The eventual result (of public employee unions), as a Bloomberg News series has detailed, was absurdly high packages for public employees. The California state trooper with the $484,000 compensation package is only an extreme example of a national trend. The Port Authority of New York and New Jersey, which manages JFK Airport, has 13 employee unions. Some longtime officials of those unions are paid more than $200,000 a year each, as the Empire Centerfor New York State Policy has revealed. In the meantime, of course, the economy grew far more slowly than predicted, rendering such payments prohibitive.
We have to quit bullshitting people on this.
This bargain appeared to work. The strikes abated. Yet the bargain eventually caused the very result the skeptical commentators had predicted years before. Politicians in office and public-sector union officials both had an interest in pushing compensation to the heavens.
Concerns that might have checked the city and state treasurers, such as the fiscal future of their town or state, paled in comparison with the immediate need of handing a packet across that table. Over and over again, public officers deluded themselves into believing that future economic growth and the attendant revenue would pay for dream packages.
Stop playing games with reality.
Here’s the truth — all forward compound growth expectations without a definite termination date are frauds.
Worse, this is trivially-easy to prove. Take Excel and graph any positive growth rate out over, say, 20 years. Then graph it out over 100 years. That’s 5x as long. Is the figure 5x as large? No, it is much bigger.
Don’t have Excel? That’s ok — have a look here; all you need is a reasonably-modern web browser. I conveniently set a 5% growth rate. In 20 years starting with $1,000 of obligation you have a “mere” $2,526.95 of required payment for each $1,000 you began with. That’s only 2.5 times as much, more or less. No problem, right?
What is it in 100 years?
$125,239.29 for each $1,000, or more than 125 times the original amount.
How did you say you were going to pay that obligation again?
You damn well should be, but that doesn’t change a thing. Arithmetic just is. It doesn’t care about politics, or feelings, or anything else.
In fact it is this very reality that makes Ponzi schemes illegal in the general sense, it is why we can prosecute them, and why when someone runs one and gets hauled into court we can prove with mathematical certainty that it will blow up and the claims that the schemer made are impossible to fulfill.
The same applies to all compound growth projections that do not have a definite end date.
Every single one.
Every single time.
Incidentally, 5% is ridiculously low. Most of these “plan managers” assumed anywhere between 8 – 11% growth and that’s what they predicated their promises on.
At 8% — the lower end of the “projection” range — the 100 year obligation is $2,036,815.98 for every $1,000 they started with.
Every one of those union managers, along with every one of the government employers — city managers, county commissioners and similar — are guilty of perpetrating frauds upon the public.
They have made promises that are mathematically impossible to keep, and a literal 5 minutes with a spreadsheet proves it.
But we, the people, refuse to hold them to account.
We refuse to bring them to justice.
We refuse to demand that they be indicted.
We refuse to vote them out of office.
And finally, we continue to listen to and accede to them being firefighters, police officers, teachers, janitors and port workers even though their compensation and especially retirement packages were “negotiated” by persons who either knew or should have known that the claimed promises and payments were impossible to fulfill on an indefinite forward basis — as was promised — and they all individually and collectively cooperated in the pressure applied in the form of the implied and sometimes realized threat of strikes in the perpetration of that fraud upon the public.
The column claims there was a “grand bargain.”
That’s yet more mendacity.
There was in fact a grand swindle, and the persons involved in it should be in prison, just as any other Ponzi schemer who ran that crap on your grandmother would be.