The Vanishing Middle Class

Usually it takes a national government to spend itself into a debt measured in the trillions. Yet it comes as little surprise that the same profligacy that pervades the corridors of federal power infects this country's 87,000 state, county and municipal governments and school districts. By 2013, the amount of retirement money promised to employees of these public entities will exceed cash on hand by more than a trillion dollars. - Public-sector Unions Bankrupting America, The Washington Times, April 23, 2010

U.S. Middle Class Vanishing

August 21, 2010

PressTV - The American middle class is on the verge of disappearing, while the United States, itself, is in danger of becoming a third world country, a leading German newspaper says.

According to an article appearing in the German newspaper, Der Spiegel, the negative consequences of the global financial crisis include a widened social class rift and the elimination of the middle class in the US.

The article states that many Americans are beginning to realize that the American Dream has now become a nightmare as people are having to face the bitter reality of a shrinking job market along with decades of stagnating wages and dramatic increases in inequality.

More than a year after the official end of the recession, the overall unemployment rate remains consistently above 9.5 percent. But this is just the official figure. When adjusted to include the people who have already given up looking for work — or are barely surviving on the few hundred dollars they earn with a part-time job and having to use their savings to supplement their income — the real unemployment figure jumps to more than 17 percent.

In its current annual report, the US Department of Agriculture notes that “food insecurity” is on the rise, and that 50 million Americans were unable to buy enough food to remain healthy at some point last year. One out of every eight American adults and one out of four children now survive on government food stamps. These are unbelievable numbers for the world’s richest nation

Last week, leading online columnist Arianna Huffington issued the almost apocalyptic warning that “America is in danger of becoming a Third World country.”

In a recent cover story titled “So Long, Middle Class,” the New York Post presented its readers with “25 statistics that prove that the middle class is being systematically wiped out of existence in America.”

Why Is Congress Intent on Helping Unions Bankrupt Our Country?

March 19, 2008

Heritage Foundation - Stephen Moore has a must read article in the Weekly Standard this week detailing not only how public sector unions have bankrupted the city of Vallejo, California, but also demonstrating that local governments nation wide are also at risk, noting that 80% of Vallejo’s budget is eaten up by labor and pension costs, Moore warns:

“Welcome to the next great financial bubble in America — a fiscal time bomb that could cause your local and state tax bills to double or even triple in years to come.”

Other details in the piece include:

• In the Los Angeles County school system, health, pension, and workers compensation liabilities are so mountainous that an estimated one of every three dollars budgeted for the L.A. schools goes to teacher retirement costs.


• The ten largest Chicago-area cities face a combined $18.7 billion in unfunded pension liabilities, according to a new report by the Chicago Civic Federation.


• Philadelphia was forced to issue a $4.5 billion bond in February to cover unfunded pension liabilities for 33,000 retirees.


• The total cost to states for paying for all teacher retirement health and pension obligations is now estimated at $3 trillion, and growing each year.

Turning back to California, Moore quotes a former California budget director on public sector unions are able to get such sweetheart deals:

“The public employee unions are far and away the most powerful special interest in the state. They run the state and virtually no politician will stand up to them.”

Public sector unions have become the heart and soul of the labor movement. While overall union membership in America has fallen from 21.4% to 12.5%, public section union membership has exploded to 34% in the public sector. In a 2005 Heritage Foundation lecture, Manhattan Institute fellow Steven Malanga explained why this explosive growth is so dangerous:

The Christian Right is an enormous political force nationally, we know. But what’s happening in American cities and many states is something far different: the rise of a political party that’s neither right nor left, conserva­tive or liberal in the traditional sense, but rather a party of those who benefit from an ever-expanding government. They’ve been gathering political pow­er for 50 years now, quietly at first; and they have shaped and influenced municipal and state budgets in fundamental ways that impose steep costs on taxpayers that are not easily unraveled.

Since 2007 Congress has been eager to further the growth of public sector union power at the local level as much as it can. The House passed the “Public Safety Employer-Employee Cooperation Act” which requires all state and local governments to recognize public sector unions as the exclusive representative of all public safety professionals. Heritage analyst James Sherk explains why this is a disaster for local governments:

A union’s monopoly over bargaining makes it a cartel that prevents employers from hiring workers who would do the same job for less than union wages. That benefits union members at the expense of their potential competitors. It also means that state and local governments must pay more to have the same work done. Without providing financing for the mandate, the act will force these governments to either cut services or raise taxes.

Public Pensions Bankrupting Los Angeles

May 5, 2010

ParaPundit.com - Richard Riordan, former mayor of Los Angeles, and Alexander Rubalcava, president of an investment advisory firm write in a Wall Street Journal Op-Ed that the city of Los Angeles is headed for bankruptcy. Read the whole thing.

Los Angeles is facing a terminal fiscal crisis: Between now and 2014 the city will likely declare bankruptcy. Yet Mayor Antonio Villaraigosa and the City Council have been either unable or unwilling to face this fact.

According to the city's own forecasts, in the next four years annual pension and post-retirement health-care costs will increase by about $2.5 billion if no action is taken by the city government. Even if Mr. Villaraigosa were to enact drastic pension reform today—which he shows no signs of doing—the city would only save a few hundred million per year.

Los Angeles shows us America's future. The rest of the country will catch up eventually.

The city assumes a ridiculous 8% annual return from its pension funds. The current mayor and city council are tools of the public worker unions. The city is going to keep squandering the taxpayers' money on overpaying public workers. That is part of a much bigger pattern of more rapid compensation increases in the government sector than in the private economy. That pattern is headed for a collision with a solvency crisis for many cities and states.

See Inevitable Bankruptcy Seen For Los Angeles and US States In Deeper Financial Trouble. I expect the sovereign debt problem in the US to hit in full force during the next recession. I expect the next recession to be caused by dwindling reserves of oil. The Deepwater Horizon accident in the Gulf of Mexico is a symptom of how desperately we must now pursue oil under extreme conditions in order to keep our economy going.

The Bankrupting of America

We have a ruinous collaboration of elected officials and unionized public workers

May 21, 2010

Wall Street Journal - The American public feels it is drowning in red ink. It is dismayed and even outraged at the burgeoning national deficits, unbalanced state and local budgets, and accounting that often masks the extent of indebtedness. There is a mounting sense that taxpayers are being taken for an expensive ride by public-sector unions. The extraordinary benefits the unions have secured for their members are going to be harder and harder to pay.

The political backlash has energized the tea party activists, put incumbents at risk in both parties, and already elected fiscal conservatives such as Republican Gov. Chris Christie of New Jersey. Over the next fiscal year, the states are looking at deficits approaching hundreds of billions of dollars. The Center on Budget and Policy Priorities, a liberal think tank, estimates that this coming year alone states will face an aggregate shortfall of $180 billion. In some states the budget gap is more than 30%.

How did we get into such a mess? States have always had to cope with volatility in the size and composition of their populations. Now we have shrinking tax bases caused by recession and extra costs imposed on states to pay for Medicaid in the federal health-care program. The straw (well, more like an iron beam) that breaks the camel's back is the unfunded portions of state pension plans, health care and other retirement benefits promised to public-sector employees. And federal government assistance to states is falling — down by roughly half in the next fiscal year beginning Oct. 1.

It is galling for private-sector workers to see so many public-sector workers thriving because of the power their unions exercise. Take California. Investigative journalist Steve Malanga points out in the City Journal that California's schoolteachers are the nation's highest paid; its prison guards can make six-figure salaries; many state workers retire at 55 with pensions that are higher than the base pay they got most of their working lives.

All this when California endures an unemployment rate steeper than the nation's. It will get worse. There's an exodus of firms that want to escape California's high taxes, stifling regulations, and recurring budget crises. When Cisco CEO John Chambers says he will not build any more facilities in California you know the state is in trouble.

The business community and a growing portion of the public now understand the dynamics that discriminate against the private sector. Public unions organize voting campaigns for politicians who, on election, repay their benefactors by approving salaries and benefits for the public sector, irrespective of whether they are sustainable.

And what is happening in California is happening in slower motion in the rest of the country.

It's no doubt one of the reasons the Pew Research Center this year reported that support for labor unions generally has plummeted "amid growing public skepticism about unions' power and purpose."

In New York, public-service employees have received gold-plated perks for much of the 20th century, especially generous health-insurance benefits. Indeed, where once salaries were lower in the public sector, the salary gaps in the public and private sectors have disappeared or even reversed.

A Citizens Budget Commission report in 2005 showed that for most job categories in the greater New York City region, public-sector workers received higher hourly wages than private-sector workers. And according to a 2009 survey by the same group, this doesn't even count the money that New York City pays in full premiums for comprehensive health-insurance policies for workers and their families. Only 8% of workers in private firms enjoy that subsidy. In virtually all cases, the city also pays the full health-care premium costs for retirees and their spouses. And city pensions are "defined benefit" plans, which are more expensive since they guarantee specific benefits on retirement.

By contrast, private-sector workers in the survey were mostly in "defined contribution" plans, which means that, unlike their cushioned brethren in the public sector, they do not have a predetermined benefit at retirement. If New York City were to require its current workers to pay contributions toward health insurance equal to the amounts paid by the employees of local private-sector firms, the taxpayer savings would be $628 million a year. In New Jersey, Gov. Christie says government employee health benefits are 41% more expensive than those of the average Fortune 500 company.

What we suffer is a ruinously expensive collaboration between elected officials and unionized state and local workers, purchased with taxpayer money. "Scratch my back and I'll scratch yours."

No wonder the Service Employees International Union has become the nation's fastest-growing union: It represents government and health-care workers. Half of its 700,000 California members are government employees. More and more, it wins not on the picket line but at the negotiating table, where it backs up traditional strong-arming with political power. It spends vast amounts of money on initiatives that keep the government growing and the gravy flowing.

The state's teachers unions operate in a similar fashion — with the result that California's various municipalities, especially Los Angeles, face budget shortfalls in the hundreds of millions of dollars. California can no longer rely on a strong economy to support this munificence. Its unemployment rate of 12.5% runs several points higher than the national rate, and its high-tech companies are choosing to expand elsewhere. Why stay in a state with such higher taxes and a cumbersome regulatory environment?

California is a horrible warning of how dreams can turn to dust. In most states, politicians face a contracting local economy and shortfalls in tax receipts. Naturally, they look to cut expenses but run into obstruction from politically powerful unions that represent state and local government employees, teachers and health-care workers who have themselves caused pension and health-care insurance costs to soar.

It is not an accident that in framing the national stimulus program in 2009, Congress directed a stunning $275 billion of the $787 billion as grants to the states to support public-service employees in health care, education, etc.

The lopsided subsidies for pension and health costs are a large part of the fiscal crises at the state and local levels. The subsequent squeeze on education and infrastructure investment is undermining the very programs that have made it possible for our economy to grow.

Between New York and California, the projected deficits run about $40 billion — and that doesn't account for projected billions of dollars in the operating deficits in the states' mass transit systems or the multibillion-dollar unfunded liability in many of the state pension plans. New York would be badly hit because it is on the verge of being deprived of tax revenues by Washington's increased regulations on the financial industry, especially the hugely profitable, multitrillion-dollar market in derivatives — an industry that is critical to the economy of New York state and the country.

City government was developed to serve its citizens. Today the citizenry is working in large part to serve the government. It is always hard to shrink government spending. It is particularly difficult when public-sector unions have such a unique lever of pressure.

We have to escape this cycle or it will crush us. One way is to take labor negotiations out of the hands of vulnerable legislators and assign them to independent commissions. They would have a better shot at achieving a fair balance between appropriate salary increases and the revenues and services of local municipalities. The electorate won't swallow any more red ink.