Aaron Klein for the Brookings Institution: What was the period in American history when the nation went the longest without a single bank failure? It was from 2004 to 2007. For 32 consecutive months in that period, not a single one of the over 7,000 banks in America failed.
This ought to have set off alarm bells on the growing imbalances and problematic practices endemic in the American banking system. Instead, it was met with applause by the financial regulators charged with protecting the safety and soundness of a system that was veering toward collapse. …
A decade after the financial collapse, we have yet to fully internalize that the goal of financial regulation ought to be a healthy marketplace in which individual banks experiment, compete, take risks, and — yes — ultimately fail.
To be clear, widespread bank failure is obviously not the goal. But the difference between rare bank failures and no bank failures is an important one. When not a single bank is failing over a long stretch of time, it is strong warning sign of major problems. No competitive, diverse marketplace should avoid failure of any institution. Banks are supposed to be in the business of judging and taking risk and competing with one another to give consumers the best deal. In that environment, some must fail. If none are failing, then everyone is misjudging risk.
Public pension fund trustees face inevitable conflicts
Daniel DiSalvo for the Manhattan Institute:
The boards of public pension funds are supposed to balance the interests of government employers and the beneficiaries of the plans. Board members appointed by state governors, or who hold public office and serve ex officio, cannot be counted on to tend exclusively to the interests of the employees (including retirees). Therefore, public employees themselves or their union representatives are put on boards and are supposed to be the guardians of the plan’s fiscal integrity. The problem is that both types of public pension board members have incentives to neglect the fiscal health of the pension fund. On the one hand, political appointees are responsive to constituencies — such as local industry or the governor’s budget — that steer them away from acting in the interest of long-term pension fund performance. On the other hand, public employees and their union representatives are also tempted to trade pension savings tomorrow for higher salaries today.
Boards make decisions about how funds are invested and determine the assumed rate of return on those investments. The performance of pension funds in the market, in turn, affects the future liabilities of taxpayers.
The incentive problem is inherent in board structure. It can be mitigated, as will be discussed later, but it cannot be eliminated. The only lasting solution is to replace state-administered, defined benefit pensions with defined contribution pensions.
Poor and young people are fleeing public transit
Randal O’Toole for the Cato Institute: Transit ridership has been declining now for four years, and the latest census data … reveal that the biggest declines are among the groups that you might least expect: young people and low-income people. These results come from the American Community Survey, a survey of more than 3 million households a year conducted by the Census Bureau. Here are some of the key findings revealed by the data. …
The largest declines in transit commuting, both nationally and in the Washington DC urban area, are among younger people. Commuting forms only a part of transit ridership, but to the extent that declining ridership is due to ride-hailing services such as Uber and Lyft, those services are disproportionately used by people under the age of 35.
Although transit subsidies are often justified by the need to provide mobility to low-income people, the reality is that transit commuting by people in the lowest income classes is shrinking while transit commuting is growing fastest among people in the highest income classes.
Transit commuting is increasingly skewed to people who earn more than $75,000 a year. Even though only 19 percent of American workers were in this income class in 2017, they made up 26 percent of transit commuters, an increase from just 14 percent in 2005. Both the average and the median income of transit commuters are higher than those of all workers.
