Sunday, February 27, 2011

How Government-Employee Unions Bankrupted Most States, and Why The Charade is Now Over

Some excerpts from the excellent article "The Political Economy of Government Employee Unions" by economist Thomas DiLorenzo:

"The main reason why so many state and local governments are bankrupt, or on the verge of bankruptcy, is the combination of government-run monopolies and government-employee unions. Government-employee unions have vastly more power than do private-sector unions because the entities they work for are typically monopolies.

The enormous power of government-employee unions effectively transfers the power to tax from voters to the unions. Because government-employee unions can so easily force elected officials to raise taxes to meet their "demands," it is they, not the voters, who control the rate of taxation within a political jurisdiction. They are the beneficiaries of a particular form of taxation without representation (not that taxation with representation is much better). This is why some states have laws prohibiting strikes by government-employee unions. (The unions often strike anyway.)

Politicians are caught in a political bind by government-employee unions: if they cave in to their wage demands and raise taxes to finance them, then they increase the chances of being kicked out of office themselves in the next election. The "solution" to this dilemma has been to offer government-employee unions moderate wage increases but spectacular pension promises. This allows politicians to pander to the unions but defer the costs to the future, long after the panderers are retired from politics.

As taxpayers in California, Wisconsin, Indiana, and many other states are realizing, the future has arrived. The Wall Street Journal reports that state and local governments in the United States currently have $3.5 trillion in unfunded pension liabilities. They must either raise taxes dramatically to fund these liabilities, as some have already done, or drastically cut back or eliminate government-employee pensions.

Every government-employee union is a political machine that lobbies relentlessly for higher taxes, increased government spending, more featherbedding, and more pension promises – while demonizing hesitant taxpayers as uncaring enemies of children, the elderly, and the poor (who are purportedly "served" by the government bureaucrats the unions represent).

This charade is over. American taxpayers finally seem to be aware that they are the servants, not the masters, of government at all levels. Government-employee unions have played a key role in causing bankruptcy in most American states, and their pleas for more bailouts financed by endless tax increases are finally ringing hollow."


36 Comments:

At 2/27/2011 10:26 AM, Blogger Walt G. said...

Why are there unfunded obligations? The shortages were predicted and ignored for at least the last 10 years. Isn't blaming unfunded obligations on the union the same as the blaming the banks because people cannot pay their mortgage? Funding responsibilities rest with those who promise the funds, and not with the ones who are owed the funds. Is it really the bank's problem if I can't manage my own financial affairs? Should the bank get what they are owed?

I never see mention of arbitration in these articles demonizing unions. Most public contracts are settled by mutual agreement or binding arbitration and not by strikes. If you accept that the arbitrator is neutral, how can either side be blamed for a third-party decision?

The problem, as I see it, is too much was promised, and not enough was saved to pay. The employees should have just asked for their wages in cash and saved for their own retirement benefits (yes, many would have just blown it). There was a shirking of prudent financial responsibility by those who promised to pay and a rather naive expectation by the employees that they could trust the people who made a promise to follow through.

 
At 2/27/2011 11:05 AM, Blogger jcarroll1948 said...

Walt's comments read and considered; however, the article hits the nail squarely on the head. The "kicking the can down the road" epidemic has come to an end and, as the article says, "the future is now" when it comes to paying for past commitments. I cannot count the number of low turnout special elections my locality has had; obviously, with people who will benefit from whatever is being voted on's passage being the only group that turned out heavy (to support the issue).

Time for politicians to grow some backbone and truly represent the interests of the tax payers. We'll see how it turns out.

 
At 2/27/2011 11:27 AM, Blogger morganovich said...

walt-

they are unfunded by design.

this was always an attempt to kick the can down the road and shower unions with benefits that need not be paid for until the politicians that provided them are out of office.

that was the point of the article.

the incentives for all the participants in this cycle of donations and pork are set up in such a way as to lead to this end result.

"play now pay later" is always the easiest choice for governments, especially if the unions they are giving future money to are their largest campaign donors.

we see this in social security and medicare as well.

it's just hitting the states first because they are required to run "balanced" budgets.

i put "balanced" in quotation marks because these budgets have been nothing like actually balanced. they are only balanced if you use the cash accounting standards of government, standards that and public CEO would be jailed for using. using GAAP, they have long been deeply in deficit.

this whole mess is an artifact of bad governmental accounting standards and the cupidity of politicians taking advantage of them to make promises beyond that which their polities can sustain but whose ill effects will not be seen until it is someone else's problem.

such polities have called their finances "balanced" when what they are really doing is pursuing the equivalent of a neg am loan where the principal owed keeps getting bigger and bigger. they ignore this inconvenient fact until the cash requirements of such a ruinous policy eventually and inevitably impinge.

then, when they finally do, all the unions cry foul for being exposed to financial reality when they were the ones driving this "kick the can down the road" policy all along.

it seems to me that your argument needs to be flipped around: aren't the unions to be blamed for expecting to be paid on contracts that were clearly unrealistic and for pensions that they clearly knew they were not funding appropriately?

why should i have any sympathy for those who failed to plan well?

 
At 2/27/2011 12:00 PM, Blogger Walt G. said...

morganovich,

"why should i have any sympathy for those who failed to plan well?"

I agree with most of what you say. The public system is corrupt because there is no balance of power as in a corporate and private collective bargaining system. The accounting system is useless, too.

I was looking at it more as a "we promise to pay for this" angle than sympathy. I was raised to pay for what I say I will pay for, so that should apply to either side.

If Derek Jeter makes a contract that bankrupts the Yankees using an agent, are we going to blame his agent for the Yankee's financial failure? I would not. Both sides have their duty: one is to ask, and the other is to say yes or no.

I do not think government should be doing anything that a private company can do, and I believe in outsourcing. My outsourcing position causes me problems sometimes :) I think unions can, and must, design in efficiency gains to make the union work competitive even with a wage premium. And, yes that can be done if that is what you are trying to do. You rarely hit targets you are not aiming for. When you have public employees doing things that private companies can do, you don't know which target to even aim at.

 
At 2/27/2011 12:02 PM, Blogger Bruce Hall said...

Let's split the issue into its two aspects: 1) should there be unions representing public sector employees and 2) should employees who fulfilled their employment obligations and often took lower levels of take-home pay for higher levels of benefits/retirement pay be demonized.

From a fiscal viewpoint, the states have got to find a solution to the incompetence and corruption inherent in the government-union partnership of the past. Rather than creating fully funded trusts and facing taxpayer unhappiness with the taxes required for the combination of current state expenses and trust funding, the government officials took the union election funds and let the issue slide into the background.

Meanwhile, teachers were locked into a system that required expensive degrees to qualify for their positions and compensation scales that were kept low relative to the cost of those degrees.

A real life example: A Wisconsin teacher with a masters degree and certifications in deaf education and special needs education receives $2.90 per hour than a person with a bachelors degree, total compensation of $45K per year, and has received $0.23 per hour in pay increases in the past 7 years. Wow! that's really over-paid.

The changes coming in retirement and health benefits, the elimination of the $2.90 premium for the masters degree, and loss of paid training, plus the requirement for significant contributions to the health and retirement plans will reduce that $45K per year to $35K per year. Compare that to $70K per year average starting pay for a bachelors degree in mechanical engineering.

Well, of course, engineering is a business and teaching is a privilege.

I haven't heard much about the 20-22% reduction in state administrative costs, state's parasite welfare programs, and the governor's pay.

The point is that teachers are being made scapegoats. It may seem fiscally responsible, but it is morally repugnant.

 
At 2/27/2011 12:14 PM, Blogger PeakTrader said...

F.D.R. Warned Us
February 19, 2011

The founders of the labor movement viewed unions as a vehicle to get workers more of the profits they help create. Government workers, however, don’t generate profits. They merely negotiate for more tax money. When government unions strike, they strike against taxpayers. F.D.R. considered this “unthinkable and intolerable.”

My comment: The explosion of Third World immigration, both legal and illegal, has driven-down wages and driven-up profits, particularly in lower-skilled industries.

 
At 2/27/2011 12:22 PM, Blogger morganovich said...

"I was looking at it more as a "we promise to pay for this" angle than sympathy. I was raised to pay for what I say I will pay for, so that should apply to either side."

but consider the promise itself walt.

the promise is effectively "in exchange for political donations now, i promise to have someone else pay you later."

that promise has a serious problem with it: the guy who has to pay was not the one who made it.

worse, they guy who made it did it out of narrow personal interest and a happily gave away the assets of others to do so.

if i bribe a politician $2000 in exchange for his forcing someone else to pay me $10,000 in the future, that is not a "promise" it's extortion for hire.

imagine the uproar if i, as an investor, paid a CEO $1 million in exchange for his agreeing to pay me $10 million from the corporate bank account. we have a signed contract. it's a promise. would you, as a shareholder, find it to be valid?

the whole problem with the public system is that it is deemed OK to bribe politicians as individuals in order to get them to open the public purse to you. it is this asymmetry of private gain and public cost that makes such promises invalid.

that said, it's a very slippery slope to ban political donations. once you start, who knows where it will end and free speech and association wind up losing out.

this is why i think the better solution is twofold:

1. take power away from government so that it is less attractive for people to buy politicians. the fewer things over which government has influence, the less benefit to such corrupt and inequitable practices.

2. move the government to GAAP accounting so that the build up of unfunded liabilities is clearly visible right when policies are put in place making the true budget balance apparent and eliminating the ability to kick the can down the road as has become such common practice.

using GAAP, the US has not had a balanced budget since eisenhower. our current GAAP deficit exceeds $9 trillion a year and our federal unfunded GAAP liabilities exceed $120 trillion. those promises are simply not keepable. if all federal tax receipts were spent just on those unfunded liabilities, it would take 44 years to pay them off, and that's assuming they didn't grow during that period and that we had ZERO other federal expenditure.

the states don't look that different.

so, there is the other answer to your "what about my promise?" question. it's simply not possible to keep it.

i can promise to never let it rain on your house again, but you'd be a fool to accept such a promise as i clearly cannot perform. the states are in the same boat and the unions were similarly foolish to accept such promises that clearly could never be kept as they were not being funded.

if you have a private pension and your employer goes bankrupt, you may well get nothing. the same is true of a public employer. (and both of them are strong arguments for individual retirement accounts)

if the unions have any sense, they will work to see that they get something as opposed to digging in their heels and killing their host, ensuring that they get nothing at all.

 
At 2/27/2011 12:24 PM, Blogger PeakTrader said...

Bruce Hall, what about public teachers with more experience, who earn much more, while "working" nine months out of a year.

 
At 2/27/2011 12:40 PM, Blogger PeakTrader said...

Anyway, although this is anecdotal, I know a public school teacher (a friend's mom) and a air traffic controller (my brother-in-law).

Given their lifestyles, they both seem to earn over $100,000 a year. However, the teacher works less with less stress, although they both go on vacation often.

 
At 2/27/2011 1:02 PM, Blogger Jason said...

Walt, the arbitration argument is widely used. The reason a union agrees to arbitration is because it is based on previous agreements, that were likely in place due to, or due to threat of, a strike. The arbitrator looks at the deal and proposals, and negotiates the best compromise. Surprise, the union almost always is a clear victor, or is at least not a loser.

There was a thread a while back where Jet Beagle wrote about (heavily paraphrased) management agreeing to the contract and that makes them responsible as well. I wrote what is management supposed to do? Say go ahead strike? I think Morganovich called it school yard thuggery.

The contracts were signed, but they could have NEVER been fulfilled. The government unions want to appeal to the voters with an often used argument "We worked for these (insert insane entitlements here) and we are owed them by contract." As if they have been victims of a scam. What they don't ever say, or are to ignorant to say, is that to get those entitlements, states would have had to raise taxes and reduce service levels permanently.

Unions are addicted to cash and high on power. Addicts always crash, as we are seeing now.

 
At 2/27/2011 1:13 PM, Blogger AIG said...

"The point is that teachers are being made scapegoats. It may seem fiscally responsible, but it is morally repugnant."

I'm sorry but your examples of teacher's pay don't add up to reality. $45k may be a starting salary for a teacher with a masters, not an average salary. Not by far. $45k starting salary for a 6 hour workday and a 9 month work year, plus lavish benefits, is certainly overpaid when you consider that the teaching profession attracts usually the lowest performing college kids (no offense to anyone, but its a fact). You may think this is low for a "masters" level, but a masters in education is never the same thing as a masters in anything else.

Your assumption that the average starting salary for a Mech. E undergrad is $70k is absolutely wrong (I'm an engineer myself). Starting salaries for a Mech. E is around $55k...for someone who works usually a lot more hours a year than a teacher and whose compensation benefit includes absolutely no such things as pensions. Overall a starting teacher is paid MORE than a starting mech. E on the bases of hours worked.

But why compare teachers to mechanical engineers? Teacher's starting salaries are typically higher than MOST science or business undergrad starting salaries...for far lower expectations in school and far fewer hours.

And here's more difference between a private sector "engineer" (who usually is a top performer from any college) and a teacher (who is usually the opposite). The engineer's pay increases are tied to performance and workload. The teacher's pay increases are not tied at all to performance or workload.

There is nothing "morally repugnant" to hold teachers accountable to the same standards as everyone else in the world, more so it is morally imperative that we do so given the perverse incentives to NOT perform that are build into such a system today.

Combined these features of teachers , with other public sector employees who receive similar treatment, and you see the points made are valid.

PS: Most states provide info on individual teacher's compensation online. You can go and find your old teachers or your kid's teachers and see how much they make. Your jaw might drop to the floor...be careful.

 
At 2/27/2011 1:18 PM, Blogger Che is dead said...

"... government officials took the union election funds and let the issue slide into the background."

By "government officials" you mean Democrats. The teachers unions have worked tirelessly at electing "government officials" who they could control at the bargaining table. Further, they have lobbied for many of the "state's parasite welfare programs" that you refer to. They seem to have given very little thought or concern as to where the funds for all of the things that they push for will come from. You lay down with dogs, you get up with fleas.

"A Wisconsin teacher with a masters degree and certifications in deaf education and special needs education receives $2.90 per hour than a person with a bachelors degree, total compensation of $45K per year, and has received $0.23 per hour in pay increases in the past 7 years. Wow! that's really over-paid."

Wrong. Wisconsin teachers total compensation is closer to $100K a year for less than 8 months work. And, yes, that is overpaid when you consider that 30 percent of Milwaukee students fail to graduate and nearly two thirds cannot read and write proficiently.

"Compare that to $70K per year average starting pay for a bachelors degree in mechanical engineering."

Teachers, on average, graduate at the bottom third of their college class. Their unions routinely fight testing to demonstrate competency in the subject matter their members are teaching and do everything they can to ensure that incompetent and dangerous teachers remain in the classroom. If, as you argue, they are underpaid they can always seek employment in the private sector.

"The point is that teachers are being made scapegoats."

Boo friggin' hoo. Teachers scapegoat others all the time. They misuse the trust they have been given and routinely use their classrooms to indoctrinate kids. They take kids, who haven't yet formed their own political identities, and use them as props at demonstrations over the level of their compensation. Pathetic.

A good teacher is worth a million bucks, but if they belong to a union they'll be compensated at the same rate as the incompetent child molester down the hall.

 
At 2/27/2011 1:31 PM, Blogger Che is dead said...

"According to the U.S. Department of Labor, the average public elementary school teacher in the United States earns about $30.75 an hour. The average hourly pay of other public-service employees - such as firefighters ($17.91) or police officers ($22.64) - pales in comparison."

"Indeed, teachers' hourly rate exceeds even those in professions that require far more training and expertise. Compare the schoolteacher's $30.75 to the average biologist's $28.07 an hour - or the mechanical engineer's $29.76 or the chemist's $30.68."

"Whose hourly pay is competitive with that of teachers? Computer scientists ($32.86), dentists ($35.51) and even nuclear engineers ($36.16)."

The Teacher-Pay Myth, The Manhattan Institute

Here's your nuclear engineer.. Yes, this guy is teaching your kids.

 
At 2/27/2011 1:38 PM, Blogger Che is dead said...

"Under the current collective- bargaining agreements, the school district pays the entire premium for medical and vision benefits, and over half the cost of dental coverage. These plans are extremely expensive."

"This is partly because of Wisconsin’s unique arrangement under which the teachers union is the sponsor of the group health-insurance plans. Not surprisingly, benefits are generous. The district’s contributions for health insurance of active employees total 38.8% of wages. For private-sector workers nationwide, the average is 10.7%."

"That the union opposed the switch from WEA Trust to a more taxpayer-friendly insurance plan says everything about the teachers union’s priorities. That $1,000,000 in savings could’ve gone towards hiring more teachers to lower class sizes. It could’ve been used to get better equipment in science labs. It could’ve just been saved. It could’ve been used for a combination of those options."

WSJ

That's right, the teachers unions strong-arm school districts into purchasing health care through their union which takes it's cut and moves along. This means that health care costs are much higher than they would be otherwise. The unions then turn around and use the money to buy politicians. But, hey, let's not scapegoat them.

 
At 2/27/2011 1:58 PM, Blogger Bruce Hall said...

"A good teacher is worth a million bucks, but if they belong to a union they'll be compensated at the same rate as the incompetent child molester down the hall."

... and a deadbeat dad will be punished far more severely than a deadbeat state.

Hey, if the beef is with unions, that's understandable. But teachers have had no choice in the matter... they have to belong to the union, they have to pay union dues [which may be politically misused regardless of individual teacher political persuasion], and they are constantly abused because of the failure of low-IQ parents and progressive policies that don't allow schools to discipline effectively or get rid of troublemakers.

Again, when will the governor, the legislature, the welfare recipients take 22% cuts? You know, share the pain.

 
At 2/27/2011 2:01 PM, Blogger Walt G. said...

"that promise has a serious problem with it: the guy who has to pay was not the one who made it."

morganovich,

The funding mechanism needs to be in place when the agreement is made. I can't get a mortgage for money I might make ten years from now. Someone needs to step in and say that can't be paid for before the fact and not after. I agree the system is broken. I don't agree with the title of the post because it's slanted toward 100% union blame. I just read that the NFL will not open their books to show their hardship claims. How can someone bargain that way?

I agree with your solutions, and I also agree unions must be part of the solution, too. Globalization has neutered the capital-labor adversity relationship.

Jason,

Unions usually think that arbitrators are slanted toward management. It doesn't matter which way, if it is slanted, it is not impartial, and if it's not impartial, it won't work. If liars and cheats are running the system, it will surely fail. That seems to be what we have.

 
At 2/27/2011 2:01 PM, Blogger Bird Dog said...

I like your blog, Mark, which is why I say that you shouldn't be linking to a website like lewrockwell.com.

 
At 2/27/2011 2:36 PM, Blogger Che is dead said...

"Hey, if the beef is with unions, that's understandable. But teachers have had no choice in the matter... they have to belong to the union ..."

Huh, forced unionization? Walt G.? Walt G.?

Look, I have no problem with you linking "low-IQ parents and progressive policies", but it is the teachers who have been the primary drivers of progressive policies.

I don't mean to disparage good teachers. In fact, I would like to see them paid more, but they must shoulder some responsibility for the unions behavior. There has never been a protest against the retention of incompetent or dangerous teachers. No call from the teachers to close the "rubber rooms" and fire the misfits and degenerates that have soiled their profession. And where is the expression of concern for the children of inner-city schools that fail to graduate more than half of their students? Look at the Detroit Public School System, who's fault is it that an entire generation of students will face a future of poverty, unemployment and imprisonment? If you are arguing that teachers cannot do anything about it because the kids are "low I.Q." then why employ teachers at all?

 
At 2/27/2011 2:54 PM, Blogger AIG said...

"But teachers have had no choice in the matter... they have to belong to the union"

So lets end that practice. The problem is, the teacher's unions were the creation of the teachers, and serve them well at the expense of their students and the parents. The first thing most teachers will say when faced with the prospect of having to justify their compensation with performance is "we are being paid too low as it is!". Which is a point you made too. And yet its certainly untrue.

The first and necessary step in education reform, is busting the teacher's unions. Then we can talk about individual teachers and their merits.

 
At 2/27/2011 3:05 PM, Blogger Bruce Hall said...

Look at the Detroit Public School System, who's fault is it that an entire generation of students will face a future of poverty, unemployment and imprisonment? If you are arguing that teachers cannot do anything about it because the kids are "low I.Q." then why employ teachers at all?

Last question: good question. Too much stupidity among the parents and students... parents who were dropouts themselves and students who have a misguided "culture" that puts a low value on education. I personally knew a very good, very dedicated teacher who taught in Detroit for nearly 40 years... not because he needed the money since he and his wife owned private schools... but because he wanted to instill the love of learning and the opportunities of an education to Detroit students. He often related his frustration with the attitudes of too many students who became a negative force for others... and the fact that his hands were tied behind his back in dealing with them.

But all of that is beside the central point of a deadbeat state run by deadbeat politicians and deadbeat unions who have found teachers to be convenient scapegoats. And where were the voters who kept all of those state politicians in place for decades?

So, do you blame the banks for foreclosing on homeowners who have trouble paying their mortgages... even if those homeowners paid up for years? If not, why should the state be forgiven from paying its mortgage? Maybe some of the state's assets should be seized to make the payments. Lots of prime parkland, lake front properties, government buildings... ;-}

 
At 2/27/2011 3:06 PM, Blogger Che is dead said...

This article "The Conspiracy Against the Taxpayers", City Journal details how public sector unions have corrupted the political process for their own financial gain. Do you doubt for a moment that if a private company, say Haliburton, had engaged in this kind of behavior that the media - dominated by members of Communications Workers of America - would have let it pass public scrutiny? These unions are corrupt and they are destroying our republic, it's time to end them.

 
At 2/27/2011 3:34 PM, Blogger aorod said...

Walt, the Yankees use their own money to pay Jeter. Not the taxpayers. And presumably the Yankees are paying market salary. How many union members do you know that make market salary? Usually it's 10-20% above the market. Teachers in Illinois get 80% of pay for a pension. How many private sector employees do you know who make that in pensions? Most are about 50%.

 
At 2/27/2011 3:35 PM, Blogger Jason said...

Unions usually think that arbitrators are slanted toward management. It doesn't matter which way, if it is slanted, it is not impartial, and if it's not impartial, it won't work. If liars and cheats are running the system, it will surely fail. That seems to be what we have.

Walt, I don't think so much as it's liars and cheats. I think that union negotiators are under the impression that a contract with a municipal entity is etched in stone AND the municipal negotiators are given directives to complete the task with the least immediate disasterous consequences. Add a dash of pepper, the fickless of the voters..and POW: Insolvency.

Walt, the problem seems to be that when a collective decides what it should receive in salary and benefits, it invariably is more than the market can support. Think about it, it is human nature to want more, and consider your worth more. Lord knows my kids are like this. Without appropriate checks, we see this leads to ruin.

 
At 2/27/2011 3:40 PM, Blogger Che is dead said...

"I got rid of teachers who had hit children, who had had sex with children, who had missed 78 days of school. Why wouldn't we take those things into consideration?" -- Former Washington, D.C. schools chancellor Michelle Rhee, commenting on the dismissal of schoolteachers during her tenure. After supporting her political opponent in a successful bid to oust her, the teachers unions have successfully had all the fired teachers reinstated with back pay.

 
At 2/27/2011 4:36 PM, Blogger Stone Glasgow said...

An article I wrote that simplifies the situation:
http://stoneglasgow.blogspot.com/2011/02/island-of-cheese.html

 
At 2/27/2011 5:47 PM, Blogger randian said...

should employees who fulfilled their employment obligations and often took lower levels of take-home pay

That was never true, at least regarding rank and file employees. Top management often claims they could have made millions if they went private sector, that's why they deserve $250k a year in government, but if that were true why didn't they do exactly that? It's amazing how slugs in government whine about how they're in government "because it's not about the money", and then very publicly show it was in fact always about the money.

 
At 2/27/2011 7:46 PM, Blogger Benjamin said...

Bankrupted?

How about federal employees who get full pensions and lifetime health care after just 20 years of service?

I am speaking of people who are employed by the US military.

 
At 2/27/2011 8:10 PM, Blogger moneybagzz said...

I've said it before and I will say it again.
It is the vacuum cleaner of the State that these cretinous Leftists seek to shove into the pockets of taxpayers, and turn up the suckage.

It is a multidimensional problem. Unions demand benefits, politicians buy votes, teachers want stability and taxpayers are seen as sheep to be shaved, or worse.

The worst possible outcome will be for a federal bailout; that's when the real problems begin.

Liberalism has shown its ugly head, and the people are reeling.

 
At 2/28/2011 10:09 AM, Blogger morganovich said...

walt-

"The funding mechanism needs to be in place when the agreement is made. I can't get a mortgage for money I might make ten years from now. Someone needs to step in and say that can't be paid for before the fact and not after."

agreed, it absolutely does.

the fact that the unions and their bought and paid for politicians set this up pretty much leaves them with no one to blame but themselves.

i have no idea why the unions thought these contracts could ever be honored.

is it possible the union leadership was also kicking the can down the road and figured they would be gone by the time the rank and file figured out they were screwed?

 
At 2/28/2011 12:34 PM, Blogger Walt G. said...

morganovich,

"is it possible the union leadership was also kicking the can down the road and figured they would be gone by the time the rank and file figured out they were screwed?"

Yes, it is not just possible, it is a proven fact as shown by basic data analysis. Most people, companies, governments do not or cannot plan for future obligations. How else can you explain studies that show people expect to have enough money for retirement when their cash inflows are cut over half and they have the same cash outflows, and they were spending all of their income to meet their obligations when they were working? That simply can’t happen.

I figure on approximate income needs of $2.5 million for a thirty-year retirement indexed for 3% inflation. The future cash amounts necessary get scary when they are projected that far out, but time and compound interest are on your side. None of the unfunded liabilities had to happen if people in charge did what it took to make the numbers work. Time is no longer on their side now, and they have a train wreck on their hands.

 
At 2/28/2011 12:36 PM, Blogger Walt G. said...

This comment has been removed by the author.

 
At 2/28/2011 2:00 PM, Blogger morganovich said...

"Most people, companies, governments do not or cannot plan for future obligations"

this is a little bit different than what i meant.

sure, lots of people many plan poorly due to a lack of discipline or understanding, and it's certainly a possible explanation for the behavior of union leadership, but what i was wondering is if it was deliberate.

did the union bosses know this could never be paid and just not care because they knew it would be someone else's problem by the time it become evident, just as the politicians did?

it does not seem implausible to me that union bosses and politicians reached a "one hand washes the other" deal in which both set up a system they knew was going to fail in the long run because, in the short run, they both got to keep their jobs and perks.

 
At 2/28/2011 2:29 PM, Blogger Walt G. said...

Morganovich,

That would take a mind reader to figure out, but actuaries had the shortage pegged a long time ago, and not much was done about it. Short-range seems to be the default condition for most things today. My nephew could not understand yesterday why it takes 45 minutes to bake something in the oven when a microwave oven can cook the same food in less than five minutes. His comment, "you need to get rid of that oven. I would never own one." How do you explain saving money for tomorrow instead of spending money today with that mentality? The world is chocked full of my nephews.

I think most people expect to be paid for what they think is owed to them, but ability to pay and willingness to pay are not the same thing. I think these examples show why money today is worth more than money tomorrow even at 0% inflation. Get the cash--buy your own benefits.

 
At 2/28/2011 3:15 PM, Blogger aorod said...

In my high school district they don't even wait for a pension. They are ripping us now. The drivers ed teachers make $150,000 per year.

 
At 2/28/2011 4:49 PM, Blogger VangelV said...

Why are there unfunded obligations?

Because the politicians who were backed by the unions and negotiated with the unions promised more than they could deliver.

The shortages were predicted and ignored for at least the last 10 years.

There is no incentive to be proactive if that will cost votes. It is always better to kick the can down the road for as long as you can and let the other guy deal with the problem.

Isn't blaming unfunded obligations on the union the same as the blaming the banks because people cannot pay their mortgage?

No. The people who got mortgages did not 'elect' the loan officer that gave them a mortgage that they could not afford.

Funding responsibilities rest with those who promise the funds, and not with the ones who are owed the funds.

But when those that promise the funds are only in those positions because the unions paid massive amounts of money to get them elected there is a problem. The deals would be truly binding only if the politicians who made them promised their own money, not the taxpayers'.

Is it really the bank's problem if I can't manage my own financial affairs? Should the bank get what they are owed?

Absolutely. But the unions should not because there was a conflict when the deals were made. Even you can understand that.

 
At 2/28/2011 4:52 PM, Blogger VangelV said...

I cannot count the number of low turnout special elections my locality has had; obviously, with people who will benefit from whatever is being voted on's passage being the only group that turned out heavy (to support the issue).

Which is why such deals should be invalid.

Time for politicians to grow some backbone and truly represent the interests of the tax payers. We'll see how it turns out.

Nice sentiment but it ignores human nature. Politicians will only do what is in their interest. If the unions can spend enough money to convince voters that they are right the charade will continue until reality forces the system to collapse. Why do you think that the problem was always kicked down the road before? Were politicians dumber or more corrupt?

 

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