JACK SPENCER: Truth versus illusion, the stakes are high

By Jack Spencer

Guest Columnist

Former President Harry S. Truman acquired a reputation for supposedly “giving his political opponents hell.” However, he denied doing so. Instead, he was quoted as having said: “I never did give anybody hell. I just told the truth and they thought it was hell.” His quote is appropriate to describe the current situation unionized government employees are in. The truth might seem like a form of “hell” to them, but refusing to face it now will make things much worse for them in the long run.

Unionized government workers have been living on the edge of an economic bubble for years. As with all such economic bubbles, it will inevitably burst.

The question is whether to take action now to head off (or at least minimize) the effects, or wait for the collapse. Of course the damage caused by the collapse will be all the worse if we wait.

Ironically, those who stand to lose the most if action is delayed are the government employees themselves. Put another way: Is it better to base your future on IOUs from politicians promising all kinds of great benefits, or on plans offering more modest benefits that are based on sound economic principles? The answer to this is obvious for anyone who is rational. Unfortunately, people don’t always act rationally.

History is rife with examples of economic bubbles. In most cases those who should have known better preferred to live under the illusion that everything was fine. This is usually the easiest way of handling things. It comes from just thinking short term. It comes with a “don’t rock the boat” attitude. The operative phase is — “Sure, some day the bubble will burst, but probably not today — probably not this week.”

Results of this kind of thinking should be fresh in everyone’s mind. Throughout the nation people continue to feel the negative impact of the real estate bubble that burst in 2008. The total economic damage wrought by that entirely-preventable collapse is beyond calculation. In a myriad of ways, millions of Americans are still suffering financial losses from the bursting of that particular bubble.

Most people now understand how the real estate bubble was created in the first place.

Politicians in government promised something that wasn’t economically sustainable. Programs were created to allow people who couldn’t afford homes to purchase them anyway. It defied common sense but — heck — the government was behind it, a lot of smart people were promoting it, etc, etc.

Banks and other financial institutions jumped in head first. Why not? Their quarterly financial bottom lines kept looking better and better. It never seemed to bother them that most of these “profits” were based on inflated values that had little to do with reality. It was a great example of how government seduces. Here was a promise that would make everybody happy — in the short run.

There was only one little fly in the ointment. Even government can’t defy economic realities forever — although it is expert at perpetuating the illusion that it can — it can’t. As always happens if steps aren’t taken to prevent it, the bubble finally burst and the financial markets nearly melted down.

Afterward, an awful lot of Americans became very frustrated and angry. But that was too little; too late.

“Why didn’t somebody see this coming and prevent it?” they asked.

At least three years beforehand somebody did see it coming. In 2005, former President George W. Bush got legislation introduced in an effort to headoff the situation. The date of The New York Times article about the legislation is easy to remember. It was Sept. 11, 2005. Look it up; it’s available online. At the time, Democrats argued that the Republicans didn’t want poor people to have the advantages of home ownership. The Republicans, even though they controlled Congress and the White House, backed off. Bush — for whatever reason — decided not to make a big deal about it. As a result, the last best chance to prevent the eventual catastrophe died with a whimper.

Readers can answer the next question for themselves. Who deserves most of the blame; the Democrats for grandstanding on the issue or Republicans for failing to fight for common sense?

Meanwhile, the government employee bubble has been building for decades. It’s root cause is a collective bargaining process in which no one at the bargaining table has their own money at risk.

This process is inherently flawed. Public officials (who are either politicians or work for politicians) negotiate with union leaders over “other people’s” money. Those “other people” are taxpayers.

In the private sector, those negotiating for the business involved, negotiate over the company’s money. This sets the boundaries. Unions and employees understand that it doesn’t do them any good to make demands that put the business into bankruptcy.

Financial reality triumphs over illusions. Not so with contract negotiations between government unions and government officials. An illusion that there’s a pipeline to taxpayer dollars always available creates a whole different dynamic. The officials want to avoid the negative headlines that would come from strikes or offering reduced services. They also don’t dare raise taxes. On the other side, union negotiators want to show their members all the goodies they won at the bargaining table.

For decades this dynamic led to unrealistic benefits being promised for 10 or 20 years down the road. Here again, we see the key factor — politicians promising things that aren’t economically sustainable.

Now we’ve reached a point where the accumulated costs of these promises in cities, counties, school districts and states can never be paid. It is not a matter of whether or not the promises should be kept, they can’t possibly be kept. There just isn’t that much money — period.

In cities, such as the ones that recently went bankrupt in California, government employees have to be frustrated and angry. If they could somehow be sent back 20 years they’d probably insist on more modest sustainable benefits instead of the illusionary ones with which they’re currently stuck. But realizing that now is too little, too late. For most unionized government employees there is still a chance to emerge with sustainable benefits. But government unions oppose most of the changes needed to bring about that result. How can they admit to their members that, for years, they bargained for IOUs that aren’t worth the paper they’re written on?

They won’t admit it.

Instead, they’ll just keep fighting for the illusion.

Jack Spencer is Capitol Affairs Specialist for Capitol Confidential, an online newsletter associated with the Mackinac Center for Public Policy (MCPP).

MCPP provides policy analysis. The political analysis represented in this column does not necessarily reflect the views of the Mackinac Center.