April 14, 2011
Dispatches (XIII): Gov. Walker: "It doesn't save any [money]"
That is Governor Walker's answer to the question of how much money rescinding collective bargaining for public unions saves the state government. From the Capital Times:
Kucinich said he could not understand how Walker's bill to strip most collective bargaining rights from nearly all public workers saved the state any money and therefore was relevant to the topic before the committee, which was state and municipal debt.
When Walker failed to address how repealing collective bargaining rights for state workers is related to state debt or how requiring unions to recertify annually saves money -- one of the provisions in Walker's amended budget repair bill -- Kucinich tried one more time.
"How much money does it save Gov. Walker?" Kucinich demanded. "Just answer the question."
"It doesn't save any," Walker said.
"That's right. It obviously had no effect on the state budget," Kucinich replied.
[Emphasis added -- mdc]
Posted by Menzie Chinn at April 14, 2011 07:50 PMdigg this | reddit
There's an easy explanation for this. His answer, to him, is probably false. Destroying collective bargaining may help him reduce government employee benefits which would save money. Trouble is, the way the bill was passed it can't involve spending issues or its in violation of the Wisconsin constitution. So he must lie so he can pretend its constitutional. Explain to me how that's in any way "conservative."?
Posted by: davidt at April 14, 2011 11:23 PM
The law has been impeded by Judge Sue Me.
Doesn't save any money: not yet. Why do you think the unions have been squealing?
Posted by: Rich Berger at April 15, 2011 04:54 AM
I'd like to see Kucinich follow up and ask Walker,
"Well, if it doesn't save any money and doesn't improve the state budget, then who are you working for?"
Posted by: Raskolnikov at April 15, 2011 06:02 AM
This isn't about saving money. It's part of a well organized national strategy to bust the state unions, which will tilt the elections in key swing states like Wisconsin to the Republicans. Walker is at best a useful tool in this battle.
Posted by: JimInWisconsin at April 15, 2011 07:11 AM
Who knows what Walker thinks or even if he does. But the most important issue for state and local governments is not pay, it's work rules:
I also think forced conversion to defined contribution plans would be better for both workers (you know what you get) and govt (we know what we owe).
Posted by: Dave Backus at April 15, 2011 07:47 AM
"This isn't about saving money."
If it does not save any money then why are we talking?
Obviously it will save money.
Posted by: KevinM at April 15, 2011 08:51 AM
JiminW has the answer to Rich B's question. Unions are squealing because Walker is using changes in labor rights as a political tool. That also helps explain the Koch brothers' interest. They get nothing much out of a change in the Wisconsin budget, but may hope to get a great (or keep) a great deal by destroying unions as a political force across the country.
I'm not sure who a defined contribution plan helps workers know what they get. A defined benefit plan lets workers know what they get. Defined contribution merely lets them know what they pay, and they already knew that under defined benefit, by and large. The beneficiary of a shift from defined benefit to defined payment is overwhelmingly the employer, not the employee.
Posted by: kharris at April 15, 2011 08:51 AM
If we're all agreed that stripping collective bargaining rights won't effect the state's budget, then I have to ask what effect do collective bargaining rights have on employee budgets?
Posted by: Jeff at April 15, 2011 08:59 AM
It is obvious that lower tax collections and a smaller state payroll do not, by themselves, provide any economic benefit and my be detrimental. (You need velocity... you need jobs, salaries and spending to make your economy go round).
However, facts seldom intrude on the quasi-religious sort of politics that is now practiced in the US. Nor does concern for the lives and welfare of other persons.
It's a bitchy, miserly, hateful world to which we apparently now aspire.
Posted by: wally at April 15, 2011 09:35 AM
kharris & DaveB,
A forced conversion from Defined Benefit plan to Defined Contribution benefits two entities: the employer and the invesmtent manager. In general, invesstment fees for defined contribution plans like 401(k) and 403(b) plans are SIGNIFICANTLY higher than for Defined Benefit (pension) plans. Just try to figure out what your 401(k) is costing you, then roughly double it to cover the stuff you can't see.
Defined Contribution Plans transfer the investment risk from the employer to the employee, and at a higher cost to the employee. On average, Defined Benefit Plans performed SIGNIFICANTLY better in the last two market crashes than self-directed Defined Contribution Plans like 401(k)s and 403(b)s.
Workers get a trifecta: more risk, higher costs and worse performance. What's not to like about that?
Posted by: RBinSD at April 15, 2011 11:23 AM
"A forced conversion from Defined Benefit plan to Defined Contribution benefits two entities: the employer and the invesmtent manager."
Yes, but you mean THREE entities, not two.
And the employer of govt employees is: Taxpayers
I have a problem with govt employees getting defined benefit when the people who pay for that luxury do not.
The hidden cost of DB is the risk. Most of the plans have built in expectation of 8% or more annual returns. Risk-free return stands at about 2.5 percent today. Since the S&P is up by zero percent more than ten years, somebody is going to have to bail out these "underfunded" plans.
In other words, the cost of these plans is much higher than advertised.
That THIRD beneficiary in the demise of DB plans is the taxpayer who does not have to bail out the cyclically underfunded DB plans.
Posted by: KevinM at April 15, 2011 02:01 PM
This was never a fiscal issue and anyone with half a brain knew that all along. Walker wanted to bust the union for two reasons. The first reason was to make it harder for unions to engage in "get out the vote" efforts, which depend heavily on union workers staffing the phones. The second reason was because the image of supposedly overpaid, lazy government workers getting fat while taxpayers struggled played well with low information voters who are prone to this kind of manipulation. It doesn't have to be true, people only have to imagine that it could be true and they will soon convince themselves that it is true. That's scapegoating public workers with an eye towards fooling those low information voters that make up the core of the conservative wing of the GOP.
So if it wasn't about money, why did the unions fight it so hard? For the same reason that federal workers put a high value on unions and collective bargaining. Workers don't report directly to "the government," they report to actual supervisors who are real live human beings who may or may not have the best interests of the government in mind. There is an agency problem. Supervisors are supposed to represent the interests of the government, but oftentimes those interests diverge. Unions typically provide an enforcement weapon against abusive managers and supervisors. Collective bargaining in the govt sector is typically all about safe working conditions, hours between shifts, normal duty hours, promotion policies, etc. as much as they're about wages and benefits. In the private sector a worker has the luxury of quitting if the boss is abusive; in the public sector this is less true because retirement packages are usually not portable and the skill sets are very specific. And in the case of federal employees, sometimes it's actually against the law for a govt worker to quit without concurrence from the govt.
Posted by: 2slugbaits at April 15, 2011 02:11 PM
This is about cutting off a source of Blue Team campaign funding. The Wisconsin senate literally *said* so.
Posted by: ZackAttack at April 15, 2011 03:48 PM
I agree with KevinM. Defined benefit plans are just a way to get the tax payer to bail out underfunded pension plans. This applies even to private companies that are "too big to fail". Companies and governments always overestimate the ROI on their investments for defined benefit plans. When they can no longer sustain the benefit payouts, they have to lay off workers. So only the retirees benefit, and the current workers lose out. Defined contribution plans spread the risk more fairly.
Posted by: dvdhwl at April 15, 2011 08:17 PM
Defined Benefit plans represent(ed) part of an employee's compensation - that is, in absence of this 'benefit' the companies were providing to their employees - the employees should reasonably have seen higher wages. Replacement of the Defined Benefit plans with Defined Contribution plans typically do not coincide with a compensatory increase in wages for the employees to cover what is now 'their' responsibility for funding/managing their future retirement needs.
It is just one more tool for companies to increase profits by extracting it from their employees rather than selling products/services to their customers.
Posted by: Dan_in_KC at April 16, 2011 05:33 AM
You also need to keep in mind most public sector pensions plans are not true defined benefit plan. A lot of state employees are exempt from Social Security, but they still have to contribute at least the same amount (and oftentimes more) from their paychecks towards the state run pension fund. So what a lot of folks perceive as an "excess return" for public sector defined benefit plans is actually the return from the employee's contribution, not just the employer's contribution. There is a popular misperception, fueled by GOP politicians, that public sector employees pay nothing into retirement and no SS, but reap huge pensions. In the case of federal employees covered by FERS, they fully contribute to Social Security plus they have a mandatory contribution towards a smaller defined benefit plan, plus an optional govt 410k plan. The only difference between that and most private plans is the small defined benefit component; but keep in mind that employees must contribute to that so it's not all on the taxpayer's back.
And Dan in KC has it right. Ultimately total compensation is determined in the labor market, and that applies to both the public and private sectors. Workers come from the same employment pool. If a state govt reduces pension benefits, then, ceteris paribus, states will have to increase wage compensation. In exchange for lower upfront wage compensation, taxpayers promised workers good pension plans down the road. Now that the bill is coming due those taxpayers are looking for all kinds of excuses and inventing rationales to justify reneging on those agreements. The pension plan arrangements in lieu of higher wages that taxpayers demanded in the past have somehow become the fault of government workers unwilling to share economic pain. But were those taxpayers willing to share the economic good times back when a lot of these labor contracts were negotiated? No.
Posted by: 2slugbaits at April 16, 2011 07:38 AM
Your implied logic is suspect. Let me use an analogy to illustrate. Assume the police in Madison make a deal with a group of criminals in Madison to allow them to steal everything you have in your home and then split it equally. If the criminals and police are prevented from doing this how much money does that save the citizens of Wisconsin? Well, actually nothing. Now you might say that it costs you but the criminals and crooked policemen are compensated for just the same as you lost.
In the case of government unions when they lose a bit of their ability to take from the working men and women of Wisconsin and give it to Union bosses who then, after taking their cut, give it to politicians in the way of political donations, does this save the citizens of Wisconsin anything in the way of the state budget? Not really. But what it does do is make it harder for the union officials to rob taxpayers to fund union bosses and greedy politicians.
Posted by: Ricardo at April 16, 2011 01:01 PM
Ricardo: Excellent analogy; so in your interpretation, the Walker Administration is a subset of the police, and the robbers are the Koch brothers? Just inquiring to make sure I understand.
Posted by: Menzie Chinn at April 16, 2011 01:27 PM
Ricardo take from the working men and women of Wisconsin and give it to Union bosses
Your concern for the working man is truly touching, but I think your comments tell us more about your fondness for Hollywood movies than any real world experience with public sector unions. Union "bosses" in the public sector do not get rich at the expense of the working man. As a general rule becoming a union steward for a public employee union is something to be avoided at all costs. It's a burden. It typically means a cut in pay, working more hours without compensation and can be a career killer. Very few people are willing to do it for more than a few years, and when they do it is out of a sense of obligation. No one gets rich by becoming a "boss" for a public sector union.
I watch Turner Classic Movies too; the difference is that I know they're just movies.
Posted by: 2slugbaits at April 17, 2011 07:46 AM
Excuse me, could not resist to give a nice link to the spirit of nationalist-fiscal right in the USA that also have huge chances to come to power as existing elites drive the country in the second recession or some other form of corner:
I know this will not be welcomed by some here ... But post -crisis politics is rather simple staff- populists gain or even win. It was already obvious in 2010, now, as situation progresses into unsustainable unknown, things may get even easier for them.
The question of winning then becomes, who has the broadest basis. Or who will have when second recession hits, when people get really scared.
That happened after Great depression in most of the world, can happen again, this time also in the USA.
Do You agree? Its time for a third party to overtake the USA, by the inevitable logic that previous two (Dem+Rep) both being de facto accomplices in reaching the current state of affairs, and thus, being fairly both blamed for the current state of affairs ( as they continue to blame each other, which only helps the Tea Party).
Posted by: Ivars at April 17, 2011 11:57 AM
I know this may come as a shock to you, but federal workers do not have collective bargaining rights. They were taken away by Republican President Carter.
Posted by: Rich Berger at April 17, 2011 12:59 PM
Rich Berger And federal workers don't have the right to strike either. That doesn't mean federal employee unions are toothless. There's a lot of room between complete impotence and Jimmy Hoffa style strikes. Unions for federal workers do have the ability to negotiate with local agencies on behalf of both dues paying union members and nonmembers.
My point to Ricardo was that public sector unions do not resemble the cartoon version that he presents.
Posted by: 2slugbaits at April 17, 2011 02:12 PM
Maybe Obama should appoint a fiscal commission to come up with solutions....since he is sooo concerned about the deficit/debt and the exploding cost of entitlements. Oh wait, he did that (just ignored their recommendations). Leadership from the left......
Posted by: Bob at April 18, 2011 07:51 AM
If you would have read the second paragraph I identified the players in my analogy.
The unions get the government to collect their tribute and then they pay the politicians for their assistance with campaign contributions. The politicians then broaden government employment by having the state take over private industry giving them even more workers for the government to extract union dues from that find their way back to the politicians. The only players involved are the unions and the politicians...Oh I forgot, they are actually both scamming the taxpayers, so I guess their is a third party just with no voice in the negotiations.
Nice try but the shop stewards are not the bosses. The shop steward is the grunt used up by the bosses. The union bosses don't like to get their hands dirty as they draw their six digit salaries.
Posted by: Ricardo at April 18, 2011 08:35 AM
As a Democrat, I don't like Walker. I think we should raise taxes on Wisconsinites to pay for high salaries for government workers and let them retire at 50 with juicy pensions and Cadillac health plans.
And I also think it is good to saddle future Wisconsinites who aren't born yet with millions of dollars in debt so current government workers can suck at the public teat.
And if the non-union folks in Wisconsin don't like it and decide to protest, I think it good that union thugs disrupt their rallies, spew vile epithets, even get violent...like they did this past weekend. I support the new union civility and folks like Minzie who has turned an Econ blog into a forum for his left-wing politics.
Posted by: Union Power at April 18, 2011 02:39 PM
"So if it wasn't about money, why did the unions fight it so hard? For the same reason that federal workers put a high value on unions and collective bargaining."
Posted by: Rich Berger at April 19, 2011 06:30 AM
I like the way those public-sector UNION workers keep falling asleep while 'working' (snicker, snicker) the night shift in the control tower at US airports.
Posted by: Uniopn Power at April 19, 2011 10:43 AM
Bloomberg announces, "The Teacher Retirement System of Texas needs an annual return of 21 percent in the year ending Aug. 31 to maintain an 80 percent funded ratio, the level actuaries consider adequate to cover liabilities, said its deputy director."
Posted by: KevinM at April 20, 2011 05:45 AM
Ricardo @ 8:35 am,
Shop stewards, like taxes, are for the little people, not Union Bosses.
Posted by: Union Power at April 20, 2011 09:25 AM