No One Saw It Coming?

 

It was easy, oh so much easier, for politicians years ago.  The general economy was growing. The future looked bright.   It was easy to encourage or at least acquiesce to the formation of public worker unions.  It seemed just as easy to grant public service workers, generous wages and contracts.  And these benefits were not wild and crazy, they were competitive with private industry.  And the best part, politicians received the admiration of potential voters as well as the peace of mind that they had acted fairly.  And indeed they had.

Fast forward and look at what is happening today.  Would anyone, even a skilled politician sign up with public sector unions and grant wages and benefits that they could no longer afford?  The world has changed and what was promised in the past can no longer be promised for the future.

Let’s be clear that on the issue of past promises, public sector employees and their Unions are not the problem.  Federal, State, and Local authorities made promises in good faith.  From an ethical and moral perspective, every effort should be made to not walk away from these promises.  It is, however, when we look forward that we see a collision between  public service workers, their unions, politicians (elected officials), and the tax paying public.  There is not enough money to keep things as they have been.

So what has changed?

So much.  The US is not growing like it used to.  In addition, the world has become so much more competitive.   The cost to produce goods and many services have dropped considerably in foreign countries.  This has driven down the wages of American workers through simple economics.

On the other side, all costs have sky rocketed.  Health care costs are out of control.  The health care delivery system seems to have morphed (as has the banking industry) into a sector primarily concerned with profit generation.

Pensions benefits are another rising cost.  Gone are the days of assured defined benefits.  The population is aging and investment opportunities are no longer returning the amounts they used to.  The consequence is that municipalities must increase their contributions in order to meet the defined benefit schedule.

And don’t forget, the tax paying non-public service citizens have not escaped.  With less relative income, the prospect of having to pay higher taxes raises red flags.

So let’s see.  Tax payers do not want to pay more in taxes.  Public service workers do not want any wage and benefit reductions, or want to contribute more to the cost of these benefits.  Benefit costs are rising and pension investments are not returning as much as they did once.  Hmmm.

So why, as in Philadelphia this week, are unions and their members demanding the Mayor and City Counsel raise taxes in order to meet their contract demands.  It seems the unions and members do not want to receive less in wages and benefits.   Are some people living in a parallel universe?

There are obvious reasons.  Unions are actually politicians and only know how to promise things, most of which they have no ability to deliver.  Public Service workers are regular people too and their cost of living is climbing.  So why shouldn’t they object to reductions?   Hmmm.

But these are not the main reasons.

The real issue, I think, is fairness.

Public Service workers can look around and see that life does not seem as dire for politicians.  They can see that Cities are spending money on all sorts of other projects and even if those projects seem worthwhile, there is a long line of collateral beneficiaries, such as law firms, contractors, and suppliers.  There are plenty of antidotes about how some portion of these government expenditures finds its way back to the politicians who voted for the work in the first place.  Hmmm.

The way out of this mess is not clear.

What is clear is that sacrifices have too be made by everyone.  We need to heed promises made in the past and move away from them carefully.  While the US is still hosting the best world economy, at the present time it can’t support the type of promises made in the past.

Capitalism’s strength is the silent hand that reallocates resources for output that is wanted.  There is realistic hope that the US future could remain strong

Elected officials, however, must pause and put aside their political ways if they are to make wise investments.  It is time for them to become “public servants”.  In the same vein, workers, especially public sector ones, must adapt to realities and not necessarily what was promised.

I am not holding my breath.  The Washington DC model is hardly an example to impart optimism.  None the less, the overall problem seems straight forward.    Patience, commonsense, and fairness should guide us.  It is time for us to tell “politicians” what the answer looks like.

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