from the centrist New York Times op-ed columnist David Brooks: this is a problem coming to Massachusetts as well. If not dealt with soon, we will see the same social dislocation that is being seen in Greece, Spain, CA, NY and NJ.
The Paralysis of the State
By DAVID BROOKS
Published: October 12, 2010
Sometimes a local issue perfectly illuminates a larger national problem. Such is the case with the opposition of the New Jersey governor, Chris Christie, to construction of a new tunnel between his state and New York.
Christie argues that a state that is currently facing multibillion-dollar annual deficits cannot afford a huge new spending project that is already looking to be $5 billion overbudget. His critics argue that this tunnel is exactly the sort of infrastructure project that New Jersey needs if it’s to prosper in the decades ahead.
Both sides are right. But what nobody seems to be asking is: Why are important projects now unaffordable? Decades ago, when the federal and state governments were much smaller, they had the means to undertake gigantic new projects, like the Interstate Highway System and the space program. But now, when governments are bigger, they don’t.
The answer is what Jonathan Rauch of the National Journal once called demosclerosis. Over the past few decades, governments have become entwined in a series of arrangements that drain money from productive uses and direct it toward unproductive ones.
Click here to read the rest of the article on the New York Times Website.
I don’t think of David Brooks as a “centrist”.
I also don’t trust his analysis, because he is comparing apples and oranges. The government pensions are relatively expensive because they are still defined-benefit, not defined-contribution; that is, they are not 401-Ks. Business has pretty much moved away from those, and many people aren’t saving enough for their retirement. Given that median wages have been stagnant in inflation-adjusted dollars (or worse) for about the last ten years, it’s also not clear that government employees have been greedy; rather, the rest of us have been shortchanged, while they have successfully bargained for the wages and benefits that the rest of “us” (not really me, I am upper-middle, as are most recent arrivals to Belmont) have let slip. The answer to this inequality is not fewer, weaker public sector unions, but more, stronger, private sector unions. (I take as given that stagnant wages and increasing income inequality are really bad for our country and its economy. Maybe you disagree, which could explain how we come to opposite conclusions.)
Furthermore, one could just as easily trace this problem to declining revenues; both my federal and state income tax rates have been cut pretty nicely in the last fifteen years, property taxes have barely kept up with median wage growth, and the sales tax increased only recently (and we all buy so much more stuff online nowadays, which tends not to carry sales tax anyhow). That can also lead to government shortfalls. The Brooks, with no other analysis, pins the problem on “excessive demands of public employee unions” says more about Brooks than it does about our problems.
California has its own special problems, caused by supermajority constraints on raising taxes. Their 3-strikes-means -life law has also larded up their prison system with not especially dangerous prisoners, which requires a corresponding increase in the number of guards (their law, last I checked, counted all felonies equally, so 3 instances of large enough bad checks might put you in jail for life). I recommend that we learn from their mistakes.
I’ve spent a lot of time looking at the numbers and I do believe that public employee benefits at this time are much more generous than what people are able to receive in the private sector. See generally this thread: http://willbrownsberger.com/index.php/archives/category/employee-compensation
I also believe there is a strong argument that the pension system will have to achieve unsustainable investment returns if it is to meet its obligations without huge increases in taxpayer contributions.
Further, it is clear in the hundreds of conversations that I have had campaigning that many members of the public who lack the wonderful security of a substantial guaranteed income at retirement are deeply resentful of high public pensions. I’ve had people bring this issue up as the first thing out of their mouth when I knock on their door.
Because I do believe that government has a positive role to play and that many government expenditures are legitimate, I am very concerned to restore some credibility to the public compensation system. If taxpayers feel the system if fundamentally unfair, they won’t support it.
To me that means that, for new employees, we should shift to a system where the benefits look a lot more like the benefits that private sector employees have. I don’t favor merging in to Social Security — that works out badly for the state financially. But I do favor capping defined benefits (taxpayer guaranteed pensions) at a level roughly at the Social Security maximum benefit. Above that level, like private employees, public employees should have a defined contribution plan — they should have savings which are subject to market risk in the same way that everyone else’s savings are.
I also agree with Jim’s offline reply about the non-feasibility of increasing private benefits rather than decreasing public benefits. While it is great to say that everyone in the private sector should be making more, the reality is that there a competitive world out there in which energetic, competent, intelligent people in developing nations are working for much less than Americans. The huge shift of manufacturing jobs offshore is not something that we can wish away. We are going through a long period of adjustment in which most Americans are feeling something of a squeeze.
In the long run, I am optimistic that America will pull through. We have the best constitution in the world and wonderful depth in our great institutions, public and private.
Summary: I agree with most of what Jim says. Where I differ with Jim may be in a stronger sense in the necessity and value of most of what government does and in that respect, I tend to resonate with David’s willingness to support government. Which is to say that I agree basically with David Brooks that we need to learn to “say this but not that” instead of always being for less government or always being for more government.
I’m curious about the fiscal problems of moving public employees to SS (I had forgotten about that difference). Is there some sort of a buy-in that makes it unattractive? Otherwise, I’m puzzled, because I thought that viewed as an investment vehicle (*) it offers low returns, so it ought to be possible to beat it.
(*) it is also survivors’ and disability insurance, as well as insurance against outliving your investments.
Ignoring the issue of we-are-where-we-are for a moment, wasn’t underfunding of pensions one of those things that happened as part of a drive to reduce taxes? Put on your “Dow 36,000” hat, suddenly it’s easy to fund pensions, look at all the taxpayer dollars we save? This is much the same as our undermaintained roads here in Belmont; if you don’t invest continuously at a sustainable level, eventually you fall far behind. This is my problem with Brooks’ article — he sees a problem, picks one third of the equation, and declares that is THE cause.
And even public resentment of public-sector costs, I suspect a lot of that is media-driven, given that so much of the media is now in conservative hands (as in, gives money to Republican campaigns, and employs all the likely 2012 Republican presidential candidates except for Romney). Bonuses and stock options are pretty rare in public service; for most public employees, my understanding is that they won’t get rich, but they won’t get poor, either. Because we’ve had stagnant wages for 10 years, AND because we’re in the middle of a bust, their stable wages and benefits look good now, but how did they do during the dot-com boom?
If I had to bash unions for anything, I think it would be work rules, not benefits. (Except, I don’t know enough about this issue to bash for sure, it is merely the case that they seem to come up often, in both the public and private sectors.)
Social Security uses much lower investment returns and has it’s own structural problems. Bottom line is that we would have to put more money in and many people would get lower benefits.
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