Pension Funds, Meet the “Super Bubble”

Earlier this month, outgoing California Governor Jerry Brown predicted “fiscal oblivion” if California’s state and local agencies are not granted more flexibility to modify pension benefits. As if to help Governor Brown make his point, U.S. stock indexes took an obliging plunge. The Dow Jones average cratered in December, dropping nearly 16 percent in three weeks, from 25,826 on December 3rd to a low of 21,792 on December 24th. And whither hence? Nobody knows.

If history and trends are any indication, however, “up” is unlikely. Depicted on the chart below is the performance of the Dow Jones Index from 1995, when the markets began first showing signs of “irrational exuberance,” to the extremely exuberant present day. Clearly shown are the past two bubbles, the internet bubble of 2000, the housing bubble of 2007, and what we may call the “super bubble” or “everything bubble” of 2018.

Dow Jones Stock Index – 1995-2018

It doesn’t take an economist to notice a pattern here. The Dow Jones Index, which tracks closely with all publicly traded equities in the U.S., more than doubled in the four year heady runup to its January 2000 peak, than went into decline for nearly four years, before doubling again between 2004 and 2007. Then when the housing bubble popped, the Dow went off a cliff, dropping to half its 2007 peak in little over a year. In the ten years […] Read More

Public Safety Compensation Trends, 2000-2010

Today’s Wall Street Journal published an article by Phil Izzo entitled “Bleak News for Americans’ Income,” where, citing U.S. Census Data, it was reported that U.S. median household income – adjusted for inflation – fell by 7% over the past ten years. In constant 2010 dollars, the average household in the U.S. saw their income drop from about $54,000 per year in 2000 to just under $50,000 today.

When debating what level of compensation is appropriate and affordable for public safety personnel, the average income of private sector workers is an important baseline. It provides context for determining whether or not the premium paid to public safety employees – for the risks they take – is exorbitant or fair. The trend of the past ten years is also an important baseline when making this comparison. For example, if the level of risk, the value we place on safety and security, and the degree of training required for public safety personnel have all elevated over the past decade – and they have – does this justify their pay increases exceeding the rate of inflation? Even over this past decade, when ordinary private sector workers have seen their total pay and benefits decrease by 7% relative to inflation?

Here then, also relying on U.S. Census data (ref. 2010 Public Employment and Payroll Data, State Governments, California, and Read More