Tuesday, October 2, 2012
What Goes Around Comes Around
President Obama claims to stand on the side of police, firefighters, paramedics, teachers, librarians, and other public-sector employees. This is perhaps true insofar as he has committed the federal government, and thus the American taxpayer, to spend inconceivable amounts of money to win the affections of these groups. However, the new contract that will be voted on today by the Chicago Teachers Union and an internet video being circulated by the International Association of Fire Fighters both make clear that in the long run, Obama's policies will do more harm than good for public-sector employees.
While most private sector employers and even the federal government have transitioned to defined-contribution plans like the 401(k), most municipal governments continue to use defined-benefit pension plans. Unfortunately, defined-benefit plans are going bankrupt because the money that was supposed to be set aside for future pension payments was spent frivolously by local governments during the boom times under the flawed assumption that the economy would always be good. Unlike the federal government, state and local governments can't just print money to pay their pensioners when expenses exceed revenues. They have to issue new debt which usually has to be approved by voters in a referendum.
The biggest reason for funding shortfalls in the great recession is the decline in home prices and thus property tax revenues on which local governments depend. The crisis is real. Because of their profligacy, cities like Stockton, California and Camden, New Jersey are now unable to pay for even basic services like police. Eventually home prices and tax revenues will recover, but consider that sometime in the next 20-30 years there will be another major recession and tax revenues will collapse again, except that if we don't have pension and entitlement reform, next time the burden of payments on state and local governments will be many times worse than what we have seen in the last few years.
Of course, senior employees who have dedicated their whole lives to serving public health, safety, and education are right to be upset that their retirement is now in jeopardy. Any plan to address the public sector pension crisis must ensure that people do not lose the retirement that they have worked for. However, opposition to reform from public-sector unions like the IAFF and the CTU will ultimately result in less money to fund salaries, benefits, training, and equipment for their current and future employees as state and local governments are forced to spend more and more on pension payments. Moreover, just throwing more money at the problem now is like fighting fire with gasoline.
Winston Churchill probably never said that, "Any man who is under 30 and is not a liberal has no heart; and any man who is over 30 and is not a conservative has no brains," which is just as well, because it is false. As the slow-motion train wreck of the pension and entitlement crisis makes clear, people under 30 years of age have the most at stake in this election. If Obama is re-elected, his liberal policies of pandering and procrastination will continue and we will see more bailouts, more "stimulus" plans to pay for bankrupt public sector pension plans, and ever higher deficits and taxes to fund it all.
Who will pay these taxes? Obama has been traveling the country promising adoring college students that if he is elected they will not have to worry about the cost of federally-subsidized student loans going up. What he isn't telling them is that his own ObamaCare law eliminated subsidies for student loans issued by private banks, and that because of his policies, when their parents retire, current students will inherit a debt so shockingly enormous that a 3.4% increase in student loan interest will seem like a very small price to pay indeed. The old saying that "what goes around comes around" has never been more true.