Unions, arguments for and against them

Against

Fixing Pensions Requires Cutting Existing Benefits

Steve Greenhut, who has been covering the California pension crisis for years now, makes this point concisely in a recent column:

The well-respected and non-partisan Little Hoover Commission drew some conclusions that even many pension reformers have been reluctant to make – namely, that pensions must be reduced for current employees. The state's unfunded liabilities, or pension debt, is estimated as high as a half-trillion dollars. That is the amount taxpayers will owe to make good on pensions for current retirees and employees. Most of the debate has centered on reducing formulas for new hires, but as Little Hoover explained, that won't put a dent in the problem. 

"The state and local governments need the authority to restructure future, unearned retirement benefits for their employees," according to the report. "The Legislature should pass legislation giving this explicit authority to state and local government agencies. While this legislation may entail the courts having to revisit prior court decisions, failure to seek this authority will prevent the Legislature from having the tools it needs to address the magnitude of the pension shortfall facing state and local governments."

Union Contracts, Not Pay, Are States’ Problem

Unfortunately, though, politicians do not have the same incentives to be tough negotiators on issues besides money. Why not? Because most government agencies are monopolies. They face no competition. Whether they perform beautifully or miserably, they cannot be run out of business. They also can’t be run out of business by pushing off costs until a future day. So they delay too many costs and don’t perform their jobs well enough.

The delaying of costs is obvious. Both politicians and union leaders have decided that generous future benefits offer the easiest way to hold down spending and still satisfy workers. The result is government pay that’s skewed too heavily toward pensions and health insurance. 

To be clear, I’m making an argument that’s different from “Government workers are overpaid.” I’m saying that they are paid in the wrong ways — in ways that make life easier on union leaders and elected officials, at least initially, but that eventually hurt both workers and taxpayers. 

The best example is health insurance. Health plans for union workers and retirees are much more likely to require little or no co-payment, which leads to lots of medical treatments that don’t make people any healthier, and to huge costs. Ultimately, some of these plans will probably prove so expensive as to be unsustainable. Workers would have been better off accepting a less generous benefit package and slightly higher salaries.

How Big Is the Pension Funding Gap?

These governments generally assume that pension funds will earn 8 percent a year. That’s roughly the historical return of the stock market. Using that assumption, the Center for Retirement Research at Boston College estimates a current funding gap of $700 billion for all state and local governments. 

There are two reasons to question the 8 percent number, however. My own instinct is that one of the reasons is more valid than the other. 

The first — the one for which I have not yet heard a persuasive argument — is that the stock market does not return 8 percent a year over every given period. For this reason, companies (and individuals) cannot assume an 8 percent return when valuing their own pensions. If they did, and a lot of employees ended up retiring just after a bear market, the company would find itself without enough money in its pension account to pay its retirees. If any individuals assumed an 8 percent return when building their 401(k), they could be in really bad shape if they wanted to retire after a bear market.  

... 

If state and local governments instead assumed a future return of 7 percent, their funding gap would nearly double, to $1.3 trillion, according to Alicia Munnell and her colleagues at the Boston College retirement center. If they assumed a 6 percent return, the funding gap grows to $1.8 trillion.

For

Government in the cross hairs: Who are these evil workers who throw away our tax dollars so thoughtlessly? They're our neighbors, relatives and friends -- they are police officers, firefighters and teachers.

So who is this evil occupier who extorts our hard-earned money and throws it away so thoughtlessly? The cop? The firefighter? The guy who keeps the streetlights on? The nurses in the public hospitals? The teachers in the public schools? The people who maintain the parks, inspect the food and run the sewage treatment plants? These people are the problem? These people are the beast? 

In calmer moments, we know that isn't true. These people are our neighbors, our relatives and our friends. The guy down the street is a doctor in a public hospital. Your brother is married to a teacher. Your friend from college is dating a cop. If they lose their homes, our neighborhoods suffer. If they lose their benefits, our businesses suffer. If they lose their jobs, we suffer. They are us. You can't just drill holes in their end of the boat and expect to stay afloat. 

Look, I've been arbitrating labor cases for 20 years. I know something about incompetence. I also know something about waste, fraud, nepotism, featherbedding, laziness, corruption and stupidity. And what I know is you don't have to go to the public sector to find them. They are evident in malignant abundance in private enterprise as well. For every Department of Motor Vehicles, there is an equally infuriating private phone company. For every bloated public bureaucracy, there is an equally sclerotic corporate structure.

More debate: How bad is the state pension funding mess?

Irony: Wisconsin State Senate Republicans Took Hundreds Of Thousands In Government Farm Subsidies