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Wednesday, December 4, 2013

Public Pensions and Public Sector Envy

In my experience, almost no one seeks to work for "the government" because they want to get rich. They want public sector work because they view it as relatively stable; some do like the idea of public service or working in their small town.  Others will take a public sector job to gain experience and leverage that into subsequent, rather lucrative private sector employment; prosecutors and top regulators come to mind.  But very few, very few indeed, think it's the path to riches.

That's why the recent Detroit bankruptcy court decision paving the road for potentially sharp haircuts on retirees' pension payouts -- treating pension plans just like any other contract and pensioners like any other creditor, when creditors typically get hammered in bankruptcy court -- is causing so much distress among the public sector crowd.

The private and public sectors just don't understand each other.  Very few truly cross from one side to another.  Those that do make the jump most often make a permanent move in search of a better income or prospects (and this move is almost always to the private sector).  The back-and-forth revolving door from the private sector to the government is rare, but is most often seen among the management / executive set.  The revolving door is often decried as symptomatic of the crony capitalism that is increasingly recognized.  But among the rank-and-file in both worlds, very few understand how green the grass is on the other side.  In reality, both sides fail to realize that the green grass is often painted green.

Here's the reality check for the public sector.  Private sector employees and small business owners face immediate financial pressures. A small business owner can "do well" one year but have total exposure and the potential for total destruction of his income stream the next year.  Public employees -- being virtually unfireable -- don't have any concept of the level of risk and lack of security this means.  They look at the highest possible salaries one can have in the private world and say, "boy, all these guys are rich."  Yes, private workers can always go to infinity, and that is the tradeoff for having no security.  This -- the rebalancing of the risk-reward tradeoff to reduce potential rewards while increasing risks (through legal liabilities, other laws' costs and taxes) explains the visceral objections among the private sector ownership class to the income redistributionist rhetoric coming out of government these days. 

On the other hand, private sector employees almost universally refused to consider public sector work because of the relatively low salaries, the low level of the highest-possible salary (such as the GS-15 level which caps sitting United States Attorneys at an annual salary of about $160,000) and other constraints like the Hatch Act which can preclude political activity while on one's own time. 

The years-long economic decline has made some people look wistfully at the public sector because they think about job security and presumed income security (but at a lower level).  This is not necessarily true and reflects the distortion in perceptions caused by the sharp 2008-09 recession and subsequent stagnation.  The private sector does not realize that most public employees are paid modestly and one of the tradeoffs for that lower salary is the pension plan.  The private sector, now demonized, does not understand the dilemma.  

The progressives vilifying the private sector may find very little sympathy from private business owners who resent being bitten by government workers they used to feed and still feed.  The victims here will be those public employee retirees who played by the rules and were let down by fiscally irresponsible government leaders who ran up too much debt without the ability to repay it.  There is no easy solution to make solvent these insolvent pension plans, not without higher taxes on the private sector whose resentment of the public sector has been more than earned.  Unfortunately, many low-paid government retirees stand to become little more than disposable cannon fodder for "progressive" politicians who used them for votes, ran up debts without regard for the ultimate responsibility, and then threw these retirees away like so much rubbish. 

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