No Profits, No Pensions

California Gubernatorial candidate Jerry Brown knows he’s in a fight. His presumptive Republican opponent, Meg Whitman, not only is doing a good job presenting herself as a socially moderate, fiscally conservative candidate, but she has abundant personal wealth she can tap in order to finance her campaign. So Jerry Brown has to turn to the only reliable source of campaign cash out there, the public employee unions.

In Joel Fox’s report of March 22nd entitled “Brown Embraces the Public Unions,” Fox quotes Brown as saying “California’s fiscal problems are not the unions’ fault but that of Wall Street and corporations.” Get ready for a campaign season filled with more bashing of corporations. And here are some reasons why this rhetoric is absurd, nihilistic, corrosive, deceptive, utterly bankrupt, and at least to-date, tragically effective:

Public sector unions are by far the most powerful source of campaign cash in California. They can pretty much spend as much as they want to make sure their candidates get elected, and their opponents are defeated. Without these unions, Jerry Brown wouldn’t have a chance against Meg Whitman. But is Brown only singing the union song in order to get their financial support? After all, in late February 2010, in a closed meeting with a group of California business leaders, Brown admitted the single greatest mistake he made as Governor back in the 1970’s was his decision to sign legislation allowing public sector workers to unionize.

Public sector unions have successfully convinced Californians that Wall Street and corporations are basically to blame for all the problems in our society – from deficits to poverty, from bad public policies to social injustice. But public sector unions are in bed with Wall Street. In the United States, there is no source of new investment capital bigger than public employee pension funds – most of it flowing through Wall Street brokerages. The public sector unions, through their pension funds and through the state and municipal governments – which they control – worked with Wall Street and enabled Wall Street. It was Wall Street who packaged the investments that public pension funds purchased – and it was Wall Street and the public sector unions who, more than anyone, wanted to believe they could earn 8.0% annual returns forever.

That’s not all. In 2006, California’s legislature, controlled by public employees, enacted AB32, California’s “Global Warming Act.” Already, agencies and utilities throughout California are tacking “global warming mitigation” fees into their billings. And in less than two years, when AB32 takes full effect and California starts auctioning tradeable CO2 emission allowances, it is Wall Street firms who will broker these CO2 allowances, and it is Wall Street who will package all the CO2 “offset” prospectuses. Read the “scoping plan” from CARB, which lays out how AB32 will be implemented. You will learn how CO2 “offset projects” – which will receive the proceeds of the CO2 emission allowance auctions – will earn reimbursements by how much they reduce CO2 emissions. For example, by mandating even more draconian high-density than we already endure here in California, municipalities will be able to calculate the emissions they have saved relative to “sprawl,” and collect annual reimbursements. Pet projects that create jobs at taxpayers expense for union workers, such as light rail, will go in regardless of practicality, and also receive carbon offset funds calculated on the basis of their potential to reduce CO2 emissions. California’s global warming act, which will do nothing to address alleged global warming, is a scheme, hatched by public sector bureaucrats to transfer more money from taxpayers into the government. And Wall Street will stage-manage the entire process – making billions in fees.

When Jerry Brown, on behalf of public sector unions, demonizes Wall Street, he’s being a blatant hypocrite, but at least he has a point. In the case of industrial corporations who want to employ people and build actual products, however, Brown and the public sector unions have no point. According to Brown and the unions, if only corporations would behave themselves and pay their “fair share,” all of our problems would disappear. Where is the logical end-point of this nonsense? The last politician to tell the truth about taxes and corporations probably was Ronald Reagan, who correctly pointed out “corporations don’t pay taxes, because they pass the taxes through to the consumer as a cost – ultimately it is individuals who pay taxes.” The public sector union’s answer to this truth, observed by Reagan and confirmed by history, is for government to simply reduce corporate “profits.” If the corporations were forced to make less in profit, supposedly they could afford to pay higher taxes AND charge a fair price to consumers for their products. But profits are the life-blood of economic growth and wealth creation. Without profits, there is no reinvestment in equipment and upgrades, no research and new product development, no new job creation, no dividends to shareholders, and no stock appreciation which provides the return to public employee pension funds. No profits, no pensions. And in any event, corporations in California are beat down, intimidated by public sector unions and environmentalist attorneys, reeling from the effects of recession and the impact of excessive, punitive regulations. California’s business community has been practicing appeasement with the public sector unions and environmentalist attorneys for years – they cower like Théoden, King of Rohan, wasting away, corrupted by fear, waiting for Gandalf and Aragorn to awaken him before all is lost. But we live in California, not Middle Earth.

What public sector unions ought to know, and cannot admit, is that tax revenues they collect and allocate, especially through public pension fund investments, are the engine that fuels Wall Street, and they are as responsible as anyone else in this economy for the excesses and abuse of the financial sector in America. What they also should know, as they watch their pension funds crumble, is the fiscal policies they have forced onto compliant politicians are unsustainable and are cannibalizing the wealth of the country. To distract voters from this financial fact: that California’s public sector bureaucrats, on average, now make 50% more in base pay, 100% more in current benefits, and 200% more in retirement security – compared to the taxpayers who now serve them and pay for this hideous inequity – public sector unions and the candidates they control must preach the politics of resentment and envy, hatred of wealth and environmental panic, corporate demonizing and phony Wall Street bashing. They must brainwash our children in their union-dominated public schools, and bamboozle our electorate through their massive campaign advertising, so they can continue to feed for a few more years on the ailing carcass of what was once the greatest free-market economy in the history of the world.

For more on public sector unions and government solvency in California, read:

The Razor’s Edge – Inflation vs. Deflation, March 15th , 2010

Pension Rhetoric vs. Pension Reality, February 24th, 2010

California’s Union Ballot Initiatives, February 18th, 2010

Sustainable Pension Fund Returns, February 2nd, 2010

California’s Personnel Costs, January 24th, 2010

Maintaining Pensions Solvency, January 9th, 2010

Real Rates of Return, June 26th, 2009

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3 comments to No Profits, No Pensions

  • Charles Sainte Claire

    As a retired State Employee I would like to comment on my lavish pension.

    Taking a conservative estimate of 5% investment makes that 8.56 times half MY personal contributed amount (since on average the money is only invested for 22 years or half the money for 44 years, take your pick). That is $1,553,640 Divide that by $90,000 per year I receive and I can live on MY principle for 17 years disregarding the fact that MY money will continue growing after I retire due to investments.

    Calpers is considering dropping their projected rate of return from 7.75% to 6.5% At that rate MY investment will increase by 12.986 times making MY money $2,356,864. So I can live for 25.8 years ignoring the fact the remaining principle is still earning money. So if I live to be 85 I will only get back MY money and Calpers will pocket the investment interest for the next (hopefully) 26 years.

    So what happened to the State’s contribution? Well, they spent it. As did the Locals in Calpers.

    Of course I will receive up to 2% per year. This year the cost of living actually went down 0.4% so there will be no raise for most of us.

    Who knows, in five or six years I might be s member of the $100,000 per year club. Of course gas might be $6 per gallon by then.

    Oh, by the States own admission Licensed Civil Engineers working for the State receive about 90% of private sector engineers in salary.

  • Ed

    Charles,
    I am trying to reproduce your numbers but I cannot. If you wish, let me know how you did your calculations to get $1,553,640 (at 5% return) and $2,356,864 (at 6.5% return). In particular, what amount per year were you contributing to the fund, i.e., “My personal contributed amount.” I’m preparing a new post to explore these numbers further and would value your input.

  • Charles Sainte Claire

    Dear Mr. Ring

    I am not a statistician, but I can assure you I paid into my retirement for 40 years. On average that was 5% my monay and about 15% of the State’s money That is part and parcel of my entire wage package from the State of California.

    Of course, while I paid in my 5% share the State and Local Agencies took several year long “pension holidays”. So they are behind. If you didn’t make your house payment for two to three years you would be behind also.

    Misc. employees of California can’t “spike” their pensions by the way. That is a function of Local Government.

    I get about 82% of my final salary because I covered my wife who is 4 years younger than I. Otherwise it would be 90%. No, I am not a Policeman or a Firefighter. I just started when I was 18 and retired when I was 59 as promised.

    I think my job as an Engineering field employee of Caltrans was dangerous enough. Working on freeways is not exactly one of the safest jobs in the world, although I would prefer it to working as a night clerk at a Circle K or as an ocean-going fisherman or a logger.

    Yes indeed, in the last decade I received about 30% +- increase in wages that brought me up to about 10% less than private enterprise.

    So for the first 30 years I worked for the Highway Department my pay was down about 30% below Public wages and about 40 % less than Private.

    I am well aware of the fact that private Engineers work
    50+ hours per week, which is why I would not work in that Sector. My children are more important to me. As is my wife.

    Oddly enough I received Telegrams from the Division of Highways and from Santa Fe Railways at the same time. Santa Fe instead being an Engineer for Caltrans I wonder if you would still want me to be robbed if I had went to work for Santa Fe? I would be an engineer either way.

    Your logic is lost on me about why I should have my money stolen and the tax payers money(which is part of a Contract) and all of the earnings in Calpers (which are not taxpayers money, just like my house and my car and my wife and children) that I worked and earned, and dump it into Social Security, which I have paid into anyway since I was 15 years old, in the consideration of “fairness”

    We should all be Communists/Socialists. How fair! Then our country and enterprise can collapse.

    “Tear down that wall”!

    Best of Health to you, Mr. Ring
    I find you to be, at least, civil, even if we disagree.