Tuesday, September 9, 2014

Government Pensions and Democrats ... A Big Day Today in Rhode Island

(1) If government spending grows as a share of the whole U.S. economy, our nation's productivity and standard of living will necessarily suffer compared to what it would have been if government hadn't grown disproportionately.

(2) If fewer people work as a percentage of our nation's entire population, and relatively more of those people who do work are employed by government and not the more productive private sector, our nation's economic growth and standard of living will suffer.

The sum of one plus two above demonstrates the simple math involved in our otherwise seemingly complex U.S. political and societal situation.

Government provided pensions negotiated by public sector unions are for the most part underwritten by taxpayers. Thus, the more money that public sector pensioners receive and the more such pensioners there are in relation to the population and work force as a whole, the double whammy of a (1) less productive and (2) smaller work force will necessarily negatively impact our nation's standard of living.

Rhode Island is voting today in a Democratic primary which pits a genuine pension reformer against a typical staunch union supported opponent who advocates for the public sector both higher guaranteed pension income along with the opportunity to retire at an early age, both of which benefits are superior to those received by other taxpayers who work in the private sector and most of whom will receive unguaranteed 401(k) retirement benefits.

In Rhode Island, Democratic Primary Is Pension Referendum has the preview of today's story, the outcome of which all Americans should be watching carefully:

"Tuesday's Democratic primary for Rhode Island governor is emerging as a referendum on how to tackle rising pension costs as the candidates clash over their approaches to a problem bedeviling elected officials around the U.S.
Rhode Island Treasurer Gina Raimondo is trumpeting a 2011 state overhaul she spearheaded that sharply curtailed retirement benefits and rankled unions, while Providence Mayor Angel Taveras is lauding a city pension fix he championed that wasn't as aggressive and eventually won labor support.
The race is too close to call ahead of Tuesday's vote . . . .
The campaign in Rhode Island is being closely watched around the country as a test of whether voters in a Democratic stronghold are willing to support dramatic reductions in public-employee benefits....
A victory for Ms. Raimondo, who oversees the state's pension fund, "will suggest a Democrat can take a hard line on pensions and still survive politically," said Darrell West, vice president and director of governance studies at Brookings Institution in Washington, D.C.
Where the candidates have clashed most is how each handled the challenges posed by rising pension costs. Neither Rhode Island nor the city of Providence has enough assets to cover future obligations to workers.
The primary retirement plans for the state are 56.2%- and 58.1%-funded, according to the most recent data produced by the state, while the city system is 31.4%-funded, according to a city document....
The small Northeast state turned into a national battleground on this issue in 2011 when Ms. Raimondo argued the retirement system was woefully underfunded and pension costs threatened to crowd out spending for state services. Unions that wield considerable influence in the state lobbied against an aggressive new law that ultimately suspended annual cost-of-living raises for retired workers and forced certain state workers and schoolteachers to move a portion of their retirement funds into a 401(k)-style account.
That new legislation now faces a legal challenge by union officials who argue the cuts violated contract laws . . . .
Strong support for the treasurer would show voters "have come to understand the public tax base cannot support prior promises made by elected officials because there simply is not the money to pay these pensions," said Wendy Schiller, an associate professor of political science at Brown University in Providence. "If that happens in Rhode Island, you have got to think that will happen across the country.""
Summing Up
More government spending equals lower productivity, a smaller private sector work force and less overall prosperity and economic growth.
More money for public sector pensions means less money retained by taxpayers to spend as they see fit.
It's that simple.
Thanks. Bob.

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