Tuesday, November 13, 2012

A microcosm of our national economic problems?

Reuters has published a very interesting analysis of the economic woes facing the city of San Bernadino in California.  Their slow but steady progression over the years might serve as a model for what's happened in many other parts of the United States as well.  Here's an excerpt.

When this sun-drenched exurb east of Los Angeles filed for bankruptcy protection in August, the city attorney suggested fraudulent accounting was the root of the problem.

The mayor blamed a dysfunctional city council and greedy police and fire unions. The unions blamed the mayor. Even now, there is little agreement on how the city got into this crisis or how it can extricate itself.

"It's total political chaos," said John Husing, a former San Bernardino resident and regional economist. "There is no solution. They'll never fix anything."

Yet on close examination, the city's decades-long journey from prosperous, middle-class community to bankrupt, crime-ridden, foreclosure-blighted basket case is straightforward — and alarmingly similar to the path traveled by many municipalities around America's largest state. San Bernardino succumbed to a vicious circle of self-interests among city workers, local politicians and state pension overseers.

Little by little, over many years, the salaries and retirement benefits of San Bernardino's city workers — and especially its police and firemen — grew richer and richer, even as the city lost its major employers and gradually got poorer and poorer.

. . .

No single deal or decision involving benefits and wages over the years killed the city. But cumulatively, they built a pension-fueled financial time-bomb that finally exploded.

. . .

And while California has the biggest pension debt in the United States in dollar terms, it's not the worst off. Illinois and Kentucky plans are battling for the dubious distinction of having the lowest ratio of assets to liabilities, according to the Center for Retirement Research at Boston College.

The chronic mismanagement in San Bernardino, though, is a common feature of local government in California and around the United States. Much power over municipal finance lies in the hands of those with the most at stake — city employees, elected officials and others who depend directly on government for their livelihood. And California is moving to put even more responsibility and funds, not less, in their hands.

There's much more at the link.  Recommended reading.


1 comment:

Anonymous said...

Just emailed this to some friends, hope they comment ("Rob" is a good friend who just lost a bid for Governor of WA):


I don't think he goes far enough with "A microcosm of our national economic problems?" as I've yped recently it's western world wide and it's political too. People are thankfully self maximizing, everyone wants to get the most benefit they can for the least effort. We negotiate hard and particularly when the people on the other side negotiating feel insulated from their decisions (the city council, spending tax payers money) it's easy for them to think well gee who am I to tell that firefighter he doesn't get gold plated health care or maybe a bit extra for his kids.

But, it's more powerful then that. There's a negative political cycle (as the WEA ad's in Rob's race showed) and a positive political cycle where the firefighters union is widely perceived as saving the lives of the people who save hour homes. Only it's not the firefighters union it's all of us; all voters get some benefit from government funds that are controlled by elected people who (it seems to me) often feel insulated from the costs of spending tax payer money, worldwide.

Because it's a social trend (so wide), it's not as satisfying as pointing to Akin, Obama or any one particular person and saying "it's their fault". And that is why it's good to have canned food. -Boyd