reports that "all people with Medicare will be able to get coverage that will lower their prescription drug spending."

The segment made no mention of the many critics who decry the law as an expensive gift to the pharmaceutical industry. The G.A.O. found that the segment was "not strictly factual," that it contained "notable omissions" and that it amounted to "a favorable report" about a controversial program.

And yet this news segment, like several others narrated by Ms. Ryan, reached an audience of millions. According to the accountability office, at least 40 stations ran some part of the Medicare report. Video news releases distributed by the Office of National Drug Control Policy, including one narrated by Ms. Ryan, were shown on 300 stations and reached 22 million households. According to Video Monitoring Services of America, a company that tracks news programs in major cities, Ms. Ryan's segments on behalf of the government were broadcast a total of at least 64 times in the 40 largest television markets.

Even these measures, though, do not fully capture the reach of her work. Consider the case of News 10 Now, a cable station in Syracuse owned by Time Warner. In February 2004, days after the government distributed its Medicare segment, News 10 Now broadcast a virtually identical report, including the suggested anchor lead-in. The News 10 Now segment, however, was not narrated by Karen Ryan. Instead, the station edited out the original narration and had one of its own reporters repeat the script almost word for word.

The station's news director, Sean McNamara, wrote in an e-mail message, "Our policy on provided video is to clearly identify the source of that video." In the case of the Medicare report, he said, the station believed it was produced and distributed by a major network and did not know that it had originally come from the government.

Ms. Ryan said she was surprised by the number of stations willing to run her government segments without any editing or acknowledgement of origin. As proud as she says she is of her work, she did not hesitate, even for a second, when asked if she would have broadcast one of her government reports if she were a local news director.

"Absolutely not."

Little Oversight
TV's Code of Ethics, With Uncertain Weight


"Clearly disclose the origin of information and label all material provided by outsiders."

Those words are from the code of ethics of the Radio-Television News Directors Association, the main professional society for TV news directors in the United States. Some stations go further, all but forbidding the use of any outside material, especially entire reports. And spurred by embarrassing publicity last year about Karen Ryan, the news directors association is close to proposing a stricter rule, said its executive director, Barbara Cochran.

Whether a stricter ethics code will have much effect is unclear; it is not hard to find broadcasters who are not adhering to the existing code, and the association has no enforcement powers.

The Federal Communications Commission does, but it has never disciplined a station for showing government-made news segments without disclosing their origin, a spokesman said.

Could it? Several lawyers experienced with F.C.C. rules say yes. They point to a 2000 decision by the agency, which stated, "Listeners and viewers are entitled to know by whom they are being persuaded."

In interviews, more than a dozen station news directors endorsed this view without hesitation. Several expressed disdain for the prepackaged segments they received daily from government agencies, corporations and special interest groups who wanted to use their airtime and credibility to sell or influence.

But when told that their stations showed government-made reports without attribution, most reacted with indignation. Their stations, they insisted, would never allow their news programs to be co-opted by segments fed from any outside party, let alone the government.

"They're inherently one-sided, and they don't offer the possibility for follow up questions - or any questions at all," said Kathy Lehmann Francis, until recently the news director at WDRB, the Fox affiliate in Louisville, Ky.

Yet records from Video Monitoring Services of America indicate that WDRB has broadcast at least seven Karen Ryan segments, including one for the government, without disclosing their origin to viewers.

Mike Stutz, news director at KGTV, the ABC affiliate in San Diego, was equally opposed to putting government news segments on the air.

"It amounts to propaganda, doesn't it?" he said.

Again, though, records from Video Monitoring Services of America show that from 2001 to 2004 KGTV ran at least one government-made segment featuring Karen Ryan, 5 others featuring her work on behalf of corporations, and 19 produced by corporations and other outside organizations. It does not appear that KGTV viewers were told the origin of these 25 segments.

"I thought we were pretty solid," Mr. Stutz said, adding that they intend to take more precautions.

Confronted with such evidence, most news directors were at a loss to explain how the segments made it on the air. Some said they were unable to find archive tapes that would help answer the question. Others promised to look into it, then stopped returning telephone messages. A few removed the segments from their Web sites, promised greater vigilance in the future or pleaded ignorance.

Afghanistan to Memphis
An Agency's Report Ends Up on the Air


On Sept. 11, 2002, WHBQ, the Fox affiliate in Memphis, marked the anniversary of the 9/11 attacks with an uplifting report on how assistance from the United States was helping to liberate the women of Afghanistan.

Tish Clark, a reporter for WHBQ, described how Afghan women, once barred from schools and jobs, were at last emerging from their burkas, taking up jobs as seamstresses and bakers, sending daughters off to new schools, receiving decent medical care for the first time and even participating in a fledgling democracy. Her segment included an interview with an Afghan teacher who recounted how the Taliban only allowed boys to attend school. An Afghan doctor described how the Taliban refused to let male physicians treat women.

In short, Ms. Clark's report seemed to corroborate, however modestly, a central argument of the Bush foreign policy, that forceful American intervention abroad was spreading freedom, improving lives and winning friends.

What the people of Memphis were not told, though, was that the interviews used by WHBQ were actually conducted by State Department contractors. The contractors also selected the quotes used from those interviews and filmed the footage that went with the narration. They also wrote the narration, much of which Ms. Clark repeated with only minor changes.

As it happens, the viewers of WHBQ were not the only ones in the dark.

Ms. Clark, now Tish Clark Dunning, said in an interview that she, too, had no idea the report originated at the State Department. "If that's true, I'm very shocked that anyone would false report on anything like that," she said.

How a television reporter in Memphis came to unwittingly narrate a segment by the State Department reveals much about the extent to which government-produced news accounts have seeped into the broader new media landscape.

The explanation begins inside the White House, where the president's communications advisers devised a strategy after Sept. 11, 2001, to encourage supportive news coverage of the fight against terrorism. The idea, they explained to reporters at the time, was to counter charges of American imperialism by generating accounts that emphasized American efforts to liberate and rebuild Afghanistan and Iraq.

An important instrument of this strategy was the Office of Broadcasting Services, a State Department unit of 30 or so editors and technicians whose typical duties include distributing footage from news conferences. But in early 2002, with close editorial direction from the White House, the unit began producing narrated feature reports, many of them promoting American achievements in Afghanistan and Iraq and reinforcing the administration's rationales for the invasions. These reports were then widely distributed in the United States and around the world for use by local TV stations. In all, the State Department has produced 59 such segments.

United States law contains provisions intended to prevent the domestic dissemination of government propaganda. The 1948 Smith-Mundt Act, for example, allows Voice of America to broadcast pro-government news to foreign audiences, but not at home. Yet State Department officials said that law does not apply to the Office of Broadcasting Services. In any event, said Richard A. Boucher, a State Department spokesman, "Our goal is to put out facts and the truth. We're not a propaganda agency."

Even so, as a senior department official, Patricia Harrison, told Congress last year, the Bush administration has come to regard such "good news" segments as "powerful strategic tools" for influencing public opinion. And a review of the department's segments reveals a body of work in sync with the political objectives set forth by the White House communications team after 9/11.

In June 2003, for example, the unit produced a segment that depicted American efforts to distribute food and water to the people of southern Iraq. "After living for decades in fear, they are now receiving assistance - and building trust - with their coalition liberators," the unidentified narrator concluded.

Several segments focused on the liberation of Afghan women, which a White House memo from January 2003 singled out as a "prime example" of how "White House-led efforts could facilitate strategic, proactive communications in the war on terror."

Tracking precisely how a "good news" report on Afghanistan could have migrated to Memphis from the State Department is far from easy. The State Department typically distributes its segments via satellite to international news organizations like Reuters and Associated Press Television News, which in turn distribute them to the major United States networks, which then transmit them to local affiliates.

"Once these products leave our hands, we have no control," Robert A. Tappan, the State Department's deputy assistant secretary for public affairs, said in an interview. The department, he said, never intended its segments to be shown unedited and without attribution by local news programs. "We do our utmost to identify them as State Department-produced products."

Representatives for the networks insist that government-produced reports are clearly labeled when they are distributed to affiliates. Yet with segments bouncing from satellite to satellite, passing from one news organization to another, it is easy to see the potential for confusion. Indeed, in response to questions from The Times, Associated Press Television News acknowledged that they might have distributed at least one segment about Afghanistan to the major United States networks without identifying it as the product of the State Department. A spokesman said it could have "slipped through our net because of a sourcing error."

Kenneth W. Jobe, vice president of news at WHBQ in Memphis, said he could not explain how his station came to broadcast the State Department's segment on Afghan women. "It's the same piece, there's no mistaking it," he said in an interview, insisting that it would not happen again.

Mr. Jobe, who was not with WHBQ in 2002, said the station's script for the segment has no notes explaining its origin. But Tish Clark Dunning said it was her impression at the time that the Afghan segment was her station's version of one done first by network correspondents at either Fox News or CNN. It is not unusual, she said, for a local station to take network reports and then give them a hometown look.

"I didn't actually go to Afghanistan," she said. "I took that story and reworked it. I had to do some research on my own. I remember looking on the Internet and finding out how it all started as far as women covering their faces and everything."

At the State Department, Mr. Tappan said the broadcasting office is moving away from producing narrated feature segments. Instead, the department is increasingly supplying only the ingredients for reports - sound bites and raw footage. Since the shift, he said, even more State Department material is making its way into news broadcasts.

Meeting a Need
Rising Budget Pressures, Ready-to-Run Segments


WCIA is a small station with a big job in central Illinois.

Each weekday, WCIA's news department produces a three-hour morning program, a noon broadcast and three evening programs. There are plans to add a 9 p.m. broadcast. The staff, though, has been cut to 37 from 39. "We are doing more with the same," said Jim P. Gee, the news director.

Farming is crucial in Mr. Gee's market, yet with so many demands, he said, "it is hard for us to justify having a reporter just focusing on agriculture."

To fill the gap, WCIA turned to the Agriculture Department, which has assembled one of the most effective public relations operations inside the federal government. The department has a Broadcast Media and Technology Center with an annual budget of $3.2 million that each year produces some 90 "mission messages" for local stations - mostly feature segments about the good works of the Agriculture Department.

"I don't want to use the word filler, per se, but they meet a need we have," Mr. Gee said.

The Agriculture Department's two full-time reporters, Bob Ellison and Pat O'Leary, travel the country filing reports, which are vetted by the department's office of communications before they are distributed via satellite and mail. Alisa Harrison, who oversees the communications office, said Mr. Ellison and Mr. O'Leary provide unbiased, balanced and accurate coverage.

"They cover the secretary just like any other reporter," she said.

Invariably, though, their segments offer critic-free accounts of the department's policies and programs. In one report, Mr. Ellison told of the agency's efforts to help Florida clean up after several hurricanes. "They've done a fantastic job," a grateful local official said in the segment.

More recently, Mr. Ellison reported that Mike Johanns, the new agriculture secretary, and the White House were determined to reopen Japan to American beef products. Of his new boss, Mr. Ellison reported: "He called Bush the best envoy in the world."

WCIA, based in Champaign, has run 26 segments made by the Agriculture Department over the past three months alone. Or put another way, WCIA has run 26 reports that did not cost it anything to produce.

Mr. Gee, the news director, readily acknowledges that these accounts are not exactly independent, tough-minded journalism. But, he added, "We don't think they're propaganda. They meet our journalistic standards. They're informative. They're balanced."

More than a year ago WCIA asked the Agriculture Department to record a special sign-off that implies the segments are the work of WCIA reporters. So, for example, instead of closing his report with "I'm Bob Ellison, reporting for the U.S.D.A.," Mr. Ellison says, "With the U.S.D.A., I'm Bob Ellison, reporting for 'The Morning Show.'"

Mr. Gee said the customized sign-off helped raise "awareness of the name of our station." Could it give viewers the idea that Mr. Ellison is reporting on location with the U.S.D.A. for WCIA? "We think viewers can make up their own minds," Mr. Gee said.

Ms. Harrison, the Agriculture Department press secretary, said the WCIA sign-off was an exception. The general policy, she said, is to make clear in each segment that the reporter works for the department. In any event, she added, she did not think there was much potential for viewer confusion. "It's pretty clear to me," she said.

The 'Good News' People
A Menu of Reports From Military Hot Spots


The Defense Department is working hard to produce and distribute its own news segments for television audiences in the United States.

The Pentagon Channel, available only inside the Defense Department last year, is now being offered to every cable and satellite operator in the United States. Army public affairs specialists, equipped with portable satellite transmitters, are roaming war zones in Afghanistan and Iraq, beaming news reports, raw footage and interviews to TV stations in the United States. All a local news director has to do is log on to a military-funded Web site, www.dvidshub.net, browse a menu of segments and request a free satellite feed.

Then there is the Army and Air Force Hometown News Service, a unit of 40 reporters and producers set up to send local stations news segments highlighting the accomplishments of military members.

"We're the 'good news' people," said Larry W. Gilliam, the unit's deputy director.

Each year, the unit films thousands of soldiers sending holiday greetings to their hometowns. Increasingly, the unit also produces news reports that reach large audiences. The 50 stories it filed last year were broadcast 236 times in all, reaching 41 million households in the United States.

The news service makes it easy for local stations to run its segments unedited. Reporters, for example, are never identified by their military titles. "We know if we put a rank on there they're not going to put it on their air," Mr. Gilliam said.

Each account is also specially tailored for local broadcast. A segment sent to a station in Topeka, Kan., would include an interview with a service member from there. If the same report is sent to Oklahoma City, the soldier is switched out for one from Oklahoma City. "We try to make the individual soldier a star in their hometown," Mr. Gilliam said, adding that segments were distributed only to towns and cities selected by the service members interviewed.

Few stations acknowledge the military's role in the segments. "Just tune in and you'll see a minute-and-a-half news piece and it looks just like they went out and did the story," Mr. Gilliam said. The unit, though, makes no attempt to advance any particular political or policy agenda, he said.

"We don't editorialize at all," he said.

Yet sometimes the "good news" approach carries political meaning, intended or not. Such was the case after the Abu Ghraib prison scandal surfaced last spring. Although White House officials depicted the abuse of Iraqi detainees as the work of a few rogue soldiers, the case raised serious questions about the training of military police officers.

A short while later, Mr. Gilliam's unit distributed a news segment, sent to 34 stations, that examined the training of prison guards at Fort Leonard Wood in Missouri, where some of the military police officers implicated at Abu Ghraib had been trained.

"One of the most important lessons they learn is to treat prisoners strictly but fairly," the reporter said in the segment, which depicted a regimen emphasizing respect for detainees. A trainer told the reporter that military police officers were taught to "treat others as they would want to be treated." The account made no mention of Abu Ghraib or how the scandal had prompted changes in training at Fort Leonard Wood.

According to Mr. Gilliam, the report was unrelated to any effort by the Defense Department to rebut suggestions of a broad command failure.

"Are you saying that the Pentagon called down and said we need some good publicity?" he asked. "No, not at all."


Anne E. Kornblut contributed reporting for this article.



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Frank Kaiser - How Washington Solved the "Medicare Problem"

How Washington Solved
the "Medicare Problem"

by Frank Kaiser

Let's give this Administration credit. It's "damn the torpedoes, full speed ahead!" They let nothing stand in their way.
Having inherited a $236 billion budget surplus in 2001, the Administration gave the wealthiest Americans a trillion dollars in "tax relief." Why? "To keep jobs healthy and the economy strong."

Three huge tax cuts later, with 3 million private-sector jobs lost and a $521 billion estimated budget deficit for 2004 (not including our costs for rebuilding Iraq), this Administration insists that we must continue cutting taxes for the rich "to keep jobs healthy and the economy strong."

That's perseverance, something we Americans admire.
From Day One, luminaries such as Alan Greenspan joined this Administration claiming that Social Security and Medicare were doomed for failure. "Privatize them! Put your trust in the stock market."

But many Americans remained skeptical, especially after popular stocks like Enron fell from $90 to 57¢ a share. We asked, "Why fix what ain't broke?"

So this White House did what it does best. It created fear, then invited us in under its cozy umbrella of protection.

After 9-11, most of us accepted that we needed a stern and unswerving father figure.

If our safety depended on our accepting a little less liberty, a bit of Constitutional bending, a war without end, and a society encouraged to fear minorities, ignore the poor, and idolize the rich, so be it.

It came as no surprise on Tuesday when Treasury Secretary John Snow pushed the now well-worn White House fear button announcing that Medicare's financial condition has "deteriorated sharply." The hospital trust fund will be broke seven years earlier than previously forecast.

With those job losses and the lower wages of most of the rest of us, payroll taxes took a dive.

Snow's report stated that over the next 75 years — this guy's foresight is phenomenal — Medicare will have an unfunded liability of $27.7 trillion*.

Staggering! Where's that umbrella?

Poof! No Medicare Problem.

Lucky for us, the Bush Administration is steady at the helm. Father knows best. The Medicare bill the president signed last December will privatize the program, put the HMOs in charge, thus encouraging personal savings, always a good thing.

Without Medicare, there's no Medicare problem. It's sheer genius. And HMOs will negotiate prices with the drug companies, something the Republicans made illegal to Medicare administrators.

Still, I have some nagging doubts.

Forgive me, but how is it possible, I wonder, for HMOs to be more efficient than Medicare with our medical dollars when HMOs spend between 15 to 32 cents of every dollar on overhead while Medicare spends but a penny?

Medicare must have some real losers working for it! I suppose that's why the Republicans wouldn't allow the agency to negotiate drug prices. Dummies like that might negotiate up instead of down.

I'm also curious about when the HMOs will turn benign? Every HMO I've been with has either raised its premiums so high I couldn't afford them anymore, or, under Medicare, they've simply kicked me out in the cold.

WellCare, UnitedHealthcare, Humana — I've been booted from them all. Forgive my nagging doubts now that they ask me again to put my health in their hands, their pockets full of newly minted Medicare dollars.

I know that it's unpatriotic to question Washington's leadership.

But you've got to ask: With wages skidding, job losses mounting, deficits climbing, and no Medicare or Social Security, what will this great country be like when our children reach our age?

What kind of umbrella will they have to keep those torpedoes away?


* Do you know what a trillion dollars is? Don't worry. No one does. No human being has ever been able to count that high. Just figure that it's a lie and move on to something we all can understand, like $24,000 — yours, mine, and every newborn American child's portion of today's national debt.

Copyright © 2004 —Frank Kaiser

JenInOK - DeLay Goes After College Professors

DeLay Goes After College Professors
by JenInOK (dailykos)
Sat Mar 12th, 2005 at 09:03:39 PST

I guess Morton Blackwell's Leadership Institute needs more money?
A good friend of mine received a letter from DeLay two days ago bemoaning the takeover of college campuses by liberal professors, promoting Morton Blackwell's "Leadership Institute" (which is an organization that funds conservative student groups on college campuses) and asking for money. Of course, my friend is one of those liberal professors (and more on why he got this letter in a bit), so he was pretty amused by the flat out lies in this letter.

I'd like to share some choice passages with you below...


This seven page letter is full of anecdotes and lies. It begins with the "story" of Jason Redding (a "young college student" - we know not where). DeLay claims Redding was told this by a professor:


If you are a conservative, you might as well leave this class because your viewpoint is not welcome here.
Excuse me if I am a bit skeptical about this "story" - I know a lot of professors and doubt this is true - especially when DeLay claims, "Jason's story is not unique."

DeLay also claims that, "liberals enjoy a near stranglehold on American college campuses. They often overwhelm students with a flood of leftist propaganda."

Liberals also "control the textbooks, the course selection, the 'official' student newspaper, the student government and, of course, what's taught in the classes."

Okay, let's see here...


Textbooks: Um, McGraw Hill is real liberal...Plus, I pick my books based on whether or not they adequately cover course content and are useful to the students.

Course selection: Not really sure where he's going here. Since when are courses like math, physics, business, economics, public relations, I could go on and on, liberal?

The 'official' student newspaper: Sure, sometimes faculty are advisors, but the students usually create the content (unless you teach where I do and the university president influences the paper - and he's best buds with Tenant, so I wouldn't call him a liberal...)

The Student Government: whaaaa? I don't know of many faculty who have anything to do with student government, and i would bet money that the students involved in student government organizations would not welcome the kind of faculty involvement DeLay is suggesting.

What's taught in classes: well, after you get through teaching the required non-political content of most classes, there's not much time left over for politicking - and I don't know many profs who bring politics into the classroom anyway (unless the class is about politics). I suppose if teaching critical thinking is liberal, he might have a point...
This is, effectively, an effort to trample on First Amendment rights and silence the voices of some on college campuses through misinformation and lies. The letter states that the purpose of Morton Blackwell's Leadership Institute is to train, "...the right people to have a long-lasting influence on public policy." I'm sure we can guess who those right people are.

This letter goes on to tout DeLay's hard work ('cause that's what got him where he is today). I guess ethics violations are hard work. I suppose "The Hammer" believes that 106K trip to South Korea was a well-deserved reward for his hard work.

In addition, the letter describes how representatives of this Institute fight the good fight on college campuses:


The first step to establish a new conservative student organization is to run a membership table to attract students.
The Institute's table proudly displays a big, colored 24-inch by 36-inch poster with prominent pictures of Ronald Reagan and Margaret Thatcher. [I didn't realize these were still the poster kids for today's conservative youth...]

A large sign above the poster invites young conservatives to "sign up here." And they do.

Many, many young conservatives are attracted to these membership tables.

But liberals stop by, too. And they're angry.

And here's where it really gets good. DeLay includes a few more anecdotes - Are they true? You be the judge:


When Morton's staff set-up a membership table at one university in Virginia, a professor brought his class over to harass Institute fieldmen. The professor screamed and yelled wildly, then retreated to his classroom.

At Old Dominion University in Virginia, thieves stole conservative literature and the valuable list of eager students who had signed up that day at the membership table.

One history professor said, "Fidel Castro is the greatest leader of our century."[historians don't label people this way - they don't go for "top ten" type lists and such...]

At one campus, two Institute fieldmen and one local student were actually kicked off the property by administrators. [Gee, if this is true, do you suppose they did anything to warrant the dismissal?]
The letter goes on to hype the successes of a few conservative student groups (The Berkeley Conservative Foundation, The University of New Mexico Conservative Alliance, and Wake Up America - a conservative student group at Vanderbilt University) and ask for money.

And while all of this BS is pretty pathetic, what's really amusing is the fact that the recipient of this letter has never given a dime to conservative causes, yet the letter repeatedly thanks him for doing so and encourages him to continue his support of conservative causes. Wonder who DeLay's people bought the mailing list from?

My friend has tried to get his name off these lists many times - and is told it's been done - but the letters and phone calls keep coming. He's contemplating a lawsuit for the simple purpose of gaining discovery to see if the GOP is doing anything illegal with their lists. Hmm, ya think?

I am just really tired of the liberal college bias BS that DeLay and others use to scare people into giving money. It really provides a false impression of what goes on on college campuses and what the purpose of a college education is. Right wingers are afraid of education because it might actually cause a young person to question what they've been told is right and what they've believed in their short 18-22 years of life. Opinion and dissent does not need to be silenced - it needs to be encouraged. If DeLay is worried conservative youth can't think for themselves (which I tought was to their benefit) and can be so easily swayed by the perceived mad ramblings of some professor, they've really got a problem.


Jason N. Thelen - American Style Democracy in Iraq -- Arrogance?

American Style Democracy in Iraq -- Arrogance?

Jason N. Thelen, Veterans for Common Sense -- Guest Column
Posted 2005-03-04 01:19:00.0

We are attempting to impose an American-style democracy in Iraq, but their culture is such that our system is unworkable and unstable when applied to them. I spent a year in Iraq, where I was part of the effort to restore government and rebuild infrastructure. Part of my job was to train, mentor, and oversee the neighborhood and district councils in Sadr City. The councils are the legislative branch of the fledgling government, but they are basically inept and ineffective.
Why is the system failing? The problems we are experiencing are not the result of a lack of effort by American soldiers and civilians. Our soldiers are doing the best they can in a difficult situation. But, Iraqi values are different than ours. The Arab value system in Iraq draws strongly from the tribal influences of their past. The tribal culture serves to bind a group of loosely-related people together for safety, and against those outside of the tribe. Their value system treasures immediate family, self, tribe members, friends, and other Muslims (to some extent). They do not feel allegiance to others outside of those groups, and many view outsiders as enemies and competitors for scarce resources. Because the leaders’ values are focused on their special groups, their decisions favor those groups to the detriment of the country as a whole.
Iraqis have no national identity, and they do not feel a connection to a person simply because he is from the same country. For example, a typical man in Baghdad might identify himself as a Muslim and a member of the Al Ka’abi tribe, but not as an Iraqi. On the other hand, Americans feel patriotic pride and believe that all living within our borders are connected and deserving of respect. Many of us are willing to volunteer for national service and cherish what binds us all together. Iraqis do not believe in “Iraq”, which is essentially an artificial demarcation created in the early twentieth century. When citizens have no empathy for strangers, their decisions and actions will be inconsistent with democracy.
Corruption is rampant in the fledgling government. We train the leaders in ethics and their responsibilities to the people, and they understand the abstract notions. Yet, they do not see their illegal actions as “wrong”. Nepotism is the rule, rather than the exception. Taking kickbacks for awarding a government contract is expected, not unethical. If you can profit from your government job, then that is simply a fringe benefit, like free coffee at the office.
Example: Sadr City is a dank, dirty slum that was built to hold 750,000 people. It now has 2.5 million. Sewage literally flows through the streets because the underground lines are filled with dead animals, trash, and anything else that needs to be “out of sight, out of mind.” One street, dubbed “Route Silver” by the Army, typically had 18-24 inches of sewage across the road. In the winter between 2003 and 2004, each of the 100 neighborhoods in Sadr City was allocated $10,000 to spend on a project that would improve their conditions. Each of the eight neighborhood councils in Sadr City had the ability to decide where that money would be spent, and we could produce the cash to pay contractors upon their submission of a 1-2 page project proposal. The Ishbilia neighborhood council insisted that they needed ten soccer fields. Forget the sewage, ignore the lack of clean water, and the scarcity of medical supplies be damned. They wanted to spend all the money on soccer fields. I finally discovered that the standard contractor kickback system returned a much higher dollar amount back to the council if they built soccer fields, which was entirely a labor endeavor. If they bought tangible items, such as medical supplies or school books, the council received fairly little money. Hence, a soccer field on every block. When I convinced them to submit a proposal to distribute medical supplies, the doctor on the council championed the idea. He then sold the supplies out of his clinic.

http://www.veteransforcommonsense.org/inde...d=2916&NoMenu=1




Robin Buckallew - The Bush Ranch

The Bush Ranch

by Robin Buckallew

In 1981, the United States inaugurated Ronald Reagan president. You remember Reagan? He is the man who told us pollution is caused by trees. He is the man who removed the solar panels that were placed on the White House by Jimmy Carter during the energy crisis of the late 1970s. He is the man who was going to handle global warming by wearing sunglasses and sunscreen. During his 8 years in office, the world got visibly browner on aerial photographs. I thought it couldn’t get much worse. I was wrong.

In 2001, George W. Bush was inaugurated as the 43rd President. In spite of the fact that he had no mandate from the people - in spite of the fact that polls show that 80% of Americans consider themselves environmentalists and rate the environment very high on their list of important issues - in spite of the fact that much of the world is embracing the concept of sustainability – in spite of all this, Bush has proven to be the most environmentally hostile President in history. In only 3 years, he has managed to exceed the record of the entire 8 year Reagan presidency for environmental disaster. He has allowed increased arsenic in our drinking water. He has allowed increased mercury emissions into the air we breathe. He has allowed roads to be built into wilderness areas, thereby excluding them from wilderness status under the roadless rule. He has advocated removing the hazardous designation from radioactive medical waste, making it cheaper and easier to dispose of. He does all this under cover of anonymity, by announcing his initiatives late Friday afternoon, knowing that the news gets far less notice on Saturday than on any other day of the week. And he cloaks many of his worst initiatives in friendly sounding names – Healthy Forests (designed to allow loggers unlimited access to some of our most precious national treasures without solving the problem the program claims to solve) and Clear Skies (a program designed to allow larger amounts of hazardous emissions into the air). He isn’t done yet. His vision for the future? A grim, gray one, where trees and animals are merely resources to be sold to the highest bidder, where oil wells dot the fragile tundra, and where big business makes money by selling us the water we so vitally need to survive – but only if we can pay their price. Yes, this president makes Ronald Reagan look positively green.

So, what’s the story with the Bush Ranch? Located in Crawford, Texas, the Bush ranch is a model of environmental planning. Within the confines of his ranch, Bush appears to be a different man. The ranch contains solar panels to generate electricity for heating water. He collects rainwater for landscape irrigation. His air conditioning system uses groundwater. He has a graywater recycling system. And the grasses he has planted on the ranch are natives. In short, to all intents and purposes, he would appear to be what Rush Limbaugh would call an “enviro-whacko”. Is Bush a tree hugger? A soil worshiper? Or a greedy tycoon bent on despoiling the natural environment for corporate profits? Would the real GW Bush please stand up?

I submit this hypothesis – there is absolutely no mystery to Bush’s behavior. Throughout the election and his term, he has consistently said one thing and done another. Granted, he is usually saying the environmental words and doing the anti-environmental thing, and his ranch would seem to be the opposite. I maintain that the ranch is just another set in the giant act that he is putting on. It is just another version of the flight suit and the Thanksgiving turkey. It is designed to create a pleasant diversion, allowing him to gut our environmental protections while we are looking at a red herring. How can I be hostile to the environment? Look at my ranch. So, Friday evening, announce you are opening the Tongas Forest to logging; then, on to a peaceful Saturday at the ranch – a photo op designed to make the environmentalists oooh and awe. This, his ranch, is just another phony prop, another plastic Turkey, another shock and awe. So don’t let appearances fool you – this garden of Eden has a very big snake.


Bonddad - US Dollar: RIP

US Dollar: RIP
by bonddad (Dailykos)

Sat Mar 12th, 2005 at 09:36:49 PST

The dollar used to be the world's premier currency. OPEC decided to price oil in dollars. The Russian black market under communist rule used dollars. Everybody preferred to have their transaction performed in dollars.

This is no longer the case. Events over the last few years have lowered the world's perception of the dollar. The central question to ask is not how to restore the dollar's prestige but where is the dollar headed.

The primary reason for this loss of prestige is the US' reckless fiscal policy. Currently, the total outstanding debt is just below 8 trillion. Last years' trade deficit was 617 billion. These numbers are unsustainable over the long-term.

Starting about two years ago, the currency markets started to sell the dollar because of the twin deficits. The markets were very clear; traders continually cite the deficits as the primary reason for their bearish sentiment. However, because no one in the administration understands the messages that markets communicate, their actions have only exacerbated the situation beyond repair.

Bush's final chance to head off the dollar's fall was State of the Union address where he stated he would propose a budget that was tough on spending. Since that time he has

1.) Proposed a Social Security spending plan that would increase outstanding debt by at least 1-2 trillion, and

2.) Issued a budget that does not include the cost of Iraq and Afghanistan.

In other words, Bush has officially dropped the ball and told the markets that deficit reduction will not occur on his watch.

Over the last year we have seen the following clear signs the world no longer places preeminent value on the dollar:

1.) According to a Financial Times survey, money managers are now wary of making dollar investments.

2.) China, South Korea and Japan have all publicly stated they will diversify their assets away from dollars. While all three countries did renounce their statements, the uniformity of the announcement and retraction leads to the conclusion this is a coordinated effort to warn markets.

3.) China's foreign reserve of dollars decreased 8% in 2004.

4.) India decreased its foreign reserves from 68% to 43% of total reserves in 2004.

5.) Asian banks have formed the Bellagio Group, a "discussion group" aimed at helping members deal with currency market fluctuations.

6.) The European Wall Street Journal printed a story last year stating there was talk of a credit downgrade of US debt.

7.) Russia floated the idea of converting oil pricing to Euros.

The combination of all these events leads to only 1 conclusion: the world is slowly moving away from the dollar. The formation of the Asian "discussion group", combined with India's and China's actions of lowering their dollar exposure indicate this movement away from the dollar is irreversible. Granted, the world is in a difficult trading position. Most countries depend on the US market as a place to sell their goods. Therefore, no one wants to permanently damage the US. However, US trading partners' intentions are nonetheless clear. It is also apparent that the number and magnatude of these events indicates nothing will stop these events from continuing.

The dollar's position as the world's preeminent currency are over.

Friday, March 11, 2005

Bigskiphazzy - Slaughter/Pelosi Report: You Didn't Read It and What You Missed

Slaughter/Pelosi Report: You Didn't Read It and What You Missed
by bigskiphazzy (dailykos)


Fri Mar 11th, 2005 at 14:26:24 PST

Okay, so no one read the Slaughter/Pelosi report "Broken Promises: The Death of Deliberative Democracy. I read it. I don't blame you.

But don't sweat it. I'll fill you in on the juicy details that this paper does a lousy job of illuminating.

I've had a civil back-and-forth with jesselee of the DCCC about the 147-page document (of which only 46 pages are actual report, the rest are appendices), where I argue that this potentially explosive report was a media relations failure.

In short, the thing was a Lakoff nightmare.

Among other failings, the "meat" of the story was buried, the writers managed to frame themselves as whiny democrats, and the media was given an "out" if they didn't want to cover the story, which most didn't. (The notable exception being this WaPo story that actually came out prior to the release of the report.)

On the flip, I'll provide some of the cool stuff that you DIDN'T read, complete with the requisite F-bombs here and there.


To quickly recap, "Broken Promises: The Death of Deliberative Democracy" charges that the House Republican Leadership of the 108th Congress has become
"the most arrogant, unethical and corrupt majority in modern Congressional history."

But just what exactly does that mean? What does it entail?

Well, for starters, it means House Republican leadership has managed:

to systemically abused the House "rules" for parlimentrary procedures and, along with other even more blatant and underhanded tactics, managed to virtually shut out Democrats (and moderate Republicans, I might add) from debate;

to severely limit the ability to amend bills;

to force members to read bills in what amounts to, in some cases, 40 seconds per page prior to a vote;

to abuse the "emergency procedure" designation for hundreds of bills, solely for the purpose of stunting debate.

Furthermore, the House Republican leadership convened the 108th Congress for the LEAST amount of working days (243) then at any time since becoming the majority in 1995 (a full EIGHT weeks less than the 104th Congress), while at the same time, INCREASING the number of days used to consider so-called "suspension day" bills, which are nothing more than glorified ribbon cuttings:
(p.29) Typical suspension day items are measures naming federal buildings, resolutions congratulating individuals or groups, or bills authorizing small pilot programs or land sales that enjoy near-unanimous support in their originating
committees.

In other words, Republicans rewrote the rules in a way that allowed them to transform Wednesday from a day when the House debates and amends major legislation into a day when it names post offices and congratulates sports champions and foreign governments.

In short, the Republicans have not only shortened the working session by nearly 8 weeks since they took over leadership, but they've dedicated a MAJOR portion of that time to debating bills that there is ALREADY A CONSENUS on!

Let's put it another way: This tactic is nothing short of a systematic shutting off of debate by "debating" non-controversial bills. Republican leadership made time for nearly a thousand non-controverisal bills, but the House was given only 4 HOURs to debate the Medicare prescription drug bill, which involves literally hundreds of billions of taxpayer dollars!

Some other lowlights from the Republican leadership during the 108th Congress:

1) In a blatant gambit to avoid giving committee members the required 48-hour notice prior to a meeting (under Rule 2), the leadership has willfully exploited a provision that allows a Chair to call an emergency meeting "at any time on any measure or matter which the Chair determines to be of an emergency nature."
(p. 35) Of the 191 total rules the Committee reported for the 108th Congress, 116 were done as emergency measures. In other words, Rules Committee Republicans considered 60% of the committee's business in the 108th Congress an emergency.

Let me get this straight. Sixty percent of Committee business is "emergency in nature?" Wow. A lot of hair on fire, up there on the hill, me thinks. Well, I did some checking. Here's a quick sampling of some of these "emergency" bills, as listed in the report's appendix:

H.Res. 168 H.R. 743 - Social Security Protection
H.Res. 239 H.R. 1904 - Healthy Forests Restoration Act
H.Res. 449 Providing for a suspension day on November 20, 2003 - with consultation with
Minority Leader

Not sure what constitutes an "emergency" up there on the hill, but "providing for a suspension day" seems to me to fall somewhere OUTSIDE that category. WTF?

2) Here's another beauty: If only getting 24 hours notice is not enough to keep members from participating in committee, how about a little late-night love. Yes, you're a committee member interested in debating "H.Res. 383 Conference Report on S. 3 - Partial Birth Abortion Ban." You wanna play? Okay. Tell `em what they won Don Bardo!:
(p. 36) If short notice is not enough to discourage a Member from submitting amendments and testifying before the Rules Committee, then holding hearings at 11 at night or 7 in the morning will surely convince Members not to bother. In the 108th Congress, 76 of the 191 Rules (nearly 40% of all rules) were reported after 8:00 PM and 21 of those were done at 7:00 AM on the next calendar day, but under the legislative fiction that it was still the previous day.

So are you with me so far? To recap: The session is shorter by 8 weeks, debate on ribbon cuttings is extended, the vast majority of rules are "emergencies," which means that virtually no notice is given, and some 40 percent of all rules were reported after 8 p.m. Shit, all that's missing is a blindfold, some salt, a shot of tequila and a secret handshake and we can close these fuckers off completely.

You think that's it? Oh contraire, Lisa Simpson. A bill doesn't become a law quite that smoothly.

3) House Leadership makes a mockery of the House/Senate conference process by providing "blanket waivers" to all House rules regarding bills coming out of conference.

The final details of a bill are hammered out in a joint conference between the House and the Senate, after which time an up or down vote is taken by the full body on the revised bill. It is at this point that conference conferees have the opportunity to "amend" the bill, essentially behind closed doors.

House rules exist to protect against abuses in conference. For example, changes should not fall outside the scope of the house-approved version, there's to be at least one public meeting on the changes, and the conferees must "attach a joint explanatory statement to the report that is `sufficiently detailed and explicit to inform the House of the effects of the report on the matters committed to conference.' "

But most importantly, a three-day layover is required for such conference bills in order to ensure House members can read the changes prior to an up or down vote. Now, under special circumstances, sometimes these rules are waived. No one, including Democrats, has a problem with the occiaisonal exception.

Now, can you guess where this is going? You guessed it. The Republican leadership of the 108th Congress granted "BLANKET WAIVERS" to every single one of the 28 rules, effectively eliminating "points of order" on all considered bills coming out of conference.

Which, of course, means members did NOT get the three days to review the bill. And guess what? All of our previous rat fuckings still apply: 24 of the 28 rules were drafted as "emergency" measures; 12 of the 28 were reported after 8 p.m., and 6 of those 12 were brought after 6:30 a.m. the following day and brought to the full House for an up or down vote, just hours later!

This, folks, is how we nearly got saddled with the infamous "Istook Amendment," which would have given Congressional staffers access to the confidential tax returns of U.S. citizens.

Guess what else all these rule waivers mean? They mean that House members NOT part of the conference get virtually no time to review the final draft a bill prior to an up or down vote.

For example, members were granted exactly 40 seconds per page to review the 288-page dividend tax bill. Members had 20 hours to review the 852-page final draft of the Prescription Drugs/Medicare prior to voting. Hey, I'm all for pimping Evelyn Wood, but this is ridiculous.

And we wonder why we're being rat fucked?

The Prescription Drugs/Medicare bill deserves it's own wing in the "usurping the democratic process hall of shame." The report details this abomination in nice detail:
A similar rushed process occurred for the conference report on the Medicare Prescription Drug bill (H.R. 1), one of the most important pieces of legislation the House considered in the 108th Congress. The 850-page conference report for H.R. 1 was filed in the House at 1:17 A.M. on November 21, 2003 and had passed the House by 6 A.M. on the morning of November 22, 2003.

It is not surprising the Republican leadership jammed this conference report through the House over the objections of Democrats. More surprisingly, they rushed it through despite the protests of a significant part of the Republican Conference. On October 29, 2003, 41 Members of the Republican Study Committee wrote a letter to Speaker Hastert, Majority Leader DeLay, and Majority Whip Blunt requesting that the Medicare conference report lay over for three days, in accordance with Rule XXII. These Members made their request for the following reason:

"The general public will evaluate not only what Congress does regarding Medicare
and prescription drugs, but the way in which it does it. A bill proposing such
substantive changes to the Medicare system and costing an estimated $400 billion
over the next decade deserves the careful and thoughtful consideration of all Members.
Allowing Members adequate time to properly evaluate the Conference Report will
avoid a needless and difficult internal fight on the Rule, and allow Leadership to
concentrate its efforts on final passage of the Conference Report. It will also lead to more public confidence in the legislative process and greater acceptance of that
process' final product."

The House leadership apparently decided it would be too risky to let House Members (including their own Republican Members) have three days to consider the bill as regular order would require.

Instead, they opted to jam the legislation through the House as quickly as possible, relying on their arm-twisting abilities rather than the merits of the bill. The infamous 3-hour vote on this conference report, plus the accusations that the Republican leadership offered bribes and threatened Members for their votes, could not have improved the "public confidence in the legislative process," as the Republican Study Group had hoped.

Other blows to the public's confidence in the process that produced the new Medicare law came from revelations that the Administration withheld from Congress an analysis showing the cost of the bill to be more than $500 billion; that Energy and Commerce Chairman Billy Tauzin was negotiating for a $2 million-a-year job with the drug industry during the conference negotiations; and that the new law gave a $139 billion windfall for the pharmaceutical industry.

Shameless cocksuckers.

For a nifty little synopis of how little Tom Delay thinks of democrats, take a look at this cute
anecdote from the back cover of Lou Dubose's book on Delay, The Hammer.

4) Finally, let us not lose sight of the utter hypocrisy of these Republicans;
Here's our dear friend Joe Scarborough, writing recently in the Wall Street Journal:
"Ten years ago, Republican congressional candidates like me were running as
Washington outsiders promising to balance the budget and pay off the federal debt.
We campaigned against the Imperial Congress and promised Americans that if we
got elected, we would be different. We lied."

Rules Chairman David Dreier made several statements when the Republicans were in the minority, essentially condemning Democrats for using tactics, which by today's standards, would have looked like a veritable model for "deliberative democracy.' Dreier sings a different tune now:
(p. 7-8) "We have had to do some of the things we criticized once...But now that I'm in the majority, I have this responsibility to govern. It's something I didn't completely understand when I was in the minority."

Well isn't that special.

A large, important portion of this report details the nature of Open and Closed and Restrictive rules and how the current Leadership is using the "closed" rules for the vast majority of bills. You can read it if you're so inclined, but I think you get the gist:

As far as Democrats and moderate Republicans are concerned, the United States House of Representatives is CLOSED for business.

Paul Krugman - Slanting Social Security

March 11, 2005
OP-ED COLUMNIST
Slanting Social Security
By PAUL KRUGMAN

Many people involved in the debate over Social Security's future worry that the 2005 trustees' report will be slanted in favor of privatization.

I don't expect to see books that are literally cooked: Stephen Goss, the agency's chief actuary, has an excellent reputation. But it's not out of the question. After all, in 2003 the chief actuary of Social Security's sister agency, which oversees Medicare, was told that he would be fired if he gave Congress accurate information about the cost of the Bush Medicare bill.

Even if the numbers aren't fabricated, however, it's a good bet that they will be presented in a way intended to make Social Security's financial outlook seem much bleaker than it really is.

Why should we expect a slanted report?

First, this administration has politicized analysis across the board, from the Environmental Protection Agency to the Food and Drug Administration.

Second, the White House has been using taxpayers' money to sell its privatization plans in ways that would have been considered out of bounds for any previous administration. The Treasury Department has set up a "war room" to promote privatization; its first three hires were former aides in the Bush-Cheney campaign.

Third, Social Security officials have been playing a clearly partisan role. James Lockhart, the deputy commissioner, has become a regular fixture at pro-privatization rallies - and has been dispensing misinformation. Last week Mr. Lockhart echoed a misrepresentation by President Bush of a statement in last year's report, telling the audience that each year that there are no changes to the program costs "hundreds of billions."

A few weeks ago, Progress for America issued a press release describing Thomas Saving, one of the Social Security trustees, as an adviser and spokesman. This announcement drew some unwelcome attention; the organization now says it was incorrect to call Mr. Saving a spokesman.

But it's still extraordinary to have one of the Social Security trustees associated with a group that is "dedicated to a conservative issue agenda" and has been running ads in support of the Bush privatization plan. (You may have seen the ad that features Franklin Roosevelt; James Roosevelt Jr., F.D.R.'s grandson, wrote to Progress for America to demand that the ad be withdrawn.)

Finally, the Social Security Administration has already begun to slant the information it provides to the public in ways that exaggerate the program's problems. Even the recorded message callers get when the agency puts them on hold disparages Social Security's future prospects.

House Democrats have made a striking comparison between the 2000 and 2004 versions of a public information booklet titled "The Future of Social Security."

The 2000 version was hardly complacent about the future: it presented a chart showing that the trust fund would be exhausted in 2037, and warned that at that point, "Social Security will be able to pay only 72 percent of benefits ... unless changes are made."

By 2004, evidence that the productivity boom that began in the mid-1990's was continuing had led to more optimistic projections: the trust fund was expected to last until 2042. But the caption on the corresponding chart in the 2004 booklet reads, "Current Social Security system is unsustainable in the long run." That's simply false - we can argue about whether it's a good idea to maintain the present system, but there's no question that the basic form of the system could be maintained indefinitely through some combination of tax increases and/or benefit cuts.

What efforts to slant the presentation should we expect in this year's report? A recent op-ed article by Mr. Saving, in which he insists that we face a $74 trillion crisis - 20 times the funding gap estimated in the 2004 trustees' report - offers some hints.

Look for an attempt to conflate Social Security with Medicare. Look for an emphasis on "infinite horizon" estimates, which the American Academy of Actuaries, in a letter to trustees, said "provide little if any useful information about the program's long-range finances and indeed are likely to mislead anyone lacking technical expertise ... into believing that the program is in far worse financial condition than is actually indicated."

The trustees' report has always been a very useful document, providing a wealth of information. But this year, more than ever before, it will have to be read with an eye to the ways it will try to mislead.

Economic Opportunity Institute - Pension Privatization in Britain: A Boon to the Finance Industry, a Boondoggle to Workers

Pension Privatization in Britain:
A Boon to the Finance Industry, a Boondoggle to Workers

"Evidence from Britain, where the social security system was partially privatized more than a decade ago, suggests that the finance industry is the main beneficiary."

Proponents of Social Security privatization often claim that their motive is to help workers. Armed with sunny sales pitches and multi-million dollar marketing budgets, privatizers claim that individual accounts would give workers “better returns,” “freedom of choice,” and “improved efficiency.” Interestingly, though, these groups that are purportedly fighting for workers are not funded by workers, but by the finance industry. Given this potential conflict of interest, one might reasonably question whether privatization would really help working people or whether such reform would simply benefit Wall Street. Evidence from Britain, where the social security system was partially privatized more than a decade ago, suggests that the finance industry is the main beneficiary.

Background

The United Kingdom has a two-tier pension program. The first tier, called the basic state retirement pension (BSP) provides a modest flat-rate benefit. When it was originally implemented in 1908, the first tier did not require workers to pay in and only disbursed benefits to needy retirees. In 1925, the program was redesigned: the means testing requirement was dropped and contributions were mandated. Currently, the BSP provides a full benefit of approximately $105 in U.S. currency per week to all workers who contribute for the requisite number of years (44 years for men, 39 for women).[1]

A second tier pension was added in 1961. Called “graduated pensions,” benefits for the program were based on earnings. Graduated pensions were designed to provide workers with modest benefits to supplement their basic state pensions.[2]

The second tier was reformulated in 1978 when graduated pensions were replaced by the more generous State Earnings Related Pension System (SERPS). Similar to the U.S. Social Security system, SERPS is run on a pay-as-you-go basis (meaning that today’s contributions pay today’s retirees) and contributions and benefits are based on earnings. Workers earning less than the lower limit of $95 per week do not contribute to the system and are not eligible for benefits. Workers who earn more than the lower limit must contribute 2 percent of earnings up to $95 per week, plus 10 percent of earnings over $95 and below $719 per week. Employers also contribute between 3 and 10 percent of employees’ earnings.[3] SERPS benefits replace approximately 25 percent of a worker’s pre-retirement wage, based on his or her 20 highest-earning years. Since the inception of the program, employers have been allowed to contract out of SERPS and substitute their own pension plans, provided they offered benefits at least as generous as the public program.[4]

Individual Accounts

While limited opting out was permitted under the original SERPS legislation, the British government under the ideologically-driven Thatcher administration significantly expanded and encouraged this process.

In 1988, new legislation was implemented that allowed employees to opt out of SERPS (or occupational plans) and invest in individual retirement accounts called Appropriate Personal Pensions (APPs). The legislation also served to encourage opting out by cutting SERPS benefits. Under the legislation, the replacement rate of pre-retirement income will go from 25 percent in 1999 to 20 percent in 2009. In addition, benefits will be based on lifetime earnings, rather than a worker’s highest-earning 20 years (as was previously the case). To make opting out even more attractive, workers were offered generous incentives to contract out of SERPS and into APPs.[5]

This expansion of the opting-out process in Britain is notable in that it is the only example of pension privatization by a G-7 country.[6] All the other major industrialized democracies have chosen to maintain a single universal social insurance program for retired workers.

Consequences of Privatization

Britain’s experience with individual accounts has been troubling. None other than the business-oriented Wall Street Journal, in fact, headlined an article on the British experience: “Social Security Switch in U.K. is Disastrous; A Caution to the U.S.?”[7] While the Journal article mainly focused on a multi-billion dollar fraud scandal in which British pension sellers gave workers bad investment advice, others have critically noted the system’s unexpectedly high administrative costs and the growing income inequality among the nation’s workers.[8]

The Misselling Scandal

While proponents of privatization tout the freedom of choice that privatization would afford, they neglect to mention that a surfeit of options can be a double-edged sword. Workers who have the expertise or inclination may be able to pick out an appropriate plan. Workers who lack the know-how or desire to sort through the intricacies of pension policy, however, are left at the mercy of financial advisors.

The potential for confusion when confronted with the challenge of choosing an individual account is very real. According to James Shultz, professor of economics and aging policy at Brandeis University, a person selecting an APP in Britain must:

select among “endowment,” “unit-linked,” and “deposit administration” schemes, each with a variety of variants. They can buy from life insurance companies, friendly societies, unit trusts (i.e. mutual funds), building societies, or banks. They must choose an “elected retirement date,” which, if different from the actual date, can result in a significant loss of benefits. They need to understand the key issues related to a pension’s “surrender value” and the large potential losses that might result from early termination. They need to be able to calculate and compare among competing products the widely varying administrative costs that are being charged. And they need to choose among the almost infinite kinds of “annuity” options offered at retirement.[9]

Given the complexity and tedious nature of the subject matter, workers are often tempted to forgo in-depth research and defer to the “experts.” Financial advisors, however, are not generally anxious to undertake pro bono work. Thus, the task of advising tends to fall to paid salespeople working for the various pension funds. These salespeople are not paid to give workers good advice; they are paid to sell their company’s pension products. The reality of the situation, then, is that ill-informed workers are often left to deal with self-interested pension sellers. As one could well predict, fraud and exploitation are often the products of these unequal relationships.

According to the previously cited Wall Street Journal article, British regulators estimate that during the early 1990s more than two million workers (of the approximately 6 million workers enrolled in APPs) lost money due to bad financial advice in the so-called “misselling scandal.” [10] Abuse in the system was rampant. A 1993 study commissioned by British regulators found, in a random audit, that 91 percent of 735 personal pension clients sampled received “unsatisfactory” or “suspect” advice. Service was so poor that in 35 percent of the cases, salespeople failed to even ask when the worker planned to retire before making a recommendation. According to the British newspaper The Guardian, total compensation due bilked workers may top $20 billion when all is said and done.[11]

One might expect that in the wake of the tremendously bad publicity of the misselling scandal British workers would be given, at the least, a brief respite from predatory sales tactics. Unfortunately, this has not turned out to be the case. Coming right on the heels of the misselling scandal, pension industry regulators found that between 50,000 and 70,000 people were improperly advised to buy “free-standing additional voluntary contributions” (FSAVCs), also called “top-up” policies. Many workers bought into these private add-on accounts after being persuaded by salespeople that such plans provided the best mechanism for supplementing their company pensions. Regulators now say, however, that financial advisors misled workers and should have told them that they would have been much better off simply boosting contributions to their company plans. Defrauded workers are expected to share in compensation totaling $150 million.[12]

While many workers fared dismally under the newly partially privatized system, pension brokerages enjoyed a windfall. These companies siphon off a significant portion of workers’ contributions in administrative costs and profits. Individual pension salespeople also did quite well under privatization. One salesman interviewed by the Wall Street Journal reported making $16,000 in commissions during his best week of sales.

High Administrative Costs

Advocates of individual accounts often infer that the administrative costs under a privatized system would be quite reasonable. The conservative Cato Institute, for example, asserts that administrative and money management expenses for private accounts would be approximately 1.17 percent to 1.83 percent of assets per year.[13] Analysts in Britain, however, have found that these expenses average around 2.5 percent of assets—approximately double the proportion Cato projects.[14] Over an average career and retirement, such fees reduce the value of an individual account by 25 percent.[15]

Moreover, administrative and management costs represent only a fraction of the costs most workers bear under a privatized system. In Britain, a vast majority of workers also incur “alteration costs.” These expenses arise when a worker switches pension providers or temporarily stops making contributions to his or her account. The value of the typical British worker’s account is reduced by 15 percent due to these charges.

Retired workers also incur costs when purchasing annuities. In order to ensure that workers don’t outlive their savings, British law requires owners of APPs to purchase an annuity before they turn 75. The cost of purchasing these annuities reduces the value of an average account by approximately 10 percent.[16] In discussing annuities, however, administrative costs are only part of the story. It is also important to note that, depending on interest rates and life expectancy projections, the value of annuity benefits can vary widely. According to a recent article in The Guardian, Britons who retire in 2000 can expect to receive monthly annuity payments 42 percent less than those who retired in 1990 due to decreases in interest rates and increases in life expectancy projections.

Taken together, administrative/management costs, alteration costs, and annuity costs place a significant drain on workers’ savings. After accounting for interaction effects, Peter R. Orzag, a lecturer in economics at the University of California, Berkeley, estimates that these administrative fees and expenses cumulatively reduce the value of an average individual account in Britain by 43 percent. These considerable costs are made even more troubling by the fact that they disproportionately harm lower-income workers. A number of these costs are fixed, thus consuming an even larger percentage of low wage earner’s accounts.[17]

Income Inequality

Britain’s low-income workers and women are more likely to be enrolled in the public SERPS program than are higher-income workers or men. Currently, for example, 70 percent of those in SERPS earn half the average annual wage or less.[18] Under the partially privatized system, however, these workers face a conundrum.

If low-income workers or women opt out of SERPS and into individual accounts, they typically face proportionately higher administrative expenses due to their lower average account balances and more intermittent work histories. Women opting out, moreover, can expect to receive lower annuity benefits due to their longer life expectancies. If these same workers remain enrolled in SERPS, however, they must accept declining benefits as scheduled cuts in the public program (put into place to encourage opting out) take effect.

Under the British system as currently constructed, then, low-income workers generally (but women in particular) are damned if they do, damned if they don’t. Although most cuts in the public program have not yet been phased in, income inequality has increased over the past two decades and a number of analysts suggest that such inequality will rise dramatically as SERPS cuts are implemented.[19] In fact, British economists now predict that 33 percent of the nation’s elderly will be living in poverty by 2050 (in the U.S., by way of contrast, 10 percent of elderly currently live in poverty).[20]

Lessons for the U.S.

The Social Security privatization effort in the U.S. is being funded by a number of financial, investment, and insurance interests. The insurance company American International Group Inc., the State Street Boston Corp., American Express Corp., and the discount brokerage Quick & Reilly Group Inc., for example, have given $2 million to the Cato Institute to support the organization’s pro-privatization agenda. Dupont Co., Morgan Stanley & Co., and others have contributed nearly $1 million to Economic Security 2000, a group formed to try to develop grassroots support for privatization.[21] And these examples are just the tip of the iceberg: special interests have given millions more to dozens of other groups and candidates who support their privatization agenda.[22]

Although the finance industry would stand to make over $1 billion per year if even one-sixth of the U.S. Social Security system were privatized, their promotional material focuses on privatization’s purported benefits to workers. [23] In Britain, however, while pension fund profits have been strong, workers and retirees have fared poorly.

Owners of individual accounts in Britain have faced a number of problems that workers covered by the U.S. Social Security system have not had to contend with. Such problems include:

* Fraud. Since 1988, over 2 million APP holders in Britain have been defrauded in separate scandals. The U.S. Social Security program, in contrast, has not had a financing scandal during its 65 years of operation.
* Exorbitant administrative costs. Administrative costs and money management expenses on APPs average around 2.5 percent of assets per year. In the U.S., Social Security’s administrative costs are nearly two-thirds lower, averaging just 0.9 percent of net contributions.[24] Workers purchasing APPs in Britain, moreover, incur alteration and annuity costs. Together, administrative, alteration, and annuity costs reduce the value of an individual account by 43 percent over a typical career and retirement. The U.S. Social Security program, which operates under a unified pay-as-you-go system, does not charge alteration fees and provides inflation-adjusted monthly benefits for life at no cost.
* Increasing income inequality. Due to cuts in public pension benefits and regressive administrative costs, economic inequality among the Britain’s workers is increasing. The U.S. Social Security system, on the other hand, has a progressive benefit structure that replaces a larger proportion of low- and middle-income workers’ wages. Social Security’s progressive payout formula helps to reduce the economic divide among U.S. retirees.

Given the problems Britain has had with individual accounts, privatizers’ extravagant claims should be viewed with skepticism. In evaluating arguments for privatization, we would do well to ask two questions: “Who is making the arguments?” and “Who stands to benefit?” In the U.S., the finance industry is funding the pro-privatization effort. Not surprisingly, evidence from Britain also suggests that the finance industry would be the primary beneficiary of privatization.

Economic Opportunity Institute - Straight Facts on Social Security

Straight Facts on Social Security

Social Security is a great American success story:

• In 2003 Social Security provided $471 billion in benefits to 47 million people.

• With lifetime retirement benefits, annual cost of living increases, and family benefits, Social Security has come close to eliminating poverty among the elderly.

• While we often think of Social Security as a retirement program, 30% of beneficiaries collect survivors or disability insurance.

• 3 million children under age 18 are direct Social Security beneficiaries themselves; another 2.2 million children have an immediate family member on Social Security.

• While Social Security’s taxes fall hardest on those with lowest incomes, the benefits are progressive, replacing half the earnings of a low wage worker, one third the income of median wage earners, and 24% of the earnings of high wage workers. Social Security is financially healthy, now and in the future:

• Social Security has been collecting extra payroll taxes for the past 20 years to prepare for the retirement of the baby boom generation. In 2003 Social Security took in $63 billion more in payroll taxes and $98 billion more in interest and other income than it paid out in benefits.

• Because wages and benefits go up a little faster than inflation, the Social Security Trustees predict that Social Security will pay ever increasing benefits through at least 2042, when surviving baby boomers will be mostly in their 80s and 90s.

• If our economy’s long-term growth rate falls to half the level of the past 50 years, the Trust Fund may be depleted after 2042, but Social Security payroll taxes alone at that time would still cover benefits worth at least $1,100 more than today’s seniors receive.

• Some fear the government is spending the trust fund instead of saving it. The Trust Fund is invested in U.S. Treasury bonds, generally considered the safest investment in the world. It is then reinvested in Head Start, basic research, college loans, public transit systems, and in other ways that provide opportunity and make the future workforce more productive.

• The Bush administration’s policy of using the current surplus in Social Security payroll taxes to pay for tax cuts for the wealthiest Americans is a poor policy choice. Nevertheless, the Social Security system is strong enough to withstand a period of poor policy choices. America can easily afford Social Security as our population ages:

• The expected costs of Social Security will only grow by about 2% of our total economy as measured by our gross domestic product over the course of the 21st century, from 4.3% to 6.6%. Changes of that magnitude in our federal budget are commonplace. In fact, America can't afford to lose Social Security: Privatizing Social Security as some have proposed would guarantee that millions more elderly, disabled workers, and children would live in poverty in future generations.

• Social Security guarantees that everyone who works will have enough to live in dignity, through progressive benefits, annual COLAs, family benefits, and lifetime retirement benefits. In contrast, with individual investments the more you earn, the more you accumulate. People who suffer early disability, spend time caring for children, earn low wages, live longer, or have larger families would be worse off with private accounts.

• Women, who typically earn less, live longer, and spend more time caring for family, as well as African Americans and other minorities who often earn less and rely disproportionately on the disability and survivors programs, are especially likely to fare worse under a system of private accounts than with Social Security.

• Half the workforce continues to have no workplace retirement plan. Most workers who do have retirement plans now have programs like 401(k)s, which make retirement incomes highly dependent on the ups and downs of the stock market. The stable base of Social Security’s guaranteed, inflation-adjusted benefit will be all the more crucial in the future.

• The transition from the current pay-as-you-go system to a partially privatized system would cost $1 trillion to $3 trillion in new tax dollars.

For more information, see http://www.eoionline.org/Policy-SocialSecurity.htm.

Steve Idemoto - Social Security Privatization in Chile:

Social Security Privatization in Chile:
A Case for Caution

By Steve Idemoto, Economic Opportunity Institute
September 29, 2000


In order to pay for the transition to a fully privatized system, Chile had to drastically cut public spending, raise taxes, lower benefits, sell government assets, and issue bonds.

Proponents of Social Security privatization often trumpet the Chilean “success story.” Right wing economists (and the finance industry-funded think tanks that sponsor them) spin fabulous yarns about the way the free market transformed Chile’s pension system. In doing so, however, they leave out crucial parts of the plot. Privatization advocates paper over very serious problems with Chile’s social security program.

While the full impact of privatization cannot be known until the system completely matures, a number of troubling issues have already arisen. For example:

* Transition costs have negatively impacted public spending.
* Pension fund management fees are exorbitant.
* Non-participation threatens the overall viability of the system.
* Individual accounts replace less of low-income workers and women’s wages.
* Private accounts leave workers susceptible to market downturns.

Given the distinct social, political, and economic differences between Chile and the U.S., the relevance of Chile’s privatization experience to U.S. policy-makers is debatable. While this concern is legitimate, we would be remiss if we failed to take note of the results of Chile’s 19-year social experiment.

A Need for Reform

By all accounts, Chile’s public pension program was foundering in the 1970s. The system was extremely complex, consisting of over 100 different retirement regimes. Contribution rates, retirement ages, and benefits all varied by type of occupation. Inevitably, perhaps, this excessive complexity resulted in substantial administrative inefficiency.[1]

The retirement program’s funding situation was similarly dire. The system was not generating adequate revenue to pay retirees despite payroll taxes as high as 25 percent.[2] Even with government general fund subsidies equivalent to 4 percent of Chile’s GDP, a substantial majority of retirees were receiving benefits at a level below the official minimum pension.[3] Manual workers, for example, were supposed to receive benefits that would replace 70 percent of their wages, but by the 1970s the rate was closer to 20 percent.[4]

The program’s numerous problems were exacerbated by widespread tax evasion. The pension system lost a significant amount of revenue to unscrupulous employers who skirted contribution requirements and to workers who joined the burgeoning underground economy. The fact that the Chilean government lacked the resources or the political will to adequately police the system no doubt contributed to the situation.[5]

Pinochet’s Privatization Scheme

In 1981, the Chilean government under military dictator Augusto Pinochet took the radical step of phasing out the country’s troubled publicly funded social security program and mandating participation in a system of privately managed individual accounts. Under this program, workers must contribute 10 percent of their wages, up to a specified ceiling, to a government-approved investment fund. Workers are required to pay another 3 percent to cover term life and disability insurance. Participation is not mandatory for self-employed workers, but they may voluntarily set up accounts with the same basic features.

Individual account contributions are managed by private investment firms (called Administradoa de Fondos de Pensiones, or AFPs). Once a worker signs on with an AFP, he or she must stay with the investment firm for at least four months before switching. Contributions, including voluntary contributions of up to an additional 10 percent, are tax deductible. Upon retirement, workers have two withdrawal options: they may purchase an annuity or withdraw money based on a government-determined schedule. At the time of withdrawal, pension benefits are taxable as income.[6]

The Consequences of Social Security Reform

The Chilean experience with social security privatization gives much reason for pause. Major concerns include: the high cost of transition to a privatized system, exorbitant pension fund management fees, non-participation in the scheme, the effects on low/middle-income workers and women, and the vulnerability of workers to market risk. These concerns are examined more closely in the following sections.

High Cost of Transition

Transition from a pay-as-you-go social security system to a privatized system entails substantial costs. Under a pay-as-you-go system, the contributions of today’s workers fund the benefits of today’s retirees. Under a newly privatized system, where workers’ contributions are diverted into individual accounts, cash must be found to fund the benefits of retirees and workers nearing retirement (who paid into the old system but didn’t have a chance to save up an adequate nest egg under the privatized system).

Chile funded its transition to a privatized system in five ways: drastically cutting public spending, raising taxes, reducing benefits, selling government assets, and issuing debt.

* Cutting public spending. The Chilean government has cut social expenditures, including health and education spending, to help pay the pensions of retired and retiring workers.[7]
* Raising taxes. Chile introduced a value-added tax in 1975 in order to raise revenue for the anticipated transition.[8]
* Reducing lifetime benefits. In order to cut costs, the Chilean government raised the retirement age for beneficiaries. Prior to reform, retirement ages varied—ranging from 44 to 65. In order to cut costs, the Pinochet regime standardized retirement at 65 for men and 60 for women. The dictatorship also eliminated special pensions based on years of service.[9]
* Selling government assets. Transition to a privatized system was partially subsidized through the sale of state-owned enterprises to the private sector.
* Issuing debt. Government bonds finance approximately 40 percent of the annual costs of transition. These bonds are sold to AFPs and will be gradually redeemed by the government using general revenue.[10]

Analysts project that costs from the transition to a privatized system will be completely paid by 2050, at which point there should no longer be any beneficiaries in the old system.[11]

Exorbitant Management Fees

At first glance, returns on individual account investments in Chile appear quite respectable. After factoring in management fees—which currently range from 16 to 20 percent of annual contributions—the situation can look much different.

Over certain periods, management expenses dragged rates of return to nearly negligible levels. For example, although the average rate of return on individual accounts from 1982 to 1986 was 15.9%, the real return after commissions was just 0.3%. Returns between 1991 and 1995 averaged 12.9%, but management fees lowered the return to 2.1%.[12] For a new worker enrolling in 1996, the 3.5% gross yield actually amounted to a –6.8% return after taking management fees into account.[13] These adjusted returns, moreover, do not include the cost of annuitizing retirement accounts, which in Chile entails a fee equivalent to 8 to 9 percent of total retirement assets.[14]

A substantial proportion of these fees are used to pay sales staffs and to cover marketing expenses. AFPs compete fiercely for new enrollees, offering inducements such as toaster ovens and promising workers higher returns if they switch plans. Between 1990 and 1997, the AFP sales force in Chile grew from 3,500 to 20,000. The upshot of this intense marketing is that 50 percent of all enrollees switch investment funds each year.[15]

Pension Non-Participation

In Chile, only 50 percent of the workforce regularly contributes to the social security system.[16] Of workers who do participate, many underreport their income in order to lower their tax liabilities. A study by Chilean economist Jaime Ruiz-Tagle, for example, found that workers contributing to AFPs earned an average of $1000 in February 1995, but declared only $460 for tax purposes.[17] If, as could be expected, these non-contributing and underreporting workers retire with inadequate savings, the fiscal and social implications for future governments will be substantial.

Effects on Low-Income Workers and Women

While actual returns on investments are the same for all contributors to a particular fund, a number of flat fees and expenses siphon off a greater proportion of the contributions of low- and middle-income, than higher-income, workers. Moreover, individual accounts do not allow for redistribution of income the way pay-as-you-go systems do. This leaves many low- and moderately-paid workers worse off under a privatized system than they would have been under a public system.

Chilean women—who are paid less, work more intermittently (often taking time off to give birth and raise children), and live longer than men—will inevitably receive lower benefits than men. While public systems tend to compensate for women’s social and economic situations, private programs do not. Chilean women, then, are at particular risk under the privatized system.

Vulnerability to Market Risk

From the mid-1980s to the early 1990s, returns on AFP accounts were impressive (as noted above, returns after fees were less so). Recently, however, returns have been poor. In 1994, more than half of AFPs incurred losses. Between 1995 and 1998 returns were -2.5%, 3.5%, 4.7%, and -l.1% respectively.[18] Taking management costs into account, workers actually lost a substantial amount of money over this period. In fact, when financial markets slid again in 1998, Chilean officials asked workers to defer retirement until the situation improved.[19]

Lessons for the U.S.

The United States and Chile are very different in many ways. Politically, the U.S. has a strong, functioning democracy that has been in place for over 200 years. Chile, on the other hand, only emerged from military rule 10 years ago. Chile’s economy, likewise, is much less developed than that of the U.S. The U.S. has a per capita GDP nearly 3 times that of Chile ($31,500 vs. $12,500 in 1998).[20]

More importantly, America’s Social Security system is in a very different position than was Chile’s in 1981. Chile’s social security administration was highly inefficient. The U.S. system, in contrast, is run extremely proficiently. All administrative duties are performed at a cost of 0.9 percent of net contributions, or less than a penny per dollar contributed.[21] Moreover, Chile’s public program was having serious funding problems. Even with substantial general fund injections and payroll tax rates more than double those in the U.S., the system was not able to pay promised benefits. In the U.S., even according to the pessimistic projections of the U.S. Social Security Trustees, the system will be completely self-sufficient and fully funded until 2037.[22] If economic growth in the U.S. continues at the same average rate it has been for the past 50 years, then our system will be fully funded indefinitely. With some minor changes to the program (i.e. lifting the cap on taxable wages), Social Security in the U.S. would be fully funded past 2075, even under the pessimistic growth scenario of the Social Security Trustees. Despite these differences, however, there are a number of lessons that we can take away from Chile’s experience with privatization.

First, transition to a privatized system would be extremely expensive. In order to pay for the transition to a fully privatized system, Chile had to drastically cut public spending, raise taxes, lower benefits, sell government assets, and issue bonds. In the U.S., researchers estimate that even a plan to privatize 2% of the 12.4% Social Security payroll tax would cost $74 billion per year, or 4% of the annual federal budget.[23] This is a substantial loss of funding and would necessitate substantial general fund transfers, spending cuts, tax increases, benefit reductions, or some combination of these options.

Second, exorbitant management fees in Chile wipe out a significant portion of workers’ returns. Experience with individual accounts in Britain suggests that administrative fees in the U.S. would average 2.5 percent of assets per year. Over an average career and retirement, fees charged at this level would reduce the total value of a worker’s account by 25 percent. Add in alteration costs (incurred when a worker switches pension providers or temporarily stops making contributions) and annuitization expenses and approximately 43 percent of the average worker’s account will be spent on fees before the first retirement check is cut.[24]

Third, privatized pension accounts put Chilean women and low-income retirees at risk. The U.S. Social Security system has a progressive benefit structure that replaces a larger proportion of low-earners’ wages. Moreover, the system provides a guaranteed, inflation-adjusted benefit for life. These features help low-income workers generally, but particularly help women (who tend to live longer than men). Under a privatized system, these beneficial features would be lost.

Lastly, private accounts leave workers at the mercy of the market. In Chile, a market downturn in 1998 drained many retirement accounts leaving officials in the awkward position of urging workers to defer retirement indefinitely. Privatization advocates in the U.S. note that the 70-year average real rate of return on the stock market has been 7 percent. While this is true, it ignores the fact that the stock market is very volatile. According to John Mueller, former economic counsel to the U.S. House of Representatives’ Republican Caucus, the 20-year average real return on the stock market fell to zero three times since 1900—from 1901 to 1921, from 1928 to 1948, and from 1962 to 1982.[25] Factor in administrative costs and actual returns dipped significantly below zero during these periods. Under these circumstances, workers would have been hard-pressed to save for a decent retirement.

Conclusion

Advocates of Social Security privatization continually crow about Chile’s high returns under individual accounts. In concentrating on returns, however, they miss crucial parts of the story. They ignore the fact that Chile has cut social spending, raised taxes, and cut benefits in order to pay transition costs—transition costs that the government will continue to pay until 2050. They ignore exorbitant management fees that have, over a number of periods, cut these much-vaunted returns to nearly zero. Advocates also fail to mention that these individual accounts have increased economic inequality and left workers vulnerable to market downturns. Moreover, privatized systems must either require retirees to convert a substantial portion of their account into an annuity – which means that the account can't be passed on to heirs other than the spouse – or accept a high percentage of the very elderly outliving their account and falling into dire poverty. Once these factors are taken into account, the case for privatization becomes much shakier.