California: "Home of the free ... lunch."
Here's the latest article by Michael Lewis, the author of The Blind Side and Money Ball, and the person I consider to be our generation's Mark Twain. The article documents the coming financial woes in California. The following is one of the most fascinating passages of the article. Lewis discusses San Jose's impending problems with Mayor Chuck Reed:
By 2014, Reed had calculated, a city of a million people, the 10th-largest city in the United States, would be serviced by 1,600 public workers. “There is no way to run a city with that level of staffing,” he said. “You start to ask: What is a city? Why do we bother to live together? But that’s just the start.” The problem was going to grow worse until, as he put it, “you get to one.” A single employee to service the entire city, presumably with a focus on paying pensions. “I don’t know how far out you have to go until you get to one,” said Reed, “but it isn’t all that far.” At that point, if not before, the city would be nothing more than a vehicle to pay the retirement costs of its former workers. The only clear solution was if former city workers up and died, soon. But former city workers were, blessedly, living longer than ever.
This wasn’t a hypothetical scary situation, said Reed. “It’s a mathematical inevitability.” In spirit it reminded me of Bernard Madoff’s investment business. Anyone who looked at Madoff’s returns and understood them could see he was running a Ponzi scheme; only one person who had understood them both ered to blow the whistle, and no one listened to him. (See No One Would Listen: A True Financial Thriller, by Harry Markopolos.)
In his negotiations with the unions, the mayor has gotten nowhere. “I understand the police and firefighters,” he says. “They think, We’re the most important, and everyone else goes [gets fired] first.” The police union recently suggested to the mayor that he close the libraries for the other four days. “We looked into that,” Reed says. “If you close the libraries an extra day you pay for 20 or 30 cops.” Adding 20 more police officers for a year wouldn’t solve anything. The cops who were spared this year would be axed next, in response to the soaring costs of the pensions of city workers who already had retired. On the other side of the inequality is the taxpayer of San Jose, who has no interest in paying more than he already does. “It’s not that we’re insolvent and can’t pay our bills,” says Reed. “It’s about willingness.”
I ask him what the chances are that, in this pinch, he could raise taxes. He holds up a thumb and index finger: zero. He’s recently coined a phrase, he says: “service-level insolvency.” Service-level insolvency means that the expensive community center that has been built and named cannot be opened. It means closing libraries three days a week. It isn’t financial bankruptcy; it’s cultural bankruptcy.
“How on earth did this happen?” I ask him.
“The only way I can explain it,” he says, “is that they got the money because it was there.” But he has another way to explain it, and in a moment he offers it up.
“I think we’ve suffered from a series of mass delusions,” he says.
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Aug '11
Re: California: "Home of the free ... lunch."
I am attending a lecture by Robert Reich this morning. I would love to float this post under his nose and ask Mr. Reich (a long time labor supporter) how he would fix this problem of unions and pensions. I would love to say I was shocked at the police union suggesting that the library be shuttered before losing police officers but I am not. We suffer from the same public worker (Police and Fire) union mentality here in Kansas City and we will soon be in the same boat as San Jose.
Dec '10
Re: California: "Home of the free ... lunch."
I don't understand how Government workers can't see the problem with pension programs. You are paying people after they have stopped producing. In what bizarro world does that math ever add up?
Feb '11
Re: California: "Home of the free ... lunch."
It should be obvious that when something is unsustainable, it doesn't last. But for too many it's not. The unions are only adding to the reckoning that's going to come and it's going to come faster and harsher than they expect. The countervailing pressure that's building up against the blue greed model is going to explode and upend decades of labor and pension law and custom.
Jan '11
Re: California: "Home of the free ... lunch."
It is imperative that when the first waves of municipalities go bust that they not be bailed out and that bankruptcy/receivership proceedings take a big bite out of existing & future pension payouts. This may force realistic concessions from other public employee unions before the whole thing blows up.
I'd also like to tie this story to a post the other day from Rob Long about jobs/manufacturing here in the US. I'll make the point again that it is not just simply the wage differential between the US and developing countries. Businesses locateting to these areas know that they won't have to grease this public sector class ad inifitum or that the public servants in other countries can be bought for a whole lot less. These people, this government Mandarin class are pulling us all down.
If things get as bad as I'm begining to fear, we have the most to worry about from our public 'servants'.
Re: California: "Home of the free ... lunch."
We have a similar problem up here in San Francisco. It felt like we got so close to public union pension reform this past election. The proposed initiative (Prop B), which enjoyed broad bipartisan support, would have required public employees to contribute 10% of their pension contribution and pay a larger portion of their health care premiums. It would have only have affected 11,000 workers, but would really ease the city's fiscal strain.
In the last two weeks, the public unions ran a massive disinformation campaign for which they must've spent a ton of money, and were able to crush the proposition with a pretty decisive margin. It was very disappointing.
Aug '10
Re: California: "Home of the free ... lunch."
Great interview of Lewis by Charlie Rose ca be found here.
No mention of the California article, but they go in depth on his new book beginning at minute 31, prior to that it is Moneyball and Big Short.
Time well spent.
Oct '10
Re: California: "Home of the free ... lunch."
it's time to make the firefighting force 100% voluntary. The Chilean Model.