Monday, May 24, 2010

Working to pay off the benefits for public employees

More and more analysts are figuring out how much of our states' budgetary problems stem from promises made to public employees, especially teachers. Mort Zuckerman, editor of U.S. News and World Report, lays it all out.
The lopsided subsidies for pension and health costs are a large part of the fiscal crises at the state and local levels. The subsequent squeeze on education and infrastructure investment is undermining the very programs that have made it possible for our economy to grow.

Between New York and California, the projected deficits run about $40 billion—and that doesn't account for projected billions of dollars in the operating deficits in the states' mass transit systems or the multibillion-dollar unfunded liability in many of the state pension plans. New York would be badly hit because it is on the verge of being deprived of tax revenues by Washington's increased regulations on the financial industry, especially the hugely profitable, multitrillion-dollar market in derivatives—an industry that is critical to the economy of New York state and the country.

City government was developed to serve its citizens. Today the citizenry is working in large part to serve the government. It is always hard to shrink government spending. It is particularly difficult when public-sector unions have such a unique lever of pressure.
He has one suggestion of how to help other states avoid deepening the crisis.
We have to escape this cycle or it will crush us. One way is to take labor negotiations out of the hands of vulnerable legislators and assign them to independent commissions. They would have a better shot at achieving a fair balance between appropriate salary increases and the revenues and services of local municipalities. The electorate won't swallow any more red ink.
He's exactly right. Once we jumped the protective gulf that had prevented public employees from unionizing, we arrived at the place where unions would elect the very public officials who would then turn around and use taxpayer money to buy more support from the unions. It's a nifty little system except when taxpayer money runs out. It's a pyramid scheme that was completely legal and may be impossible to unravel. Greece is modeling for us what will happen as younger people realize that they will never have the sort of benefits that they're laboring to pay for the older generation right now. Greece is a relatively small country. What will happen when the reality hits the bigger European countries and then us? Even the New York Times gets it.
Across Western Europe, the “lifestyle superpower,” the assumptions and gains of a lifetime are suddenly in doubt. The deficit crisis that threatens the euro has also undermined the sustainability of the European standard of social welfare, built by left-leaning governments since the end of World War II.

Europeans have boasted about their social model, with its generous vacations and early retirements, its national health care systems and extensive welfare benefits, contrasting it with the comparative harshness of American capitalism.

Europeans have benefited from low military spending, protected by NATO and the American nuclear umbrella. They have also translated higher taxes into a cradle-to-grave safety net. “The Europe that protects” is a slogan of the European Union.

But all over Europe governments with big budgets, falling tax revenues and aging populations are experiencing rising deficits, with more bad news ahead.

With low growth, low birthrates and longer life expectancies, Europe can no longer afford its comfortable lifestyle, at least not without a period of austerity and significant changes. The countries are trying to reassure investors by cutting salaries, raising legal retirement ages, increasing work hours and reducing health benefits and pensions.

“We’re now in rescue mode,” said Carl Bildt, Sweden’s foreign minister. “But we need to transition to the reform mode very soon. The ‘reform deficit’ is the real problem,” he said, pointing to the need for structural change.

The reaction so far to government efforts to cut spending has been pessimism and anger, with an understanding that the current system is unsustainable.
And the chart that accompanies that article tells the story that Mark Steyn has been warning us about. We're all on the same unsustainable path.

That's why Arthur C. Brooks writes that we have a new culture war in this country.
This is not the culture war of the 1990s. It is not a fight over guns, gays or abortion. Those old battles have been eclipsed by a new struggle between two competing visions of the country's future. In one, America will continue to be an exceptional nation organized around the principles of free enterprise -- limited government, a reliance on entrepreneurship and rewards determined by market forces. In the other, America will move toward European-style statism grounded in expanding bureaucracies, a managed economy and large-scale income redistribution. These visions are not reconcilable. We must choose.

It is not at all clear which side will prevail. The forces of big government are entrenched and enjoy the full arsenal of the administration's money and influence. Our leaders in Washington, aided by the unprecedented economic crisis of recent years and the panic it induced, have seized the moment to introduce breathtaking expansions of state power in huge swaths of the economy, from the health-care takeover to the financial regulatory bill that the Senate approved Thursday. If these forces continue to prevail, America will cease to be a free enterprise nation.