Monday, March 7, 2011

Coffee Catastrophe??

I'm not a coffee drinker, unlike my wife and many friends. However, I'm aware of what is happening with coffee prices. They are up. Coffee is more costly than it has been for fourteen years. Since the summer, commodity coffee prices have nearly doubled.

The reasons for coffee prices are a combination of events intersecting in the proverbial "perfect storm": Bad weather caused poor harvests; China and India both have new middle classes for which coffee has become a fad; and Brazil has attempted to corner the market and hoard coffee.

So why all the coffee talk?

Because of what's not being said. No one is predicting a coffee bankruptcy. No one is assuming that the critical coffee conditions remain unchanged. No one is suggesting an austerity plan for coffee drinkers.

For those who really care about coffee, they can look back over the years and know that the coffee price rise is not a never-ending inflationary trend. The situation is acute, not chronic.

Now, compare that with what is going on around the country with public employee pensions. In too many states lawmakers are looking at pension contributions coming off the bountiful 1990s when investments carried the cost of the plans, and comparing it to the contributions following the 2008 financial collapse when states had to increase their share. By looking at a snapshot of pensions that establishes a baseline year around 2000 or 2001 and an ending year of 2010 or 2011 one gets a very high inflation rate for the costs of pensions.

However, pensions are designed to withstand bad years and even bad decades. That's why it is more telling to look at pensions in twenty or thirty year increments. When viewed for the long run, America's public employee pensions are healthy. We should not drastically change pension policy to adjust for the current downturn.

Coffee prices go up for a few months or even years, then they go back down. Don't stop drinking coffee. Don't stop public employees from earning a fair pension.

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