Despite my general affection for penguins, especially those from the South Sandwich Islands, I cannot help but feel their kind has treated my unfairly after reading a post at The Faithful Penguin blog charmingly titled, “Conor Friedersdorf is a Liar or a Hack…“ Of course, it is possible that the ellipses are meant to stand in for the phrase, “or my criticism of his post doesn’t make any sense at all.” I’d be cool with that, my penguin friend!
Here is the paragraph I wrote that chilled relations:
As the Matt Welch piece (on California) mentions, “the state’s annual pension fund contribution vaulted from $321 million in 2000-01 to $7.3 billion last year.” That is a rather alarming rate of growth, and an astonishing figure, don’t you think? Given that the state is bankrupt and issuing IOUs to its creditors, it doesn’t seem unreasonable to complain that public employee unions have extracted benefits that are both obviously unaffordable and far in excess of what is enjoyed by the taxpayers who finance them.
The Faithful Penguin responds by explaining that California’s public employee pensions are “defined benefit” plans. Exactly right! “An employer commits to paying its employee a specific benefit for life beginning at his or her retirement,” he writes. “The amount of the benefit is known in advance and is usually based on factors such as age, earnings, and years of service.” I’d add that in the Golden State, most government employees max out at a pension that allows them to collect 90 percent of their salary for life after having worked 30 years [UPDATE: this is definitely true of public safety employees, broadly construed, but an e-mailer at Andrew Sullivan’s place calls into question whether it is true of “most” employees, so disregard that narrow part of the argument while I double-check] —and that covers 100 percent of their retirement health care costs, and 90 percent of health care costs for spouses and dependents.These extraordinary, unaffordable benefits were negotiated by public employee unions during Gov. Gray Davis’ tenure (actually, that’s definitely true of the 90 percent formula—I’m not sure when the health care portion went into effect).
Using boldface and red font, the cantankerous penguin goes on to note that “The employer is responsible for making the decisions about how much money to contribute to the plan and how to invest the contributions to fulfill the plan obligations. Employer contributions to the defined benefit plan are based on a benefit formula that calculates the investments needed to meet the defined benefit. These contributions are actuarially determined.” Yup. This is part of the problem. When Gray Davis agreed to the 90 percent formula, it seemed affordable because the stock market bubble was producing unsustainable returns in the retirement fund investment portfolio.
Says the 3 foot, 7 inch tall blogger:
So, in 2001, the market just came off a long bull-run where the (simplified) annual return was 43% for a twenty-one-year run. That is, the market went from about 1,000 (1980) to about 10,500 (2001). That was great. But since 2001 the market has, at best, been flat and has fallen to, basically, it’s 1996 levels, wiping out over a decade worth of returns. Now the ROI has fallen to just under 19% for the 1980-through-2009 (06/30/09) period. Even worse, is the current negative 4.5% ROI we suffered during, and because of, the Republican laissez-faire/Libertarian Bush-years where the market was allowed to run wild without supervision.
All of which California has to make up.
This was not the fault of the union. It was not the fault of the State. It was the fault of the system that Friedersdorf, and the rest of the “Lords of Capitalism” tout at every instance.
That’s where I lose the flightless Spheniscidae’s line of reasoning. I am a Lord of Capitalism, of course — this very instant I am smoking a cigarette emblazoned with a dollar sign while trafficking in black market kidneys — so perhaps it’s understandable that I dissent from the view that it’s the “fault” of capitalism that stock market ceased producing a 43 percent annual return (to rely on the flippered krill feeder’s numbers).
I’d lay blame on Gray Davis and the Democratic legislature that committed the state to a public pension system that could only be sustained if unrealistically high stock market returns persisted into the indefinite future. Is it the union’s fault that they got this unsustainable deal? Well, no, their job is to extract as much money as possible for their members. That doesn’t change the fact that their undue influence in California’s political process resulted in an outcome that is bad for the state, its citizens, and basically everyone except for the state workers cashing in on one of the more irresponsible public policy decisions in memory.
My vestigially winged interlocutor concludes:
If Friedersdorf doesn’t understand the why California has to make the payment, he’s not qualified to opine. If Friedersdorf DOES understand, then he’s a liar. In either case, he’s just flat, stupidly wrong.
Well, I do understand why California has to make the payment, and I don’t see how that makes me a liar. As I said in the supposedly offending excerpt, “it doesn’t seem unreasonable to complain that public employee unions have extracted benefits that are both obviously unaffordable and far in excess of what is enjoyed by the taxpayers who finance them.” Upon consideration, I stand by that assessment.