[quote=davelj][quote=CA renter]What I’m referring to is the cuts in wages and benefits that the public employees will be taking. It is, essentially, a tax on them, in order to pay for the misdeeds of the financial industry.
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Allow me to make a counter argument using California as an example. The reason we have so many public employees (with associated benefits) right now is because of the inflated tax revenues that came in during the late-90s (high tech/stock market bubble) and the mid-2000s (real estate/stock market bubble). Were it not for these bubbles, many of these public employees would not be employed by state and local governments, nor would their comp and benefits be where they are today. The money wouldn’t have been there. Consequently, I could argue that a lot of these folks got jobs and compensation that they never should have gotten in the first place – that is, they received a free lunch courtesy of the bubbles – and that now it’s time to go back to doing whatever they would have been doing had those jobs not been available. That’s the glass is half full argument. Your argument is that the bubble jobs and comp should be continued for the mere reason that they were created in the first place, and anything less than this is an unfair burden placed on public employees. That’s the glass is half empty argument. Which I don’t buy.
My glass is typically half full even when I’m bearish. But that’s just me.[/quote]
Actually, we agree completely.*
The financial crisis was caused by the financial industry (and their paid-for politicians and regulators), and the Federal Reserve. This is what I’ve been saying all along. It was NOT caused by the public employees.
The Federal Reserve (and financial industry) have created a bubble economy, where anyone who tried to be prudent was punished by below-market returns, and they were forced out. Only those who chased bubbles were rewarded, and they had the Greenspan/Bernanke put at their backs, “guaranteeing” them that they could not lose on the long side. They made foolish mistakes — the actuaries, the pension fund managers, the state, and city governments. As you know, pension funds had to move out on the risk curve when the Fed stomped on rates for prolonged periods of time in order to get returns required to make their numbers work. This is 100% attibutable to the Federal Reserve.
Do realize that public employees were BEGGING the city managers and city councils, etc. NOT to spend the money that the cities were “saving” when the pension fund actuaries were telling them not to contribute anything to the pensions during the bubble (esp. the stock market bubble). The cities, for the most part, didn’t listen, and spent like drunken sailors.
The reason I get so upset with the scapegoating of public sector workers is because it’s designed to deflect attention and anger away from the financial sector, which is the root of our problems.
*The only item I disagree with you about is the *number* of people hired as a result of the bubble. From what I’ve read, the ratio of public sector workers to California residents has been steady or declining over this time. The increased number of employees is largely due to population growth.
That being said, the increases in compensation ARE due to the bubbles, and I have always agreed that some concessions need to be made. But if the public workers make those concessions (let’s say, rolling back compensation to 1997 levels, with adjustments for inflation/deflation and population growth), then EVERYONE else who benefitted from the bubbles needs to take a similar hit. That means that the wealthy would need to see similar drops in their wealth as asset prices revert to ~1997 levels. After all, rolling back public compensation would only be fair if their purchasing power (and that means REAL purchasing power — asset prices, included) was rolled back to the same level. How well do you think that would go over?
