It would be unfair to say that this is the first domino falling because that implies some causality between one and the next. A better way to describe it would be to say that it's the first popcorn kernel that's popping. Every public pension in the country is cooking in the same pot and in no time, they'll be busting out all over the place:
From the NYTimes:
This struggling small city on the outskirts of Mobile was warned for years that if it did nothing, its pension fund would run out of money by 2009. Right on schedule, its fund ran dry.
Then Prichard did something that pension experts say they have never seen before: it stopped sending monthly pension checks to its 150 retired workers, breaking a state law requiring it to pay its promised retirement benefits in full.
This will be happening more and more over the next few years. Eventually there will be municipalities that are still too small for a bailout but are large enough to create civil unrest when the stop sending out checks. That's when the fireworks will really start. Take the city of San Diego for instance:
“Prichard is the future,” said Michael Aguirre, the former San Diego city attorney, who has called for San Diego to declare bankruptcy and restructure its own outsize pension obligations. “We’re all on the same conveyor belt. Prichard is just a little further down the road.”
For years now my buddy John Derbyshire has been telling people to get a government job, and I've been telling him that it was a mistake. That for all those positions promised in an utter lack of accountability, high pay, great benefits, and irrevocable job security, it was all going to change. This is the beginning of that change.
4 comments:
Tom, you might have seen this already but I only came across it recently.
http://www.weeklystandard.com/articles/give-states-way-go-bankrupt_518378.html
I've long thought making the public employees (and retired public employees) take the cramdown was highly preferable to putting the whole thing on the taxpayers of more responsible states (the most fair solution would be a tax on voting for Democrats, haha), but I think you know more about it than I do so I'm wondering what your thoughts are on the subject.
Yeah I've seen it. It's no doubt - it's a real quandary.
The thing is, lawyers seem to think that ‘the law’ will define how this plays out. More often than not they seem to think that because the states have no legal means to revoke those payments, those payments will absolutely continue and that the taxpayers will have to take it on the chin. “The Derb” has made that point to me too in our discussions of the issue – although not with the same metaphysical certainty that lawyers seem to feel.
I understand why they feel that way I think, but I strongly disagree. In my mind, when ‘the law’ runs up against physical reality, ‘the law’ is going to change. When it’s in their interest (which is sometime before the taxpayers burn the statehouse to the ground with them all inside it) the legislators will simply sit down and figure out some way to change the law to divest the state and the taxpayers of accountability to the pensioners. There is really no other choice.
The numbers here are far too overwhelming. They simply won’t be able to get that much in taxes out of the American worker. The entire economy will go ‘off the books’ first, and taxation will become selective and punitive like it is in Latin America where everyone owes, but no one pays unless they’re indicted for tax fraud and sitting in front of a judge.
Taxes will go sky high of course – and the politically connected or too big to fail will all get bailouts. That will be paid for with printed money so inflation will go up too. But the pensioners will be taking MASSIVE haircuts before any of that happens. I’d bet anything on it.
So who cares about what the law says? That’s only what it says today.
I think you've nailed it and it's a very scary scenario indeed. As each kernel pops, more and more lives will be upset, if not destroyed, both private and public people. Cities and towns becoming wastelands and not being given attention by the media. The best solution appears to be at the local level but it is surely a third rail for those who have that power so it is unlikely the kernels will not pop. Federal power is sure to increase as misery spreads.
The interesting thing about this story is that most of the retirees are white, and the town council is black. If that were reversed, the cries of Raaaaacism would fill the air.
It is significant to see 60 Minutes do a story on this. They style themselves as ground-breaking, but usually are just a bit ahead of the Current Wisdom.
Anybody who has read anything in the past five years has known that government pensions were a time bomb.
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