The Public Pension Monster

If you missed it, there’s a good opinion piece in the WSJ Friday edition by Arnold Schwarzenegger. It focuses on the California public pension dilemma (catastrophe?). He’s talking his side of the controversy but it’s worth a read.

What struck me were two graphs that accompanied the piece. Here they are:


Focusing on the second graph, it seems strikingly clear that these numbers aren’t sustainable under any sort of scenario. Why, then can’t the state’s political class admit the obvious and come to grips with the problem?

The first graph, however, may be the most intriguing. Let me say straight off that it might overstate the case slightly in that it focuses on absolute numbers versus percentages of the work force. I assume that the private labor pool is much larger and would therefore show a larger absolute loss of jobs, but I suspect that a percentage measurement would only mitigate the disconnect we see here and not eliminate it. If anyone can supply the percentage numbers it would be much appreciated.

What jumps out at me though is the apparent degree to which the public sector in California has evaded sharing in the pain. One would not expect that given the vital nature of some government services to see a decline in employment commensurate with the private sector’s, but the graph seems to indicate no meaningful reduction in public employment despite the severity of the economic downturn.

This is partly explained by the success of bureaucrats in defining practically all government services as vital and thus not subject to abatement. However, the prime reason that government employees have been able to hang onto their jobs is to a large degree due to their ability to elect officials who control the scope of government.

When the size of government was more modest, this conflict of interest was of  only passing concern. It was inefficient and amounted to little more than looting but posed no great risk to the greater economy. The graph projecting the growth of pension obligations in California demonstrates that what started as a little harmless back scratching has morphed into a monster that unaddressed will claim all of the resources the state can muster via taxation.

Though the numbers are undoubtedly different, the same dynamic is occurring in states and municipalities throughout the country. Pensions and current personnel expenditures are consuming the lions share of revenues and legislators having thrown in with the public employee unions are unable to bring themselves to address the problems in a fiscally sound manner.

If there is a bright side, it is that many of those who favor increased government involvement have seen that public employee compensation presents a threat to their interests. They properly look at the numbers and understand that compensation will shortly crowd not just new initiatives but existing ones as well. Paradoxically, the interests of the Progressives are aligning with those on the Right.

That leave the public unions and their abettors in various legislatures is something of a hard spot, albeit one in which they still wield considerable power.

Update: “Seek and Ye Shall Find”. Paul Kedrosky provides some context on the relative size of the public and private workforces in California:

The trouble, of course, is that we are comparing very different things. The California private sector workforce is approximately 13m people, while the (non-Federal) California public sector workforce is approximately 2m. There is, in short, a 6.5x difference in the size of the respective workforces. Turning that around, current public sector job losses of 50,000 people would correspond to losses of 325,000 in the larger private sector. Granted, that’s still only-one quarter of the current private sector losses, so the asymmetry remains, but adjusting for population sizes, or simply using percentages, would make the comparison a lot more sensible. [-]


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