California's Tipping Point 16 comments
January 26, 2009
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Investors should be worried. California's unemployment rate just skyrocketed, and Bay Area employers are laying off thousands of employees. As the eighth largest economy in the world, California and its consumers have the power to affect economies worldwide. Unfortunately, it doesn't look like things are going to get better anytime soon. Shannon Love writes about California taxpayers and California's tax consumers here. Ms. Love talks about a tipping point, which is reached when a state achieves enough power and money to dictate to the people. Once this tipping point is reached, she says, "it is only a matter of time before civil servants become civil masters."
Former Presidential nominee Barry Goldwater said it even better: "A government that is big enough to give you all you want is big enough to take it all away." I've echoed similar concerns here and here. Despite the danger of overweening government, nothing seems to jolt the average American citizen and voter into action. This is particularly distressing, because informed citizens seem to have become apathetic to the government's siphoning of taxpayer dollars.
Take this SJ Mercury news article, for example. The writers chastise Councilmember Pete Constant for trying to rein in profligate spending and public sector union demands. However, in promoting more government benefits, the writers reveal just how stunningly fat government employees have become.
Mr. Bruce De Mers and John Diquisto write: "[M]ost police and fire retirees left public service well before the advent of 90 percent retirements." [Emphasis added.] There's no way to escape the reasonable inference from this statement. We are being told that at least some current police and fire retirees will receive around 90% of their salary after retirement. This isn't an uninformed slip--Mr. De Mers is president of the Association of Retired San Jose Police Officers and Fire Fighters, so he knows his numbers. Of course, the writers forget to mention the lifetime medical benefits also given to police and firefighter retirees, but after getting 90% of your salary in retirement, why add insult to injury? I can't find a non-executive private sector worker in San Jose who gets 90% of his salary at retirement and lifetime medical benefits--and I'm an employment attorney, so I've met almost every kind of San Jose employee.
Let's get back to the article. It contains the usual platitudes, such as, "Panic is not productive. Promoting panic is a disservice to the public." Informed people should read between the lines. Our government officials want us to remain calm--while they dig deeper into our pockets. Unsurprisingly, the writers resort to the public safety argument: "Attacking retirees who risked their safety to make San Jose one of the safest big cities in America may feel good. [T]hat doesn't make it right."
Newsflash--if more police kept cities safe, or if police were even a substantial catalyst for safety, then New York City, Oakland, and Baltimore would be crime-free. (Last time I checked, they had plenty of police officers.) In reality, police and firefighters are only two components in the public safety analysis. The determinative factor in public safety is the composition of the residents themselves--more specifically, their education levels. For example, imagine a city with 1,000 cops and 1,000 gang members. Will there be more crime in that city, or in a city with 50 cops and 50,000 college-educated accountants? And yes, that's a rhetorical question.
San Jose isn't safe because of cops and firefighters--we're safe because of our high levels of education and and the high cost of living. First, most Santa Clara residents have a college degree--61%, to be exact. College-educated adults tend to be less interested in drugs and dangerous behavior, and somewhat more likely to be married. These traits generally lead to law-abiding behavior.
Also, it is very expensive to live in Santa Clara County. If you're a criminal, you need to make a profit (for more on this topic, read Freakonomics and the chapter on why most drug dealers live with their mothers). Given that most criminal enterprises make their money from drugs and counterfeit goods, having a citizenry less interested in these illegal products leads to less crime. Criminals quickly realize they're better off doing business in areas with lower rents and less educated residents, where they can sell more drugs, more counterfeit goods, steal more personal info (ID theft), and engage in more extortion. In short, criminals are not exempt from the laws of business. Like everyone else, they tend to go where they can make the most money.
Ultimately, the police and firefighters' unions do Santa Clara County residents a disservice when they claim to be a primary cause of our safety. After all, that's their main argument for overly generous benefits--pay us off, and you'll be safe. Don't pay us off, and, well...who knows? Combine that arrogance and ignorance with Tasers and enough political power to dump a diligent independent auditor (Barbara Attard), and you've got a ready-made recipe for oppression, or at least government-sanctioned extortion.
Investors must realize that public sector retirement benefits are a stock market issue, not just a political issue. Continuing generous government benefits will affect stock market gains in several ways. First, public sector retirement plans aren't necessarily linked to the stock market--CalPERS, for example, can invest in hard assets, like timber and land, as well as other investments unavailable to ordinary people. (CalPERS controls around 239 billion dollars, and its investment decisions move markets.) Thus, having a separate, two-track retirement system allows government to invest taxpayer money with little regard for the retirement prospects of ordinary citizens. Consequently, while non-government investors must rely on an ever-increasing stock market to retire, public sector unions and their employees are not so inhibited. Not being similarly situated, they may take actions to inhibit corporate profits and, in turn, stock market gains.
In fact, there is no question that allowing government's generous retirement benefits will drain taxpayers, providing them with less discretionary income. General Motors (GM) and Ford (F) are cases in point. Like the United States, they have deficits and are losing money. Just like government unions, the UAW lavished their employees with generous retiree benefits during flush times. As a result, until 2007, a Ford employee's average hourly wage was $71.00/hour--but with only $29/hr going to actual wages. Around forty percent (40%) of the total hourly wage went to retiree benefits and health insurance programs. (See WSJ, 1/22/09, A12.) Meanwhile, foreign automakers pay around $49/hr to their employees and still manage to create better products and have better service. Basically, GM and Ford were made uncompetitive by their own unions.
Think about that: if the private sector--with its self-interested, sophisticated shareholders--couldn't restrict union health and retirement benefits to a manageable level, what chance does California have? After all, California's legislature is majority Democrat, and the Democratic Party tends to listen to unions because of their generous donations. If GM and Ford are any indication, California's state budget could end up allocating 40% of our taxes to government retiree/health benefits and still not produce a balanced budget or better service. Like Ford and GM, if the status quo continues, California will be made uncompetitive by its own unions and more efficient competitors. This status quo story won't have a happy ending--Ford and GM recently considered bankruptcy but were bailed out by the White House at the last minute. Although some California cities have filed for bankruptcy because of overly generous public sector benefits, an entire state has never declared bankruptcy before. Who's going to bail out a state if it goes bankrupt? Will we see the day when California has to offer a 25% interest rate on its bonds to attract investors?
Finally, generous government benefits create major misalignments of interest. For example, having two separate retirement systems--one for Joe the Plumber and another for Sally the Cop--allows the government potentially dangerous leverage against ordinary citizens. The day may come when CalPERS says, "If you don't give us what we want, we'll pull all our money out of the stock market, invest it someplace else, and you can kiss your 401(k)s goodbye." Sound implausible? Until recently, so was the idea that our federal government would give $700 billion to financial institutions without strict oversight. Also, don't forget that just ten years ago, banks like Citigroup (C) looked ready to take over the world. Now, of course, Citigroup (C) sells for around $3/share and is looking for a bailout.
Citizens should develop an eye for non-violent oppression. An oppressive government doesn't need to lock you up or arrest you to control you--it just needs to take enough money from you to buy off politicians and pass laws favoring them over regular folks. Investors, both foreign and domestic, need to stop being calm about overly generous government benefits and take action.
Former Presidential nominee Barry Goldwater said it even better: "A government that is big enough to give you all you want is big enough to take it all away." I've echoed similar concerns here and here. Despite the danger of overweening government, nothing seems to jolt the average American citizen and voter into action. This is particularly distressing, because informed citizens seem to have become apathetic to the government's siphoning of taxpayer dollars.
Take this SJ Mercury news article, for example. The writers chastise Councilmember Pete Constant for trying to rein in profligate spending and public sector union demands. However, in promoting more government benefits, the writers reveal just how stunningly fat government employees have become.
Mr. Bruce De Mers and John Diquisto write: "[M]ost police and fire retirees left public service well before the advent of 90 percent retirements." [Emphasis added.] There's no way to escape the reasonable inference from this statement. We are being told that at least some current police and fire retirees will receive around 90% of their salary after retirement. This isn't an uninformed slip--Mr. De Mers is president of the Association of Retired San Jose Police Officers and Fire Fighters, so he knows his numbers. Of course, the writers forget to mention the lifetime medical benefits also given to police and firefighter retirees, but after getting 90% of your salary in retirement, why add insult to injury? I can't find a non-executive private sector worker in San Jose who gets 90% of his salary at retirement and lifetime medical benefits--and I'm an employment attorney, so I've met almost every kind of San Jose employee.
Let's get back to the article. It contains the usual platitudes, such as, "Panic is not productive. Promoting panic is a disservice to the public." Informed people should read between the lines. Our government officials want us to remain calm--while they dig deeper into our pockets. Unsurprisingly, the writers resort to the public safety argument: "Attacking retirees who risked their safety to make San Jose one of the safest big cities in America may feel good. [T]hat doesn't make it right."
Newsflash--if more police kept cities safe, or if police were even a substantial catalyst for safety, then New York City, Oakland, and Baltimore would be crime-free. (Last time I checked, they had plenty of police officers.) In reality, police and firefighters are only two components in the public safety analysis. The determinative factor in public safety is the composition of the residents themselves--more specifically, their education levels. For example, imagine a city with 1,000 cops and 1,000 gang members. Will there be more crime in that city, or in a city with 50 cops and 50,000 college-educated accountants? And yes, that's a rhetorical question.
San Jose isn't safe because of cops and firefighters--we're safe because of our high levels of education and and the high cost of living. First, most Santa Clara residents have a college degree--61%, to be exact. College-educated adults tend to be less interested in drugs and dangerous behavior, and somewhat more likely to be married. These traits generally lead to law-abiding behavior.
Also, it is very expensive to live in Santa Clara County. If you're a criminal, you need to make a profit (for more on this topic, read Freakonomics and the chapter on why most drug dealers live with their mothers). Given that most criminal enterprises make their money from drugs and counterfeit goods, having a citizenry less interested in these illegal products leads to less crime. Criminals quickly realize they're better off doing business in areas with lower rents and less educated residents, where they can sell more drugs, more counterfeit goods, steal more personal info (ID theft), and engage in more extortion. In short, criminals are not exempt from the laws of business. Like everyone else, they tend to go where they can make the most money.
Ultimately, the police and firefighters' unions do Santa Clara County residents a disservice when they claim to be a primary cause of our safety. After all, that's their main argument for overly generous benefits--pay us off, and you'll be safe. Don't pay us off, and, well...who knows? Combine that arrogance and ignorance with Tasers and enough political power to dump a diligent independent auditor (Barbara Attard), and you've got a ready-made recipe for oppression, or at least government-sanctioned extortion.
Investors must realize that public sector retirement benefits are a stock market issue, not just a political issue. Continuing generous government benefits will affect stock market gains in several ways. First, public sector retirement plans aren't necessarily linked to the stock market--CalPERS, for example, can invest in hard assets, like timber and land, as well as other investments unavailable to ordinary people. (CalPERS controls around 239 billion dollars, and its investment decisions move markets.) Thus, having a separate, two-track retirement system allows government to invest taxpayer money with little regard for the retirement prospects of ordinary citizens. Consequently, while non-government investors must rely on an ever-increasing stock market to retire, public sector unions and their employees are not so inhibited. Not being similarly situated, they may take actions to inhibit corporate profits and, in turn, stock market gains.
In fact, there is no question that allowing government's generous retirement benefits will drain taxpayers, providing them with less discretionary income. General Motors (GM) and Ford (F) are cases in point. Like the United States, they have deficits and are losing money. Just like government unions, the UAW lavished their employees with generous retiree benefits during flush times. As a result, until 2007, a Ford employee's average hourly wage was $71.00/hour--but with only $29/hr going to actual wages. Around forty percent (40%) of the total hourly wage went to retiree benefits and health insurance programs. (See WSJ, 1/22/09, A12.) Meanwhile, foreign automakers pay around $49/hr to their employees and still manage to create better products and have better service. Basically, GM and Ford were made uncompetitive by their own unions.
Think about that: if the private sector--with its self-interested, sophisticated shareholders--couldn't restrict union health and retirement benefits to a manageable level, what chance does California have? After all, California's legislature is majority Democrat, and the Democratic Party tends to listen to unions because of their generous donations. If GM and Ford are any indication, California's state budget could end up allocating 40% of our taxes to government retiree/health benefits and still not produce a balanced budget or better service. Like Ford and GM, if the status quo continues, California will be made uncompetitive by its own unions and more efficient competitors. This status quo story won't have a happy ending--Ford and GM recently considered bankruptcy but were bailed out by the White House at the last minute. Although some California cities have filed for bankruptcy because of overly generous public sector benefits, an entire state has never declared bankruptcy before. Who's going to bail out a state if it goes bankrupt? Will we see the day when California has to offer a 25% interest rate on its bonds to attract investors?
Finally, generous government benefits create major misalignments of interest. For example, having two separate retirement systems--one for Joe the Plumber and another for Sally the Cop--allows the government potentially dangerous leverage against ordinary citizens. The day may come when CalPERS says, "If you don't give us what we want, we'll pull all our money out of the stock market, invest it someplace else, and you can kiss your 401(k)s goodbye." Sound implausible? Until recently, so was the idea that our federal government would give $700 billion to financial institutions without strict oversight. Also, don't forget that just ten years ago, banks like Citigroup (C) looked ready to take over the world. Now, of course, Citigroup (C) sells for around $3/share and is looking for a bailout.
Citizens should develop an eye for non-violent oppression. An oppressive government doesn't need to lock you up or arrest you to control you--it just needs to take enough money from you to buy off politicians and pass laws favoring them over regular folks. Investors, both foreign and domestic, need to stop being calm about overly generous government benefits and take action.
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You make some fair points about employee compensation, but California's budget problems cannot be balanced just on the backs of American citizen employees.
California can't afford to subsidize illegals any longer.
25 years..my brother in law in NYC, cop can retire in 3 years with huge pension and medical benefits for life all the age of 46...
Disgusting and perverse.....
On Jan 27 12:33 PM allscrewedup wrote:
> Did you all know that the average cop retires at 55 and the average
> age of death is 57? And don't think that death number is going up
> as we become a healthier nation that understand how stress works.
> It's going down. It very recently used to be 59. My points are: A)
> Law enforcement is one of the most stressfull jobs in the word and
> the time (30 years in order to get full benefits) they serve deserves
> the 90% pension. 30 years is a LONG time to work as a cop. 30 years
> is a long time in ANY job. You don't get that 90% unless you put
> in 30 years. At age 50, you can retire at any time, but you won't
> get 90% unless you put in 30 years. B) Officers general die from
> stress-related health conditions before much money is paid out. As
> expensive as it is, CALPERS very, very rarely pays out benefits for
> a reitree for very long, because the retiree will statistically be
> dead long before 75 comes around. Let's not be one-side and play
> the blame game. There are a million and one reasons why CA is a mess.
> It's not because public safety workers have nice pensions. One last
> point - before you blame all cops and firefighters, remember that
> ALL government workers get at least 2.7% at 55 (which is only ever-so-slightly
> different than 3% at 50. Your tree city tree trimmers, your City
> Hall admin. assistants, the people who sweep the streets, they all
> get fabulous pensions. Would YOU work for city or state government
> without the added benefits? I wouldn't.
For example, you wrote, "Crooks and criminals from East Palo Alto, Oakland, Salinas, etc. all commit therir [sic] crimes in Santa Clara County. In fact, the majority of our criminals hail from those cities." Don't these cities also have police officers who risk their lives every day? Under your own example, Oakland, East Paly, and Salinas should be very safe because they have police officers who work hard and risk their lives every day. But you admit these cities are not as safe as San Jose. Why is that? I believe it's differences in education levels and the high cost of living, as I pointed out in the article. If we switched the Oakland PD with the SJPD, I don't think there would be much difference in crime rates post-switch.
Now, the NYPD is an interesting example. It did a great job cleaning up NYC, especially the areas around Times Square. Even so, it's hard to conclude that NYPD single-handedly caused the crime rate in NY to decline. Too many different people were involved in the turnaround effort, including local residents. Was the prior decline in crime a result of having a better economy, which usually leads to less crime? Was it having more officers? Better training? More resident involvement? A mayor willing to try new approaches? Better drug rehabilitation efforts? It's probably a combination of all these factors. My point is, having good police officers is definitely one relevant component in analyzing NY's crime cleanup. But it's only one component in a complex, ever-changing picture. The fact remains that in most major cities, if you switched police departments, you probably wouldn't see a major difference in crime rates.
I agree to some of your points, but again, I think you are misguided or uneducated in the areas of crime and make assumptions. While it is certainly and obviously true that there are findamental differences between places like E. Palo Alto and Atherton, you also have to look at the effects of public safety in light of the support from the City, funding for modern, effective police tools and training, etc. I had the ability to sit with some Oakland Homicide Detectives. I learned that they have a vast lack of tools and training as compared to cities with more money. They have inferior weaponry, inferioir numbers of officer and detectives, inferior training, etc, etc, etc, etc. When you ask WHY do they have less of everything when they clearly need more, the answer usually lies with lack of support from City Council/City Manager, lack of money coming in and lack of support from the community (i.e., crime is EVERYONE'S problem). If you put SJPD's force, with their money, their equipment, their training, etc, into Oakland, I gaurentee you the city's crime rate would look different in no time. Take New Orleans, for instance. After the hurricaine, almost all of New Orleans worst gang members (some of the worst in nation) moved to Houston. Houston was shocked and overwhlemed by the new levels of violence from these hardened gang members. But Houston PD, with it's tougher laws, tougher gang enhancements, better equipment and highly trained officers as compared with New Orleans, was VERY quickly able to squash the vilence and put most of these guys away under Teaxas' laws. The ones who didn't get convicted of crimes, fled back to New Orleans. In interviews with them, they admit they could not sustain their normal levels of crime in Houston. Too tough for them. The same would be true, on a smaller scale, if you switched, say, Santa Clara's PD with Salinas' PD. Another example - crooks repeatedly say they prefer to commit their crimes in San Mateo County, instead of Santa Clara County. SC Co's laws are tougher. Many, many criminals have told me after their arrest that it's common knowledge that Santa Clara Co is the worst county to commit crimes in. We sort of digress. The arguement is about retirement. What my general point is, is that you (and many others in this area) give far less credit to officers because you don't know any better. Thank God you don't have to know any better! It's nice that you live in a place where you can assume the cops are really only a small part of why your community is "safe". It's nice that you don't see just how much worse off you would be without them; to just what extent they really are the reason you lie in your bed safe at night. After 30 years of that kind of work, they deserve a little more than the average bear. So do fire fighters. And no - pension is not THE reason CA is going under. Take away the benefits, not many people will be willing to risk their lives, their sanity and their family's sanity in the way our public safety men and women do every single day. And again, what about all those 2.7 @ 55 people out there? There are many, many more of them then there are cops and firefighters. I don't hear anyone attacking their pensions, and that, I believe, is because of your personal biases against public safety people. You mask them with this seemingly educated opinion piece, but let's call it what it is - a personal attack, for some unknown reason, against public safety. If your goal was to simply work on Ca's fiscal crisis, you wouldn't be focussed so hard on this one, small group of people who benefit from CALPERS pensions plans. Whose next - teachers?
This particular article happened to focus on police officers and firefighters. I have other articles on other aspects of public spending, such as education, and yes, teacher's unions. (Education continues to suck up a massive amount of taxpayer funds, and there are questions about whether the increased funds actually improve student knowledge or abilities.)
I hope you will read my article carefully before making unsubstantiated comments, and again, I look forward to reading your comments. You have a forum here where you can provide facts to convince the public about your arguments. I hope you use it well.
And I am not sure about life expectancy stats, of 57. That seems very low. Even so, what about women who marry these men? Inheriting their husbands pension, they can easily live fat off the taxpayer for several more decades. Is that fair?
No one put a gun to your head to be a cop. You chose that line of work on your own free will. Suck it up big boy, stop whining to the people who have no choice but to pay you. While your at it, stop wasting valuable time rounding up people who had 2 glasses of wine with dinner, stop wasting time busting people for victimless crimes, stop wasting your time on useless DARE programs, THEN we'll listen to your sob stories.
I'm all for police doing worthwhile police work, and I'm all for police getting compensated at a fair price set by supply and demand. But we have an excess of police wasting tax dollars on victimless crimes, and we've been subject to outlandish salary demands by police unions. You don't see a lack of applications to join the force, but you sure do see the police unions selling their future brothers' benefits down the river for a bump in benefits today.