March 1, 2011

Madison Wisconsin: Just What Are The Demonstrators Demonstrating?

by Hal Gershowitz

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It was like a root canal without the benefit of Novocain, watching and listening to the harangue on RT (Russia Today) about how the protests in Madison Wisconsin, Cairo, Libya, Bahrain, and Tunis are all one in the same, that is, the people revolting against dictators who want to bring back feudalism. The protests in Madison are, actually, far more akin to the protests in Athens Greece.  The throngs in Madison, like the protesters in Athens consist, primarily, of government workers who are unalterably opposed to government interference with the pension and benefit entitlements their unions have squeezed out of the taxpayers; never mind that such unfunded benefits have turned Greece, half of Europe and more than half of the states in America into financial basket cases.

Make no mistake about it.  This is a very high-stakes dust-off with historic implications for the country.  If the union and its AWOL, left-leaning legislator allies win, this spectacle becomes the game plan for government unions in every other state that has been brought to its knees by unreasonable, if not incompetent, agreements between government employees and, well, government employees who sit on both sides of the bargaining table.  And if the Governor and his Republican allies win, their victory will show politicians in both parties how to unburden their constituents of the continued growth in these same, ever-growing, largely unfunded liabilities.

The union members say they are willing to negotiate pay cuts and pension cuts (the governor’s bill would up the teachers’ contribution to a modest 12% of the costs of their healthcare insurance and only 6% of their income for their pensions) but not the right to collectively bargain over their pension entitlements. The governor wants to readdress a 2009 law the, then, Democratic legislature passed that expanded public unions’ collective-bargaining rights and lifted existing limits on teacher raises.

The problem, of course, is that those who bargain with the government employees’ unions have no real skin in the game.  They stand only to lose the taxpayers’ hard-earned money through the higher taxes taxpayers will have to pay for the deficits when they come due, or for the higher interest Wisconsin will have to pay for its debt because investors (think bond vigilantes) know a riskier investment when they see one. A bond vigilante is simply the moniker given to those bond investors who, in effect, protest by selling bonds they believe to be “overrated” thereby causing the issuing entity to pay higher interest rates.    And therein lies the rub.  The projected return on investments of most local and state government pension plans are unrealistically high, the paid-in contributions are, thus, unrealistically low and the result is that runaway unfunded liabilities plague almost all of these pension plans.  As a result, the cost to local and state governments of the debt they issue may well go through the proverbial roof.

To make matters worse, accounting rules for public pension plans (compared to private pension plans) make it very difficult to spot the inadequacies.  The union strategy and, it seems, that of the Democrats who are so beholden to the teachers’ unions, is to demonize Governor Walker through a vilification campaign that would make most any lunatic fringe blush.  His attempt to begin reining in Wisconsin’s two-year $3.6 billion budget deficit has produced some remarkable vitriol.  One protestor called Walker’s proposed legislation “a coordinated effort to ruin the middle class,” another called Madison “pre-Nazi Germany”, and we, along with a few million other television news viewers, saw yet another protester proclaim, “…first they came for the Jews,” a rather creepy reference to the German anti-Nazi activist, Pastor Martin Niemöller’s poem about Nazi genocide.  Well, so much for the civil discourse for which, no doubt, many of these same people were pleading just a short time ago.

Hopefully, no one will get a migraine from all the shouting and vitriol because their doctor might just be one of those white-coated miscreants passing out doctors’ excuses to teachers for being absent from their classrooms.

The unions clearly do not want the focus to be on deficits or unfunded liabilities so the mantra that has emerged, regrettably abetted by President Obama, is that the Madison confrontation is all about an attack on unions.  Well not exactly.  It’s really about state and local pension liabilities estimated by leading economists to be about $2.5 trillion, compared to the $493 billion to which public sector smoke-and-mirror accounting admits.  Throw in the other unfunded non-pension benefits such as vision-care, dental care, etc and the nation’s state and local unfunded liabilities climb to over $3.0 trillion according to economists Courtney A. Collins, and Andrew J. Rettenmaier.

While Wisconsin’s contribution to the sorry state of state and local disarray is just a piece of the problem, what is going on in Madison serves notice to elected officials throughout the United States of what is in store for them when they try to get control of the spending sprees that are endemic in legislatures, large and small, from coast to coast.

We are not entirely unsympathetic to the teachers and other government union members who have generally paid stiff union dues to be represented by their collective bargainers.  In Wisconsin those dues are reported to be between $700 and $1,000 a year per member.  Small wonder the union members have taken to the streets to keep what their hard-earned dues payments have secured.   But Scott Walker was elected governor precisely because the majority of Wisconsin’s citizens, not unlike the citizens of almost every other state, want a change of course for their particular ship of state.  State budgets are not going to be brought under control by timid, cosmetic gestures.  “A little dab will do ya” went out with Wildroot Cream Oil, Charlie.  State budgets, like the federal budget, are going to be seriously recalibrated, either by responsible public officials acting in response to common sense or by their replacements acting in response to fed up creditors who are financing our federal government and nearly every state in the country.  Think it won’t happen here? Just ask the once heady Japanese who just had their bond ratings hammered by Moody’s Investor Service on concern (now get this) that political gridlock will constrain efforts to tackle their debt problems.

And speaking of political gridlock, let us linger for a moment on the spectacle of state Democratic legislators hightailing it out of Wisconsin to hide in Rockford Illinois so that the legislature is powerless to enact legislation.  No, Mister President what is happening in Wisconsin is not an attack on unions.  It is far more an attack on democracy.  We would hope the people of Wisconsin would demand that these legislators not be paid during their absence, and that any third-party paid room and board or reimbursement of expenses for their foray into Rockford be viewed as compensation of value to effect legislation…otherwise known as bribery.

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2 responses to “Madison Wisconsin: Just What Are The Demonstrators Demonstrating?”

  1. Technical difficulty. Site not posting comments. We’re working on it.

    Issue now resolved.

  2. Mike Resmo February 28, 2011 at 1:40 pm [edit]
    Great commentary!

    elliot solomon February 28, 2011 at 7:51 pm [edit]
    I couldnt have said it better myself. Bravo.

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