

Schwarzenegger: Public Pensions and Our Fiscal Future - pointillistic
http://online.wsj.com/article/SB10001424052748703447004575449813071709510.html
Arnold Schwarzenegger: "Few Californians in the private sector have $1 million in savings, but that’s effectively the retirement account they guarantee to many government employees."
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mark_l_watson
About 25 years ago in California, Orange Country went bankrupt and public
employees had to do "give backs" of (if I remember correctly) about 1/2 of
their retirement funds and other concessions.

I think that this will be the model for the future, but a state levels.

It may not seem fair to change the rules on public employees, but effectively
the rules have changed for private employees because the economy at federal,
state, local, and personal levels will keep getting worse.

When I was younger, I worked with techs working for the federal government and
they received much lower salary, but a retirement. Now, they tend to make
equivalent salaries and have more job security. I am as disgusted with unions
lobbying Congress as I am with corporate lobbyists.

~~~
jordanb
It's worth observing that:

1) Orange County went bankrupt by cooking the books. After the scandal broke,
their treasurer went to jail.

2) The Republican administration turned a blind eye to the Democratic
treasurer's malfeasance because it was allowing them to keep taxes very low,
which was making their government very popular.

3) The government refused to raise even a temporary tax to avoid bankruptcy,
as that position was highly unpopular among the wealthy residents of the
county. At various points the county insisted that it should receive bailouts
from the California state and federal government, which drew anger from across
the nation as Orange County is among the wealthiest places in the nation.

4) In bankruptcy, Orange County cut $200 million from its budget by clawing
back commitments to its low level employees who had no part in the high level
corruption, as well as through layoffs and reduced services. The OC
bankruptcy, from the perspective of the average person, is like a minified
version of the bank bailouts. It was a "heads I win, tails you lose" bargain
between the wealthy people of OC and the average people who were hurt most by
the layoffs and reduced services.

~~~
lr
This is a GOP strategy called "starve the beast", and Paul Krugman has been
writing about it for years:
<http://www.google.com/search?q=starve+the+beast+krugman>

~~~
CWuestefeld
This same thing is also an extreme Liberal strategy. Sorry, I can't remember
the name to look it up.

The theory is that you can so overload the government that it simply can't
stand up anymore (like the USSR I suppose). It crumbles, and that gives you
the opportunity to erect a new one in its place, doing away with all those
things that stand in your way, like Constitutional restrictions on the
government.

UPDATE: the name is "Cloward-Piven"
([http://en.wikipedia.org/wiki/Cloward%E2%80%93Piven_strategy#...](http://en.wikipedia.org/wiki/Cloward%E2%80%93Piven_strategy#The_strategy)
), see my follow-up below.

~~~
itsgoats
Except there's no mainstream, tea-party-a-like leftists loudly advocating that
strategy in the US.

~~~
infinite8s
I think by Liberal he meant to say Libertarian

~~~
CWuestefeld
No, I meant "Liberal". Read the article at the link.

------
pg
I have a feeling these graphs do more to explain the problems that Berkeley
professor wrote about ([http://blogs.berkeley.edu/2010/08/24/a-letter-to-my-
students...](http://blogs.berkeley.edu/2010/08/24/a-letter-to-my-students/))
than the explanations he proposed.

~~~
MaysonL
I have a feeling those graphs are more than a little fishy - the bottom one
especially. Retirement costs went up ~5X from 2000 to 2010? And they'll go up
by the same from 2010 to 2020? I call BS.

~~~
CWuestefeld
It's a very reasonable number. Consider that there are three factors feeding
this:

1\. Increased promises to the public sector workforce.

2\. The need to make up shortfall in the funding due to market declines.

3\. The need to make up shortfall because the funding was insufficient to
begin with, owing to accounting ... creativity.

~~~
recoil
You missed two other points:

4\. The boomers are just now hitting retirement, so the number of people
retiring in a given year is increasing (Actually, it'd be interesting if
somebody could pull out some hard numbers on this - I've heard this spoken of
anecdotally a lot lately).

5\. Retirees are drawing on their pensions for longer because they have longer
lives.

------
dantheman
He got that exactly right, unfortunately he didn't go far enough -- debt
financed projects are also a huge problem. Look at the big dig & the mbta.

People need to learn that you pay as you go, that's why 401ks are great the
total cost of an employee is understood completely.

Taking debt in someone else's name, which is what essentially all government
debt is, is fundamentally immoral and shouldn't be allowed. It causes people
to be reckless since they're not the ones paying for it.

~~~
DanielBMarkham
Interesting point about taking debt in someone else's name.

Over the last year I've begun to wonder if people aren't going to start
feeling like the deal is off. If granddad elected somebody who made so much of
a debt obligation that my taxes can't fix the roads? Why does granddad get to
leave me his debt? He's not even around anymore. How can dead people vote to
make living people 100 years later poor? In some ways this was the exact same
problem the colonies were having with Great Britain -- taxation without
representation. One bunch of people making the rules and taxes, and another
bunch of people having to live it. (And yes, I'm aware of the counter-argument
that current voters can change the budget at will, but for all intents and
purposes, practically speaking these things are our "legacy" code. We're stuck
with them by default. It takes great upheaval to change even the smallest of
things in these matters)

I don't think we're there yet. But we're not far off.

~~~
CWuestefeld
_In some ways this was the exact same problem the colonies were having with
Great Britain -- taxation without representation._

Interesting idea. The American Revolution dealt with _geographical_
representation. You're making an argument for _temporal_ representation as
well.

This seems worth some pondering...

------
pchristensen
If he forces through public pension reform, my opinion of Arnold as a
politician would go way, way, up.

~~~
sliverstorm
When I was a kid and he was elected, I thought he would be a bit of a joke. A
movie star elected governor by Hollywood- California really is crazy!

My opinion has changed drastically since then, and I find myself proud to have
him as our governor.

~~~
chollida1
> A movie star elected governor by Hollywood- California really is crazy!

I guess you've never heard of Ronald Regan:)

<http://en.wikipedia.org/wiki/Ronald_Reagan>

~~~
sliverstorm
My mistake! I knew about Regan, but I didn't know he was a Cali guvner first.

------
btilly
The pension problem is scarier than he says. I wish that they merely projected
rosy numbers. However they have also been accepting risk to try to make those
numbers. When those risky investments fail, we'll suddenly have an even worse
hole.

Note that I say "when", not "if". I say that because significant investments
were made in private equity funds during their spending spree a few years
back. There is every reason to believe that those investments are going to
blow up.

It is worth noting that this is the second time that private equity went on a
big spending spree. The previous time was in the late 80s, and the big
investors were the savings & loans institutions. Google _S &L crisis_ for more
on how poorly that turned out. Then note that the recent spending spree was
over an order of magnitude bigger.

------
WalterBright
I don't really understand the fairness of being able to retire at 55 with a
full pension. The retirement age should be 70.

------
furyg3
The "job losses" graph is basically trash, since there are far more private
sector workers than public sector workers. Better would be to rate it by
percentage.

I'm slightly shocked that the WSJ would print it (the graph, not the article).

~~~
aresant
Here's the real data which is still striking, eg private is 2x the rate of
public:

Job losses June 2008 to June 2010

State government

Statewide: -8,800 / -3.3%

County government

Statewide: -18,500 / -5.1%

City government

Statewide: -14,100 / -4.9%

Private sector

Statewide: -1,200,000 / -9.3%

Via

[http://www.signonsandiego.com/news/2010/aug/23/government-
jo...](http://www.signonsandiego.com/news/2010/aug/23/government-jobs-
disappear-posing-threat-upturn/)

~~~
furyg3
Indeed it's still a big difference, but it's not "off the charts!" as the
graph would have you believe.

Plus, it's fairly reasonable that there would be such a difference between
private / public job loss rates.

Employment rates in the operations department of most companies I've worked
for are relatively flat during both boom and bust times, when the rates of the
rest of the organisation fluctuate wildly. In boom times you need
IT/HR/Facilities/Finance... and in bust times you do, too. Sales? R&D? Maybe
not so much.

I can imagine that most public services are more on the Ops side and less on
the Sales side.

~~~
nkassis
I worked for a University in florida and the largest department was by far the
Facilities one. Maintaining buildings, keeping them clean etc.. is very
expensive. You can't cut those jobs and for each new building, you to add more
of these people.

The University tried to freeze hiring but a few new buildings were entering
operation, they had to keep getting more janitors/grounds keepers etc.

------
erikstarck
"The problem with socialism is that eventually you run out of other people's
money." -Margaret Thatcher

~~~
johnny22
maybe you'll run out of this quote some day too. try making one of your own.

------
jumby
i like how the 2nd graph is totally wrong: those numbers aren't in billions,
but in millions. i guess no one understands how to read graphs anymore

~~~
dminor
Not to mention the first graph would be far more useful if it displayed
relative job losses rather than absolute.

~~~
noahlt
Forgive my ignorance -- what does "relative job losses" mean, and how does it
differ from "absolute job losses"?

~~~
muzz
I think he means as a percentage rather than absolute number. I doubt the
state even has 1.2M public sector employees; this CNN article indicates
240,000 so even if every single one was fired it would still make the graph
look like the public sector wasn't cut enough:
[http://money.cnn.com/2010/07/08/news/economy/california_pay_...](http://money.cnn.com/2010/07/08/news/economy/california_pay_cuts/index.htm)

------
ruang
Defined benefits should be outlawed.

If mutual funds and hedge funds are not permitted to guarantee returns, then
neither should pension funds.

------
hammmatt
Can someone confirm that indeed 80 cents of every tax dollar goes to pensions?

~~~
philk
From the article:

 _roughly 80 cents of every government dollar in California goes to employee
compensation and benefits_

So that's salaries as well as pensions (and salaries will be making up the
lions share of the 80%).

To quote Felix Dennis "Overhead walks on two legs".

~~~
16s
Employees are the biggest expense for any business, not just governments.

~~~
larrywright
This is true, but not 80%. This number is way, way out of whack.

------
robryan
Who's lending California this money now? It seems quiet a risky deal.

~~~
yummyfajitas
It's not that risky. The most likely outcome is simply that the fiscally
responsible states will be forced to bail California out.

~~~
maxawaytoolong
Except aren't there only like 3 "fiscally responsible" states? I don't think
Wyoming and North Dakota are going to be able to pull off such a bailout.

~~~
yummyfajitas
Perhaps I should have said "less fiscally irresponsible".

------
cce
Many people took positions in government when it wasn't anywhere near a high-
paying job. I know an engineer friend who took a job with the government in
1994 for a 40% pay difference (45k vs 75k) -- how the lower wage was
justified: (a) more job security, (b) an actual pension plan with ~28 years
service. The two were viewed at that time as being equivalent: with the
government compensation a bit less than working for a contracting firm. I know
of teachers who choose their profession, not based on the yearly compensation,
but based on the idea that "yea, so after 26 years of letting children beat
down on me, I can retire and not have to worry so much". I'm sure
police/firemen who agree to risk their life every day for 20-some odd years
make similar calculations. It's a rational choice -- and a promise of
compensation made.

I simply don't understand how anyone could justify retroactive gutting of
plans. Can we do retroactive taxation on those that went without the pension
as part of their compensation plan?

Elimination of pension going forward -- perhaps. I'm curious to see how
recruitment of these positions works... likely, the Government won't be able
to attract as good candidates as it might otherwise.

------
lionhearted
After this one gets to +250 can we have a politics moratorium for a while?

~~~
akmiller
What, you don't thing that a State (especially California, the startup capital
of the world) in a serious budget crisis has anything to do with entrepreneurs
that may be attempting to start their own businesses in such a climate?

~~~
_delirium
Although I've unfortunately added to it, I don't think on the whole HN
discussions on the subject have been particularly enlightening, partly
because, unlike with technical topics, HN posters don't generally have
expertise or particularly unique insights into this area. We just have a mix
of libertarian-leaning and social-democratic-leaning people arguing with each
other (with a moderate majority for the libertarians).

~~~
lionhearted
> We just have a mix of libertarian-leaning and social-democratic-leaning
> people arguing with each other (with a moderate majority for the
> libertarians).

Indeed, I decided I'm going to bow out of politics conversations. It's
relevant tangentially, but it adds noise and friction. I'd rather connect
cooperatively with like-minded people in entrepreneurship and technology, I
don't want to get into arguments, build bad will, etc. with people here. Like
Delirium says, at this point the argument quality isn't even particularly
insightful.

------
aswanson
[http://blogs.forbes.com/digitalrules/2010/06/01/the-
milliona...](http://blogs.forbes.com/digitalrules/2010/06/01/the-millionaire-
cop-next-door/)

------
maukdaddy
That first graph is insane, yet believable.

Here in Chicago, there have been a few layoffs of city personnel, but mostly
furlough days. City workers are forced to take 24 unpaid days this year. So
our public/private graph probably looks the same.

 _Comments reflect my personal views and not my employers, etc._

------
lowglow
Is anyone else reading this in his voice?

------
chadmalik
No mention of Prop 13 eh? PG&E etc. are able to pay insanely low property
taxes, often creating shell companies so the property can be passed between
owners, while regular working schmoes pay sky high property taxes.

And what about Arnold's refusal to tax offshore drilling the same way red
states like Alaska do?

Yes there need to be cuts in spending but refusing to raise a single tax is
simply absurd. Both things need to happen to balance the budget.

The real problem is the need to have a 2/3 majority to pass a budget in the
legislature. That is simply absurd.

~~~
jfarmer
The 2/3 requirement for raising taxes also comes from Prop. 13.

Best proposition ever!

~~~
sabat
It was overkill, and selfish. I was in 5th grade when Prop 13 went through,
and by 6th grade school programs had to be cut, school supplies were all but
non-existent, and teachers were being fired. For the sake of what -- big
corporations? Baby boomer tax rates? Tax cut we can afford, sure.

------
mkramlich
I don't think any employer should take on the role of providing pensions, as a
part of the employment relationship. There is a lot of reasonable argument in
favor of the value of something like Social Security, as a sort of minimum
social safety net. And such a thing probably makes the most sense being
provided by the government. But I'd love to see the day where employers just
give cash to their employees, and it's up to them to decide what to do with
that cash. It would make for so much less paperwork and reduced overhead
costs, and increased simplicity, for business owners and management. Less
distortion, greater focus on their core business.

------
alecco
As a foreigner, this is like bizarre fiction.

    
    
      * Arnold Schwarzenegger, a former bodybuilder champion now politician
      * Governor of nearly bankrupt California
      * A state scammed out of 40 to 50bn by Enron and pals
      * AS career was supported by Enron (from Forbes)
      * Writing an opinion column on Fox owned WSJ against state pensions
    

My sympathies to all californians. The world owes you so much.

~~~
alecco
Your down votes signal you read those facts and it upsets your beliefs. I
didn't write this for people who agree with my point of view. I wrote this for
you. Thank you.

~~~
LargeWu
You're probably getting downvoted because you seem to be implying, without
real evidence, that California is bankrupt because Arnold was complicit in
cheating California out of billions because of shady dealings with Enron.

These are the sorts of allegations that one would typically see in a political
forum populated by partisans and hacks. Downvoting is just HN's way of saying
this sort of discussion belongs elsewhere.

~~~
chadmalik
Actually if you followed the whole looting of California by Enron & friends,
the final conclusion was Schwarzenegger taking office and refusing to pursue a
serious lawsuit agains the perps and letting them off with token payments to
the state. And yes the proof was and is very clear that the "crisis" was in
fact looting. The energy traders who implemented it were taped per regulation
and the leaked tapes were ugly. It was a crime and the perps got off. So YES,
IN FACT, the governor is culpable for what happened, or to be very exact,
refusing to pursue serious restitution.

~~~
chadmalik
proof:

[http://www.cbsnews.com/stories/2005/02/03/eveningnews/main67...](http://www.cbsnews.com/stories/2005/02/03/eveningnews/main671618.shtml)

Enron also pulled power out of states like California, causing emergency
conditions to worsen.

"Sorry California," an Enron trader says. "I'm bringing all our power out of
state today. I moved out six — over six hundred megawatts."

The "shut downs" and "pull outs" triggered sky high power prices.

"We're just making money hand over fist!" one voice is heard saying on the
tape.

And when states complained, the guys at Enron seemed to have a response.

"Get a f __ __ __clue," one says. "Yeah," another chimes in. "Leave us alone.
Let us make a little bit of money."

"Exactly," says another trader.

