Thursday, March 3, 2011

Debt Control

We are living in a world of turmoil. In the Middle East there is a wave of popular uprising against oppressive governments. Although it has overthrown the in place regime in several countries  It is still ongoing in others.  Where  the popular uprising  resulted in the dictator abandoning power the key factor was this the unwillingness of the Army to take aggressive action against the demonstrators.
Libya is exception. Although of dictators in other governments have  when  the Generals and the Army has withdrawn its support, Qadhafi has used mercenaries to support his rule.  In Libya there is no reluctance to shoot unarmed civilians.

We are well aware how this unrest in the Middle East is aggravating our economic crises . There are marked increase s in product costs especially petroleum products. This will of course have impact upon all government budgets. All governments are searching for ways continued to operate and are not finding any ideal solutions.
Nearly 50% or more of any government units expenditures goes towards wages and especially to purchase; pension plan funding and healthcare . This is the area which is under attack. Savings can be attained by decreasing the work force, but at a certain level the governmental body can no longer function .

In order to preserve a functioning government the leadership has to find ways to reduce employees’ costs. The target  falls upon the  Public Services Unions and their contracts. The goal is to reduce the “perks” that these contracts require. The funding for pension plans and health benefits which in many cases is almost 100% by the state will now require a significant contrtibution from the employee.
One of the problems the unions are blamed for is the provisions in their contracts for a defined benefit pension plan and at best a minimal contribution on their part to the pool. Business long ago found that it made economic sense to switch employee pension program to a 401(k). The State, County, and local government units failed to do so. At the same time the states were raiding their pension funds increasing their debt in their pension plan’s funding.  For some states it is still possible to manage that debt by substituting a 401K plan for the existing defined benefits plan. Several states are considering changing the 401(k) formula however the pension plan underfunding in California and New Jersey would only worsen the plans by such a change.

There are three Republican governors who are "confronting the public unions". Gov. Daniels and Indiana has already by fiate [Executive Order] mandated changes in pension plan and health care funding. Gov. Christie in New Jersey is actively and publicly engaged in conflicts with the various unions in order to improve a better financial picture in New Jersey. Gov. Walker of Wisconsin  ios in a state of active conflict with  labor and  the capital in Madison has been under “sit in” siege for almost 2 weeks.

In two states , Indiana and Wisconsin,  the minority Democratic senators have fled from their state to Illinois in order to prevented the  needed  quorum for a fiscal matter’s. vote. This tactic was used  in Texas last year and there state troopers were dispatched to bring  the legislatures back.  However  no State borders were (or could be) crossed.

There is an intrinsic danger To Democracy when  a political minority can by  boycotting a legislative body  thwart the will of the majority.  Indeed these individuals are making the vote of the public majority worthless.  There action may be legal but its is morally repundgent. It is a bastardization of democracy when legislation can be blocked by the inaction or absence of  a minority membership.
In a  4th State that is actively focusing on its public service unions  as a source of its fiscal woes, Ohio’s Senate on 3/2/11 passed legislation that would:  
  • Identifies areas not subject to collective bargaining, such as health care benefits, pension pick-ups, privatization of services, and work force levels such as maximum classroom sizes for teachers. 
  • Bans striking for all public employees 
  • Allows all current contracts with public employee unions to be re-opened as if under fiscal emergency.
  • Allows collective bargaining rights for state employees on wages, hours, and terms and conditions of employment, within limits.
  • Bases future pay increases on merit and keeps those merit raises within established pay ranges.
Christi may be opting for something along these lines.  However unlike Ohio where the Republicans control both houses of its legislature and the Governorship, in NJ the Democrats are in control of the legislature. He will not get everything he wants.

If the big three Public Service Unions had cooperated freely and made concessions when requested this legislation will not be needed.  Instead as in  the PSS's new contract there are annual raises and no evidence of any give back. That when compared with the lack of a COLA increase in Social Security does not sit well with the Seniors.

Just as management is necessary to run business and governments, the Union is needed to protect the worker. Problems arise when union leadership feels so powerful that they can place their membership in to a superior position over  society. The draconian measures listed above would not have been a consideration if these 3 unions had universally adjusted to the present fiscal crisis.       

Addition , 9:30 AM: The Ledger notes today that Christie and the "Unions" are planning talks. It appears that our Governor would preserve the unions and rid us of Civil Service  constraints. This is similar to his attack on teacher tenure.


  1. It is undemocratic when a small minority in the US Senate can prevent consideration of important legislation, or when one US Senator can hold up legislation by threatening a filibuster.

    De Toqueville warned more than a century ago of the danger of the "tyranny of the majority." For the past two years we have seen the tyranny of the minority in the US Senate and we will probably see more of the same in the next two years.

  2. Anon 8:53, I beg to differ with you the Tyranny of the Majority ruled for the past two years in the US Senate, they need to hang their heads in shame for what they did to the American Public!

  3. TAP, you've got it backwards. The majority in the US Senate and House--and the White House, too--rolled over and capitulated to the demands of the minority. This was in large part because of the Republicans' filibuster threats and refusal to cooperate in getting legislation passed.

  4. To 'True American Patriot', I agree with your comment about the length of the quote about the 'Break Time' post. As it was a quote, I felt that I should not edit it. In a prior comment to Old Doc (not published to my knowledge) about one of his post, I did mention that brevity is the soul of discretion and that I would not bore people with a 10,000 word exegesis about why I disagree. However, the issues raised by Old Doc do not lend themselves lend themselves to sound bite responses or pithy remarks. The appropriate forum would at least be a graduate level seminar in government and economics or some form of Quaestiones Disputatae. As such I have refrained from commenting on Old Doc’s most recent, interesting and provocative posts. My normal rule is to never say in a hundred words what can be said in ten. And, all things being said, I'll keep my gloves in my pocket. Pax.