Tuesday, March 1, 2011

Wisconsin. Coming to a state near you.

I think David Frum gets it right in his analysis of the dynamics driving the Wisconsin budget showdown between Republican Governor Scott Walker and the state's public sector unions.

What you are watching in Wisconsin is your future.

Since 2007, Americans have lost trillions of dollars in wealth. And ever since, we’ve been arguing about who should pay and who should be protected.

Wisconsin represents the next — and most painful — round of the argument. During the good years, states and cities made retirement promises to their workers. When you total all the promises – and compare them to the money set aside to pay the promises — you reach a gap of more than $1 trillion, according to the Pew Center on the States.

Where did the trillion go? Some was lost in the declining value of investments after the dot-com crash in 2000 and the financial crisis of 2008. Some of the trillion was unexpectedly added as rising health-care costs inflated the projected costs of state-worker retirements. But the largest part of the trillion dollar gap was accumulated by wishful thinking and political cowardice: States making workers happy by promising them payouts in the future, and trying to keep taxpayers happy by neglecting to set aside the necessary funding in the here and the now.

So, now a question: out of whose pockets should that trillion come? Should state workers be disappointed? Or should taxpayers pay?

There’s no ready answer to the question.

State workers have some valid complaints: states made contracts with them, they relied on the contracts, and now they expect the contracts to be honored. But taxpayers have a complaint too: Private-sector workers earn less than government workers. They enjoy less job security. And now they’re expected to pay an unbudgeted extra trillion in taxes to support the superior health and retirement packages of the public sector?

If there’s no ready answer, then how is the issue to be settled?

In the New York Times this week, David Brooks offered a wise ideal: “The cuts have to be spread more or less equitably among as many groups as possible. There will never be public acceptance if large sectors of society are excluded. … [T]here is going to have to be a credible evaluation process to explain why some things are cut and some things aren’t. … The process has to be balanced. It has to make everybody hurt.”

Brooks describes exactly how the job of adjustment should be done. He also is describing exactly how the job won’t be done. The United States is not the country of rational and disinterested decision-making for which Brooks and so many others yearn. Maybe it once was that country, but it is not that country now. As we have seen through the debate over TARP, over stimulus, over healthcare – and now over public-sector pensions — whoever can muster the more powerful interest groups, whoever can mobilize more public anger, that side gets its way.

Bondholders have more muscle than mortgaged homeowners. Seniors have more muscle than the young. Upper-income taxpayers have more muscle than the unemployed.

So those first three groups usually win, and the latter three groups usually lose.

The public-sector workers of Wisconsin have learned that lesson, and they are adapting it. They want to break Gov. Scott Walker before he breaks them. They chant slogans about justice. But there is no justice, there is only muscle. The unions are flexing to test how much muscle they have. The taxpayers of Wisconsin — and all the other states to which this battle will soon come — have no choice but to do the same.

To paraphrase Bette Davis in All About Eve: "Fasten your seatbelts, it's going to be a bumpy decade!" Meanwhile, those of us who don't enjoy financial clout or lavish public sector benefits will continue to get the shaft in a dozen different ways.

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