Earlier tonight I noted with some derision the “two Americas” of John Edwards’ myth. However, as we have noted before, there are indeed two Americas: the fault line just doesn’t lie where Edwards and other liberals place it. Rather, the key dividing line in American politics is between a strapped private sector and a flush, overflowing-with-cash public sector. Intuitively, it is odd: one might have assumed that those who pay the bills would look out for their own needs over the interests of those whom they employ. But this hasn’t happened. A large majority of voters have been asleep at the switch, and public employees have been awarding themselves constantly-increasing salaries and pension benefits. Those benefits have now swelled to the point where there is no possibility that taxpayers can fund them.
The situation has gotten so dire that even the New York Times has noticed. Its article is titled “Battle Looms Over Huge Costs of Public Pensions.”
There’s a class war coming to the world of government pensions.
The haves are retirees who were once state or municipal workers. Their seemingly guaranteed and ever-escalating monthly pension benefits are breaking budgets nationwide.
The have-nots are taxpayers who don’t have generous pensions. Their 401(k)s or individual retirement accounts have taken a real beating in recent years and are not guaranteed. And soon, many of those people will be paying higher taxes or getting fewer state services as their states put more money aside to cover those pension checks.
At stake is at least $1 trillion. That’s trillion, with a “t,” as in titanic and terrifying.
A trillion dollars; some say two or three times that much. This is the stuff of which epic political battles are made. One of the first such battles is shaping up in Colorado.
Consider what’s going on in Colorado — and what is likely to unfold in other states and municipalities around the country.
Earlier this year, in an act of rare political courage, a bipartisan coalition of state legislators passed a pension overhaul bill. Among other things, the bill reduced the raise that people who are already retired get in their pension checks each year.
This sort of thing just isn’t done. States have asked current workers to contribute more, tweaked the formula for future hires or banned them from the pension plan altogether. But this was apparently the first time that state legislators had forced current retirees to share the pain.
Sharing the burden seems to be the obvious solution so we don’t continue to kick the problem into the future. “We have to take this on, if there is any way of bringing fiscal sanity to our children,” said former Gov. Richard Lamm of Colorado, a Democrat. “The New Deal is demographically obsolete. You can’t fund the dream of the 1960s on the economy of 2010.”
But in Colorado, some retirees and those eligible to retire still want to live that dream. So they sued the state to keep all of the annual cost-of-living increases they thought they would be getting in perpetuity.
Note that all we are talking about here is reducing the rate at which the pensions of retired public employees will increase. This at a time when private sector employees are being laid off, seeing their salaries cut, and their investments have declined in value.
The injustice is obvious. Yet the retired or soon to be retired public employees have a point: the law of contract. They took their jobs and worked for years or decades in reliance on promises by taxpayers (in effect) to, among other things, fund lavish pensions. Forever. Public employees all across America will sue to force taxpayers to make good on those obligations. The result could be significant demographic shifts, as taxpayers flee jurisdictions that have massive liabilities to former government workers. The result, presumably, will be municipal, county and state bankruptcy.
I suspect that this is one of those fundamental societal divides that cannot be reconciled by applying conventional legal principles. My guess is that new legal doctrines will be developed to mediate between the legitimate but unrealistic claims of public retirees and the fiscal reality that the private sector is not rich enough to continue supporting those retirees in the style to which they are accustomed. But the struggle will not be an easy one. There will be many winners and losers along the way. For a decade or two to come, the division between public and private employees–in particular, retirees–will be one of the principal fault lines of our political life.