To date, the debate over public pensions has focused largely on accounting methods — how best to estimate the level of current funding needed to pay pension funds’ future obligations. That issue is crucial, but in the context of public policy, it needs to be understood in light of the political incentives that affect pensions.
It was good to see that topic discussed today at a panel debate on the underfunding of public pensions. The event, co-sponsored by the Manhattan Institute and the recently founded think tank E21 and held at the National Press Club, centered on the question of whether public pensions are in “crisis.” Andrew Biggs of the American Enterprise Institute and Josh Barro of the Manhattan Institute argued for the crisis scenario. Arguing the opposite case were Dean Baker of the Center for Economic and Policy Research and Elizabeth McNichol of the Center for Budget and Policy Priorities.
Interestingly, no one on the panel argued that public employee pensions face no problems at all. Baker and McNichol simply argued that the problems have been overstated and are relatively easily manageable. Yet this seemingly modest concession is significant.
During a discussion over compensation, everyone on the panel seemed to agree that back-loading of benefits — making them come due far in the future — is a problem. That creates a perverse incentive to shift costs onto future taxpayers, as Barro rightly noted. Future taxpayers simply don’t have political clout today. Thus, the same public choice diffuse costs/concentrated benefits dynamic — which incentivizes politicians to transfer wealth from those who complain the least to those rent-seekers that lobbies the hardest — appears to create a ratchet effect toward ever increasing present-day benefits and unfunded future liabilities, when applied across time.
That seems like an intractable problem, but there is something that can be done: curb the political power of public sector unions by ending or seriously restricting government employee unions’ collective bargaining privileges. Government employee unions are the principal lobby for increasingly generous public employee compensation, and their ability to negotiate directly with government officials over the expenditure of government resources is a perk that no private party enjoys.
With Donald Trump ending his quixotic-yet-simultaneously-cynical candidacy for president, this might not have the punch it could have had on his campaign, but I still think it is important to highlight his odious history as a rent-seeking developer. And particularly because his behavior in this case was so terrible. Way back in the early 1990s, Vera Coking was an elderly widow living right off the Atlantic City, New Jersey, boardwalk. Her great location caught the eye of real estate mogul Donald Trump, who conspired with the local development agency to seize Ms. Coking’s home through eminent domain. What was the proposed “public use?” The Donald wanted to construct a limo parking lot for his casino customers.
The Institute for Justice, the nation’s only libertarian public-interest law firm, represented Ms. Coking and won. Here’s a video from IJ on the case, and why citizens must be ever-vigilant about the Big Business/Big Government takings conspiracy:
Legislators in Louisiana are proposing an ingenious bill entitled, “Public Employee Bargaining Transparency Act” (PEBTA). If enacted, Louisiana would become only the seventh state to have their government truly negotiate these collective bargaining agreements in view of the public. Louisiana would join Florida, Kansas, Minnesota, Montana, Tennessee, and Texas. The act specifically calls on the state to “provide for legislative intent; to provide with respect to public access to collective bargaining sessions and to documents; to provide definitions; and to provide for related matters.” Basically, it allows the taxpayers in the state to observe the actions of elected officials in matters of how their tax dollars are spent.
The Public Employee Bargaining Transparency Act should be added as an amendment to series of legislative proposals to limit collective bargaining rights. The addition enhances freedom and democracy for citizens. No longer could elected or unelected officials freely dole out favorably contracts to their cronies without repercussions. Collective bargaining limitations only achieve so much. They do not stop officials from negotiating fiscally irresponsible contracts with public workers.
Even without bargaining rights in the public sector, government officials are still able to give Cadillac benefits, inflated wages, and favorable workplace conditions that all private-sector employees envy. In only the few states that have enacted or proposed limiting collective bargaining legislation do the states prohibit negotiating contracts that put the local, municipal, or state government in the red.
Opening public bargaining negotiations to taxpayers would avoid draconian measures to ensure fiscal responsibility and democracy. For example, in the state of Michigan’s implementation of Emergency Financial Managers (EFM), EFM’s are unelected officials who take financial control of towns or cities. As well, they can strip local officials of their powers temporarily. States like Michigan would not have seen this legislation pass if the need for fiscal restraint was not so readily apparent. Citizens would unseat officials who wasted their money and put their municipality in dire straits, eliminating the need for financial managers.
In North Carolina, it is illegal to cook a burger to an internal temperature under 155 degrees. Rare and medium rare burgers are banned from the state’s restaurants. As regulator Larry Michael told AOL News, “According to North Carolina rules, a hamburger is cooked properly when it reaches an internal temperature of 155 degrees Fahrenheit[.] There are no exceptions.”
Actually, there are. People cooking at home can still legally cook there burgers to whatever temperature they like. And a kind of rare burger black market has emerged. Regular customers who have built up a degree of trust with the staff can order a rare burger. But they’ve taken to speaking in code. The server will say that they’ll make the burger as pink as they can, just in case food inspectors are within earshot.
The reason they have to so circumspect is because openly giving customers what they want could cost the owners their restaurant license. Maybe it would be better to let adults set their own risk preferences. I personally prefer my burgers cooked medium. But if someone else wants to order a rare burger and is willing to bear the small risk of catching E. coli, let them. The only loser is the regulator who would have to find a more productive line of work.
The Economist has this to say about the NLRB’s pursuit of Boeing:
The NLRB is an autonomous body, but its board members are appointed by the president. Under a Democratic president, American businesses expect a more pro-union line, but the agency’s recent militancy is shocking, reminiscent of “loony-left” posturing in Britain in the 1970s. Not only does the agency in effect claim the power to tell firms where they may build factories. It is also suing two states (Arizona and South Dakota) where voters have decided that workers should be guaranteed a secret-ballot election before their workplace is unionised. Mr Obama has so far said nothing about any of these cases. The president claims he understands business. Condemning the NLRB would be a good way to prove it.
“Loony Left” is exactly the right characterization. Despite their loss of members to the extent that only 7 percent of American private-sector workers now belong to a union, the unions and their allies in the administration are acting as if they have all the cards in labor disputes. To an extent, they do, because the nation’s labor laws are stuck in the 1930s, when unions had far more members. However, in pushing so hard when public opinion — clearly demonstrated by the lack of union membership outside government — is so thoroughly against them, they risk killing the goose that laid their golden eggs. That was exactly the sort of overreach that destroyed union power in the UK, as I documented at the Washington Examiner. If the unions push back as much as they seem likely to do this summer — with the NLRB disputes, a campaign against Toyota and more — then we could be in for the Summer of Discontent that finally paves the way for Congress to sweep away the 1930s rules, and there won’t be anything the unions can do to stop it.
Alabama: Small vineyards in Alabama support a bill that would allow them to self-distribute up to 24,000 barrels a year, allowing them to compete with larger wineries. Under the current law, wineries may only self-distribute their product within 200 feet of the vineyard.
Colorado: As I blogged about last week, on Friday, May 13, Colorado’s Gov. Hickenlooper overturned the alcohol rules that banned some ultra-light beers from restaurants and taverns. While most observers unfamiliar with the many years-long beer battle occurring in the state might think this is a good thing. Unfortunately, those in the state wishing to do away with the low-alcohol beer that grocery stores are forced to sell in lieu of full-strength beer were hoping to use the bar-ban on low alcohol as a bargaining chip to get full-strength beer in grocery and convenience stores. Hickenlooper, a former microbrewer and friend of craft breweries, listened to the constituents who mistakenly believe that full-strength beer in grocery stores would harm craft beer in the state.
Illinois: Craft brewers in Illinois are one step closer to being able to bypass wholesaler/distributors. A state house committee unanimously approved a bill that would allow craft brewers, which it defines as those producing less than 465,000 gallons of beer annually, to distribute up to 7,500 barrels per year themselves without using a wholesaler. Under the proposal, craft brewers are defined as those who manufacture less than 465,000 gallons of beer a year.
Not all members of the craft beer movement in Illinois are happy with the proposal. A spokesman for the Craft Brewers Guild says it doesn’t go far enough for brew pubs that, under the proposal, would need to have or build a separate brewing facility in order to get a permit to self-distribute. They say this is a wasteful hurdle to force brewpubs to overcome.
Another bill to raise the distilled spirits cap from 5,000 to 15,000 was also passed in committee and now both bills will go to before the legislature for a full House vote.
Sony BMG Greece the latest hacked Sony site: “In what seems to be a neverending nightmare it appears that the website of Sony BMG in Greece has been hacked and information dumped.”
China’s ‘great firewall’ creator pelted with shoes: “Chinese police are seeking a man who said he threw eggs and shoes at the architect of China’s “great firewall”, the world’s most sophisticated and extensive online censorship system.”
Joplin tornado death toll soars to 89: “A massive tornado that tore through the southwest Missouri city of Joplin killed at least 89 people, but authorities warned that the death toll could climb Monday as search and rescuers continued their work at sunrise.”
The economy may be slowly recovering, but that’s in spite of — not because of — the recent orgy of federal spending. Two economics professors, Tim Conley and Bill Dupor, concluded this month that the $800 billion stimulus package wiped out a million private-sector jobs, destroying a net 550,000 jobs. (The American Recovery and Reinvestment Act, also known as the stimulus package, created 450,000 government jobs, partly offsetting the million private-sector jobs it wiped out.) “The majority of destroyed/forestalled jobs were in growth industries,” they say.
The stimulus package was earlier criticized by many leading economics professors, like Harvard’s Jeffrey Miron, Robert Barro, and Martin Feldstein. Professor Barro called it “the worst bill that has been put forward since the 1930s.” Nobel laureates Gary Becker and Vernon Smith have also criticized it. 200 economists signed a statement publicly opposing the stimulus package.
While pushing the stimulus package through Congress, Obama cited claims by the Congressional Budget Office (CBO) that it would save jobs in the short run, while ignoring the CBO’s own conclusion that the stimulus package will actually shrink the economy over the long run, by increasing the national debt and thus crowding out private investment. Contrary to the CBO’s findings, Obama claimed that “irreversible decline” would occur if the stimulus was not enacted into law.
Obama has run up the largest budget deficits in history, running monthly deficits that are bigger than Bush’s entire annual deficit for 2007, after the economy started to go south.
Analysts who once downplayed the government’s role in causing the financial crisis now have changed their tune, concluding that government regulations that promoted risky loans played a major role in spawning the crisis. In a May 3 note to clients, Michael Cembalest, the Chief Investment Officer of JP Morgan Private Bank, revised his 2009 account of what caused the financial crisis. Under the heading, “Retractions – the primary catalyst for the US housing crisis,” he wrote:
“US Agencies played a larger role in the housing crisis than we first reported. In January 2009, I wrote that the housing crisis was mostly a consequence of the private sector… However, over the last 2 years, analysts have dissected the housing crisis in greater detail. What emerges from new research is something quite different: government agencies now look to have guaranteed, originated or underwritten 60% of all “non-traditional” mortgages, which totaled $4.6 trillion in June 2008. What’s more, this research asserts that housing policies instituted in the early 1990s were explicitly designed to require US Agencies to make much riskier loans, with the ultimate goal of pushing private sector banks to adopt the same standards.” (emphasis in original)
Clinton-era affordable housing mandates were also a key reason for the risky lending. The Washington Examinercited a recent study by Peter Wallison, who had prophetically warned about risky financial practices for years, finding that two-thirds of all bad mortgages were either “bought by government agencies or required to be bought by private companies under government pressure.”
CEI Weekly is a compilation of articles and blog posts from CEI’s fellows and associates sent out via e-mail every Friday. Also included in the weekly newsletter is a brief description of CEI’s weekly podcast and a feature on a major CEI breakthrough made during the week. To sign up for CEI Weekly, go to http://cei.org/newsletters. CEI Weekly May 20, 2011 >>Featured Story
On Saturday’s Washington Journal, Myron Ebell and Bill Snape had a combative back-and-forth about the costs and benefits of the Endangered Species Act. Mr. Snape argued that more species should be added to the endangered list; while Myron countered that the Act has largely become a legal tool to block projects that are unpopular with certain environmental groups. The two experts also took several questions from callers. Watch the full segment here.
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