How to Create Affordable Abundance in California

California has one of the highest costs of living in the United States. California also is one of the most inhospitable places to run a business in the United States. And despite being blessed with abundant energy and an innovative tradition that ought to render the supply of all basic resources abundant and cheap, California has artificially created shortages of energy, land and water, and a crumbling, inadequate transportation and public utility infrastructure.

The reason for these policy failures is because the people who run California are the public sector unions who control the machinery of government, the career aspirations of government bureaucrats, the electoral fate of politicians, and the regulatory environment of the business community. To make it work, these unions have exempted government workers, along with compliant corporations and those who are wealthy enough to be indifferent, from the hardships their policies have created for everyone else.

Here’s just a taste of what California’s middle class, too rich to qualify for government handouts and too poor to be indifferent, has to endure compared to the rest of the United States:

CALIFORNIA’S PREMIUM, 2014  –  HIGH PRICES FOR THE BASICS
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It’s not hard to estimate how these premiums, 13% for gasoline, 42% for electricity, and 72% for homes, translate into the necessity to work and earn tens of thousands of dollars more each year in order to live in California instead of almost anywhere else in America. As for the tax and regulatory environment, respected tax fighter Richard Rider maintains a well-researched list of tax and business statistics entitled “Unaffordable California,” updated here quarterly. The substance of that report is this: Californians pay higher taxes and endure more restrictions on business than anywhere else in America. Read the details. It is as mesmerizing as it is disgraceful.

There is a simple and effective solution to ending California’s war on the private sector middle class by public sector unions and their corporate cronies. But first it is important to point out another depredation, one that rivals the unaffordable cost-of-living, wreaked onto California’s beleaguered private sector middle class by public sector unions and their financial cronies.

The following graph, courtesy of Charles Hugh Smith (ref. “The Generational Short, part 2“) shows everything you need to know about saving and investing in the 21st century:

 VOLATILITY FOR CIVILIANS, 7.5%  GUARANTEED FOR PUBLIC SERVANTS

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Careful review of the above graph will indicate that the top of the vertical green line to the far right represents today’s market attainment. A market that, in the case of the DJIA, has whipsawed between 6,000 and 16,000 in less than ten years. You don’t have to be a Ph.D economist to recognize we’re contending with rather unsettling volatility these days. If you were to posit that right now we’re seeing another run up of bubble assets – both for equities and real estate – you’d be in good company. And it doesn’t take much more than horse sense to know that going out and earning a “risk-free” 7.5% per year (more significantly, 4.5% after inflation), average, for the next 30 years, is a fool’s errand.

Yet that is precisely what unionized public employees get “guaranteed” by their pension funds, give or take a half-point. And the fools who guarantee this 7.5% are the taxpayers who themselves are forced to risk their own retirement savings in a market that is at a historic high, in an era of unprecedented levels of debt as a percentage of GDP, that displays volatility sufficient – at any moment – to wipe out an individual’s savings at the same time as professional traders profit on the swings.

And herein lies the solution. Because the seismic outrage that any financially literate taxpayer may feel at being so dispossessed, so insecure despite making utterly responsible financial decisions, is not shared by the 25% or more of the population who live in a government worker’s household. It is not cruel or spiteful, but rather to salvage our social contract, to require government workers live by the same rules as the citizens they serve.

When the people who operate the machinery of government earn comparable compensation, endure the same risks, face the same hard decisions, and live with the same levels of financial insecurity as the rest of the population, they will adopt entirely new attitudes towards legislation affecting the cost of living, the business climate, the tax burden, and the profound public policy challenges of retirement security. Unlike today, their political incentives will be to make common cause with the people they serve.

Instead, their unions broker deals with politicians they elect. They use environmental laws to fight infrastructure investment in order to pay themselves instead. They pour money into pension funds and bond underwriting firms, making government the biggest partner of Wall Street – their proverbial demon. They block development of land, energy, water and transportation assets in order to assist their corporate cronies who control existing supplies to profit from the resulting scarcity and lack of competition. This contrived scarcity also creates the asset bubbles that inflate the tax base and nominally preserve pension fund solvency.

If public sector unions were outlawed, public sector workers would join with private citizens to forge a new political identity freed from vested interests and privilege. They would support policies designed to break up monopolistic entities, creating competition and lowering the cost of living. Public sector workers would make less, but they would also pay less to live, and the savings could be invested in infrastructure upgrades especially for water and transportation. These investments, along with revitalized land and energy development, would render the basic necessities of living abundant and cheap, instead of scarce and expensive. This California renaissance requires only one thing – the abolition of public sector unions.

*   *   *

Ed Ring is the executive director of the California Policy Center.

17 replies
  1. antiplanner says:

    Public sector unions may be a problem. But high energy costs are the result of mandates for so-called renewable energy. High housing costs are the result of anti-sprawl policies that confine 95 percent of Californians to 5 percent of the land area of the state. High gasoline costs are the result of EPA mandates that California gasoline formulas differ from the rest of the country. Public sector unions don’t obviously benefit from nor are they responsible for any of these policies. To say that abolishing public sector unions would solve California’s problems ignores the complexity of those problems.

  2. Ed Ring says:

    Antiplanner – thank you for your comment. Our point is that there is a huge synergy between the agenda of public sector unions and the agenda of environmentalists – and by extension, the other powerful vested interests who benefit from high prices and barriers to entry, namely, crony capitalists, monopolistic corporations, and America’s overbuilt financial sector. Here are some examples:

    1 – Whenever an environmental law or ordinance is passed, it creates jobs and revenue for public employees.

    2 – Tiered pricing on utility use and gas taxes, both designed to promote conservation, also pour additional funds into public entities – either directly to the public sector or to public utilities.

    3 – Artificially constraining the supply of land and energy creates artificial shortages, elevating prices. This increases property tax revenue – and sales tax revenue – increasing the cash available to public sector agencies.

    4 – Carbon emissions auction proceeds are being redirected to public sector agencies: code inspectors, mass transit workers, educators, and environmental bureaucrats are all involved in “climate change mitigation” and get some of these auction proceeds. Draconian high density zoning also permits calculation of mitigation impacts and qualifies these public entities, cities and counties, to collect auction proceeds. Even police and firefighters – because crime and wildfires increase during hot weather – qualify to collect carbon emission proceeds.

    5 – Restricting or abandoning infrastructure investments, i.e., freeway and aqueduct upgrades at a minimum, are made prohibitive because of environmentalist lawsuits. In turn, this leaves more money available to pay salaries and benefits to public employees.

    6 – Artificially elevated prices caused by environmentalist constraints on land and energy development create an asset bubble, which helps the funded ratios of public employee pension funds.

    Taking away the ability of public employees to benefit from excessive environmentalist regulations, at the same time as requiring them to collect comparable wages and benefits to the citizens they serve, would take away their incentive to share the agenda of the crony capitalists and trial lawyers who provide most of the power to the environmentalist lobby. To do that, public sector unions must be eliminated.

  3. SkippingDog says:

    Always fun to stop by and read the weekly SPN screed against public employees. You make a fine tool, Ed!

  4. Ed Ring says:

    SkippingDog – thank you for your comment, but it is important to take issue with at least one point you raise. Our material is NEVER intended to be directed against public employees. Our concern, and our educational priority, is to make clear how public sector unions are destroying California’s state and local governments and agencies.

  5. YUP says:

    LOL. You hit that nail on the head.

    According to Ed the following were caused by ‘public unions’:

    Japanese earthquake
    Subsequent power plant meltdown
    Extinction of the dinosaurs
    The enslavement of North Korea
    The 3rd installment of the Matrix
    The list goes on

    Lucky we have Ed, Boringsteen, and Greennut to keep us straight on things.

  6. SeeSaw says:

    The reason for having public sector unions is so that the group can bargain collectively with management for wages and benefits. Believe it or not, collective bargaining is allowed, “in-house”, without the presence of a professional union. My first group association as a public employee was with an association within my entity–no public union–no dues. The association members were negotiating reps.

    Now, the people who get the huge pensions, like CM’s and other high-level officers, were able to negotiate their own contracts individually–no unions involved. They get the bulk of the pension money–not those who get the average of $30,000 and the thousands who get even less than $10,000.

    Your statement that public sector unions are destroying California’s state and local government agencies is your opinion, Mr. Ring. You are not entitled to make up your own facts.

  7. S & P 500 says:

    LOL–that 7.5% return on the pension fund is not risk free. ROB has become a significant factor (risk of bankruptcy).

  8. S & P 500 says:

    This NY Times “retro report” video on the Minneapolis bridge disaster concludes that the problem of crumbling infrastructure is still being mostly ignored. Even funding for the new Tappan Zee bridge in NY is in doubt. I’m glad that Calif., the most union controlled state, doesn’t have too many bridges. Another retro report video looks back at the Y2K computer scare. Apparently union people think that crumbling infrastructure is a phantom problem like Y2K that will somehow correct itself.

    http://www.nytimes.com/2014/03/03/us/a-disaster-brings-awareness-but-little-action-on-infrastructure.html?_r=0

  9. Ed Ring says:

    SeeSaw – thankfully we are still permitted to have opinions. And yes, my opinion is that collective bargaining and compulsory agency fees for unions are probably the worst thing that has happened to California’s state and local governments. And via our posts and studies we present facts and logic to back up our opinions. For example, to back up your most recent comment, you state “people who get the huge pensions, like CM’s and other high-level officers, were able to negotiate their own contracts individually–no unions involved. They get the bulk of the pension money–not those who get the average of $30,000 and the thousands who get even less than $10,000.”

    But this doesn’t reflect the reality. When we’ve looked at pensions, normalizing for years worked, we found that the median pension – and median salary – for public sector workers frequently exceeds the average. There simply isn’t any factual basis for what you’re saying.

    Now you may believe that it is appropriate for taxpayers to be paying pensions that average well over $60,000 per year for California’s retired state and local workers who bothered to show up to work for 30 years (not a terribly impressive amount of time considering most private sector workers have to work for 45 years). We don’t, and our opinion is that this excess is just another example of why unions in the public sector should be illegal.

  10. SeeSaw says:

    CalPERS existed before the unions existed, Mr. Ring. Union membership, or not, is irrelevant where CalPERS is concerned.

  11. Ed Ring says:

    SeeSaw – CalPERS indeed existed before unions. But when unions came along, they pushed for higher wages and benefits, and voila, there was CalPERS, enabling the process, ready and eager to implement enhanced pension benefits. They even implemented enhanced annual benefit accruals retroactively – yet the unions vilify San Jose Mayor Reed for merely proposing to reduce pension benefit accruals prospectively.

    The excessive, overly optimistic if not literally fraudulent pretexts underlying expanded pension benefits were a joint venture between pension funds and public sector unions, as were the implementations that in countless cases skirted if not flaunted due process. You’ll get no argument here if you want to point the finger of blame for this mess at the pension funds, but you have to include the public sector unions too.

    It would never have gotten so out of hand if labor unions hadn’t been pushing for these financially reckless decisions every step of the way. Just take a look at the board of CalPERS, and by extension, the entire Democratic caucus in Sacramento, plus nearly every Democratic (and plenty of Republican) local elected officials. They come out of the labor movement.

    When elected representatives come from the business world, they do NOT have an ingrained “us vs. them” mentality, and they DO have, usually, a pretty good aptitude for finance.

    Thanks to powerful unions swapping businesspeople for labor activists in almost every elected position in California, state or local, we now have pension funds as well as our state, cities and counties, for the most part being ran by elected officials who – based on their background and experience – are inherently less capable of exercising financial restraint. And of course, this has also corrupted the business community, since they are junior partners to the government unions. As corrupted junior partners, large corporations collude to crush small competitors, raise prices (and hence taxes), and secure favorable legislation and subsidies – all they have to do is cut deals with the major government unions who control the politicians.

  12. Charles says:

    The stock market fell by approximately half during the Great Depression. Your chart predicts a fall by two thirds during the next two years. If so we will all be in the same boat, sinking.

  13. SkippingDog says:

    Okay, Ed. So “concern trolling” has become one of the preferred approaches for SPN? Let’s be clear, when you make a claim such as “public sector unions are destroying” our government agencies, what you’re really doing is making a direct attack on the public employees represented by those unions and associations. You propose a difference without a distinction.

  14. Ed Ring says:

    Skipping Dog – Each time a comment like yours is logged, we have a few choices. We can (1) respond with an in-depth rebuttal, which is impossible to do all the time, we can (2) attempt to respond with a brief rebuttal, (3) we can ignore the comment, which is often necessary, or (4) we can delete the comment, which we only do in rare cases where the comment is completely off-topic or is in some way too inflammatory. Our choice here lies somewhere between those first two options.

    You apparently believe that public sector unions and public employees are one and the same in the sense that to criticize the union is to criticize the employees. I think that is ridiculous. It suggests that if you don’t want labor unions taking over our government and ruining it, that equates to antipathy towards government workers. But there’s no logical connection there whatsoever.

    The problem with unionized government is unique, and has only limited overlap with the relatively less serious regulatory challenges we face with unions in the private sector. Unlike private sector companies, government agencies don’t have to earn their money, and profits, by convincing consumers to voluntarily purchase their product in a competitive marketplace. The principle that should inform how regulated unions ought to be in the private sector can be based on how competitive the marketplace is. This means that in a monopolistic environment, unions require greater regulation because otherwise, monopolistic companies can just raise prices and give the unions whatever they want. Because when there is minimal competition, the captive consumers still have to purchase the products controlled by these monopolies. The government is the ultimate monopoly.

    The problem with government unions goes beyond that, however, because even monopolistic, very large corporations in the private sector are managed by executive teams who are picked by shareholders and directors, not by union members. But in the government, elected officials often receive most of their backing from unions of government workers who they will then have to manage. If they don’t give in the union demands, they lose the next election. Corporations, especially the monopolistic ones who have a captive market and therefore face the least threat from their own unions, cooperate with government unions for the same reason. If these corporations are competitive companies in competitive industries, they back candidates who themselves are competing with other candidates, a dynamic which in a truly competitive economy creates a healthy balance of power between various corporate special interests.

    There’s more, SkippingDog. The machinery of government is ran by those workers who are currently required to pay, at the least, agency fees to powerful government unions. Most crucially, career advancement in the government – especially local and state government – is largely dependent on not offending the unions. And outside special interests quickly realize – California’s corporate community is a textbook example of this – that they cannot overcome the power of these unions without facing retaliation or losing favor.

    None of this, SkippingDog, has anything to do with public employees. There are extreme libertarians who apparently think we can do without the government. They think private enterprise and charity can do everything. Then there are fiscal conservatives, like me, who want to see the government operate with as much efficiency, integrity and financial sustainability as possible. Then there are progressive liberals, who want the government to be involved in lots of activities that fiscal conservatives might argue should be left to private enterprises, charities or personal initiative. But all of these disparate groups ought to recognize that government unions have completely distorted the democratic process and are skewing our discussion over the role and the priorities of government. They are also bankrupting us.

    As for the first sentence of your comment, I don’t know what “concern trolling” means. Our concern with the pernicious impact of unions in government is one that the individuals involved with this organization have all shared for many years. My own realization as to what unions were doing to California goes back over ten years. During the economic slowdown in 2003 and 2004, I began to read repeatedly about how unions in cities all over California were threatening to go on strike if they didn’t continue to get cost-of-living increases and raises per their negotiations. I watched them take 20% pay cuts in return for working 20% fewer hours ala “furloughs” when everyone I knew in the private sector were accepting pay cuts of far more than 20% while working harder than ever – if they still had jobs at all. It was just the way it was. Then I watched public sector unions absolutely annihilate Gov. Schwarzenegger’s initiative reforms in 2005: extended wait period for teacher tenure, replacing opt-out political contributions by government workers with opt-in, a balanced state budget, and nonpartisan redistricting. I watched them spend over $200 million of taxpayers money to distort the issues and personally destroy Schwarzenegger’s reputation. And it was all so obviously self-interested. And nothing has changed. They are as strong as ever.

    Here is where this short rebuttal has to end, SkippingDog. You probably aren’t going to be swayed much, or not at all. But hopefully other reasonable people reading this will think again about the challenges we face. There is a body of work now on UnionWatch and CalPolicyCenter that explains these and related concepts in far greater depth, with countless examples and numerous fact based studies, explaining our position. This has nothing to do with an attack on public employees, SkippingDog.

  15. Tough Love says:

    Perfect response to SkippingDog.

    But cut him a bit of slack, recognizing that he, being a retired CA Police officer, and riding this Public Sector pig-fest, is just doing his part to distract from the very material implications of Public Sector Unions and the grossly excessive pension granted to them EVERYWHERE.

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