That Used to Be Us_ How America Fell Behind in thted and How We Can Come Back - Friedman, Thomas L. & Mandelbaum, Michael [94]
The third option, reducing spending while raising taxes and reinvesting in our formula, is, for the sake of the country’s long-term well-being, the only sensible option. Although we have passed the point at which we could correct our fiscal errors in a pain-free manner, the sooner we adopt the third option, the less economic pain we will have to suffer.
In the meantime, as one member of the president’s deficit commission put it to us: We had better hope that China does not invade Taiwan. “We have a treaty that says we have to defend Taiwan in the event that it is attacked by China,” he said. “The only problem is that we would now have to borrow the money from China to do it.”
Hey, Big Spender
Unfortunately, the war on math was not confined to the federal government or the Republican Party. The Democrats waged a war on math of their own, particularly at the state and local levels. While Republicans were not innocent of this behavior, Democrats in particular fell into the habit of granting pay and pension increases to public-employee unions—police, firemen, teachers, and civil servants—which were based on wildly optimistic assumptions about future tax revenues and future market returns for pension funds. These estimates were often extrapolations from the fat years of the 1990s and early 2000s, when the peace dividend and dot-com and credit bubbles encouraged a kind of magical thinking about economic matters.
Not simply bad math but also politics were involved. Plenty of governors and mayors, many of them Democrats, entered into mutual backscratching arrangements with state and local unions. They granted generous pay and pension increases to the unions, and the unions turned around and made generous campaign contributions to local and state politicians, and to the Democratic Party.
Unconstrained by market discipline, public employees’ salaries, pensions, and health benefits got out of line with those of the private sector. So, too, did the numbers of employees, as politicians in flush times added political loyalists to the public payrolls. Illinois, New Jersey, New York, and California were the poster children for this phenomenon. The Chicago Tribune editorial page has made a practice of railing against such abuses in its state. Here is a tiny sampler:
During the decade that ended in fiscal 2008, the Civic Federation says, pension pledges at 10 governmental bodies grew by 68.9 percent. In the same years, the funding of all these pension promises grew by only 26.4 percent … Did you know that Illinois police and firefighters can receive full pension—75 percent of pay—as early as age 50? (March 9, 2010)
Citizens in Highland Park have done the right thing since this newspaper exposed what occurred in that northern suburb: Park commissioners awarded their executives fat pre-retirement raises and bonuses. Executive Director Ralph Volpe’s salary was $164,204 in 2008, although the district paid him $435,203 that year. That spiked Volpe’s pension by more than $50,000, to $166,332 a year. Since that disclosure, infuriated taxpayers have forced their commissioners who were on the Park Board at the time to resign. (September 19, 2010)
Often when these retirement deals were cut, the public officials and the union leaders were, in effect, seated on the same side of the negotiating table holding hands. The politicians essentially pledged future tax dollars in return for the cooperation of public sector unions … The Republicans and Democrats who cut these deals were playing with other people’s money. The pols knew they were creating somebody else’s problem. When the devastating costs came due, they would be gone, out of office, retired. (November 28, 2010)
The Wall Street Journal reported (October 15, 2010) that, at a time when other traditional Democratic donors were limiting their campaign contributions,
public-sector