Two Choices to Deal With 'Collective Theft'

By: Mike Shedlock | Thu, Dec 5, 2013
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Public union sap is once again oozing from the mouths of economic illiterates and union supporters who just don't understand reality.

Today's sap is brought to you courtesy of the Bloomberg article Pension Threats in Illinois, Detroit Rattle Government Workers. Here are a few sappy comments.


Spare me the Sap

I am sick of watching taxes go up year in and year out so that overpaid, underworked, pubic union workers can get taxpayer sponsored pensions and pay well beyond what private industry gets.

That sounds harsh. And it is. But it's also reality.


Reality

  1. Cities are broke
  2. Taxpayers are broke
  3. Public union workers don't care to understand the above two points

As I said before, I sympathize. I do. And I also offered a simple solution.

Before unions drive cities into bankruptcy and states into default on pension obligations, The unions ought to get together with city and state officials and work out a plan. And the plan I have in mind would protect the benefits of the majority of union workers.

From my April 23, 2012 post Public Unions Bankrupt Illinois: Unpaid Bills Top $9 Billion as Comptroller Reports "State Treading Water"; Mish's Eight-Point "Bold" Plan to Save Illinois


Mish's Eight-Point "Bold" Plan to Save Illinois

  1. Immediately kill public defined benefit plans going forward
  2. End collective bargaining of public unions
  3. Scrap prevailing wage laws
  4. Tax at an 85% rate all defined benefits above $80,000
  5. Claw back all pension-spiking
  6. Lower corporate tax rates to previous levels to attract businesses.
  7. Set long-term pension plan assumptions at 5% or the 30-year Treasury rate, whichever is lower (currently 3%).
  8. Default, if necessary on pension benefits above a certain level, whatever it takes to make the state solvent within 10 years, using conservative pension plan assumptions.

The $80,000 cap is a suggested starting point for discussion. It may be higher or lower based on point number eight.

Now that's a bold plan, and a badly needed one at that. My proposal is universal. Unions everywhere should seize the opportunity.

But they don't. Instead we have to suffer listening to the sap from every union corner and their supporters.


Collective Bargaining vs. Collective Theft

William Jones, a self-defined labor historian at the University of Wisconsin-Madison wonders "how will municipalities recruit teachers, firefighters and trash collectors if the pensions aren't secure".

Is he really serious?

I suggest Jones is delusional. Either that, or Jones is a historian who does not understand history - recent history.

If there was open bidding right now instead of collective theft (commonly called collective bargaining), people would line up for miles for public service jobs at half the pay even if there were no benefits.

Once again, I am indeed sympathetic to those at the bottom of the pole. But please spare me the sap that higher taxes are "for the kids". They aren't.

Higher taxes are 100% for public union workers who in general are overpaid and under-worked as compared to the private sector.

If you are a pubic union worker, please don't write and tell me about how deserving you are, etc., etc., etc., because here is my answer in advance.


Time to Face Reality

Unions can face reality or not.

If unions don't face reality, they can and should expect the "Detroit Solution" as detailed in Lesson for Union Dinosaurs: Detroit Bankruptcy Judge Rules Public Pensions Haircuts OK; Unions Whine City Got "Absolutely Everything"

I propose unions take a vote and work out genuine pension reforms that will protect those with the smallest pensions.

I even offered a starting point for negotiation in my November 15, 2013 post Mish Template for Fair Public Union Pension Settlement


Negotiated Settlements

The fairest possible thing to do is sit down at the table and negotiate a settlement.

I suggest, those with the least pension benefits get the smallest cuts, and those with the most benefits get the biggest cuts.

Indeed, if unions were smart, the majority could come to negotiated terms with a starting point along the lines of

Such a negotiated settlement would be the fairest thing for everyone, pensioners and taxpayers alike.

However, my starting point may not be possible. When pension plans are exceptionally low-funded, even those on the bottom rung may need to take some hit.

The next fairest thing is bankruptcy. And although bankruptcy is fair to the taxpayer (assuming no tax hikes), bankruptcy is not likely to be very fair to those on the bottom rung.


Two Choices!

At this point, unions have two choices.

  1. Negotiation ahead of bankruptcy
  2. Negotiation in bankruptcy court


Bitching to Mish or About Mish, Not an Option

Notice that whining about history, praying for massive tax hikes, complaining to state legislatures, and bitching to Mish are not viable options.

I suggest unions should pick door number one for the simple reason door number two is probable pension cuts across the board. In contrast door number one allows weighting to protect those at the bottom end of the totem pole.

Unfortunately, union membership is highly unlikely to ever see the light because union management and those on the upper end of things will do better in court, and those folks will fight all the way to a "Detroit Solution".

 


 

Mike Shedlock

Author: Mike Shedlock

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

Mike Shedlock

Michael "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Visit http://www.sitkapacific.com/ to learn more about wealth management for investors seeking strong performance with low volatility.

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