Tuesday, August 09, 2016

Public "servants"

My father (and this guy's father, too) was among the many from his generation of public sector employees who missed out on pensions--they were not offered those benefits back then.  Thus, there were a few years when my brother and I regularly sent our parents money in order to help with the cash flow after father's retirement.  True to my parents' honest life, they have maintained a detailed accounting of the total remittances from their sons!

A couple of years ago, when my father came to know that my faculty salary is nowhere near the stratospheric earnings of the young and the old in the IT industry where every other Indian-American is, he insisted that they return my remittances, now that my parents do not have the cash crunch, but I managed to convince him that I am not in any financial hole.

The logic behind public sector pensions was simple: To reward those opting for public service, where the compensation is far less than what comparably talented people could earn in the private sector. For instance, when I was new to the country, a friend took me along when he visited with a cousin of his, who was a worker in an automobile assembly plant in California.  I would never have guessed that the palatial home with shiny cars in the driveway belonged to an auto factory worker who did not have a college degree.  Such were the economic possibilities even a couple of decades ago.

The global economic geography has changed.  And has changed fast.  The well-paying middle class jobs are rapidly vanishing from the American scene.  Well, vanishing from the private sector, that is.  Meanwhile, the public sector unions became stronger and stronger, and successfully increased the compensation levels.  So much so that public sector pensions have now become a nightmare for governments that have to balance their books.

As with many aspects of life, California is a leader in this as well, with its California Public Employees Retirement System, or CalPERS:
The pension fund is more than $139 billion in the red and just reported another awful year of investment returns. The East Bay Times reported last week that CalPERS' retirement debt "averages out to $11,000 for every California household which is relevant because taxpayers, not government workers, must make up the shortfall."
That update from Reason--a libertarian outfit, which has been a part of my daily news feed for years now--notes that "Most state pension funds are deep in debt, but CalPERS is among the worst in the nation."

Public sector pension in Oregon was a big story in our local paper too:
Anemic investment returns in recent years have also contributed to the troubles for the system, which now has an unfunded liability of more than $20 billion. When investment returns don’t meet the system’s assumed 7.5 percent annual rate of return, public employers must make up the difference in their budgets. The need to feed ever-greater amounts into PERS is one factor that forces many local Oregon public agencies to trim services or seek tax increases.
Now, I don't want you to think that we faculty are draining the state coffers:
 Dr. Johnny Delashaw, a former neurosurgeon at Portland’s Oregon Health & Science University, has supplanted former University of Oregon football coach Mike Bellotti as the state’s top public pension recipient.
Delashaw receives an annual benefit of $663,354 a year — $55,279.53 a month — from the Oregon Public Employee Retirement System, the agency’s latest data show. That’s 24 percent higher than Bellotti’s annual benefit of $536,995.
Bellotti had been Oregon’s top PERS beneficiary since the retirement agency first started releasing data in late 2011
Yep, a football coach used to be most highly paid retiree!  Says a lot about what people really, really, want, right?

Meanwhile, back in India, the unions learnt their lessons from the unions here, but the government did not learn from the experiences here--public sector pension schemes have skyrocketed in India.  My father, too, has a tough time understanding how such things are possible.

Full disclosures: In California and in Oregon, my jobs included pension schemes.  But, it was never the money that drew me to the teaching profession in the first place; if money were important to me, I would never have quit engineering! And, oh, I have never been a member of a union.


Ramesh said...

Oh, a favourite topic of mine. I have made myself deeply unpopular with every middle aged and older person I know by vigorously arguing that public (or even private defined benefit) pensions are the worst form of cancer in a society. It is bankrupting every country and represents the worst form of the old stealing from the young, instead of leaving a legacy.

There is an nice and easy ways of providing for old age. Its called saving. There are defined contribution pension schemes galore. You save a small amount from the day you start working. With the benefit of compounding, it leaves a nice nest egg when you retire. I have I think commented before that you just have to save $5 per day to be a millionaire when you retire. Instead my generation wants to spend it all in youth and wants a freebie in old age.

Sriram Khé said...

I agree ...
But, I won't entirely blame the public. In the advanced economies like here in the US, it is a part of the (social) contract. Thus, this, too, is a part of the overall social contract discussions that needed to have happened as the global economic geography started changing rapidly. By delaying all the social contract discussions, we have now made the issues way more difficult than they once were.

The spending when young (or when one is seemingly flush with money) without saving for the rainy day is an age old human problem. Which is why we have those awesome fables like "the ant and the grasshopper" ... to me, this is a classic reminder that fundamentally we are unthinking animals, and it requires a lot of conscious thinking to save for the rainy day

Anne in Salem said...

A nice and easy way of providing for old age? Clearly not spoken by an American! Our entire economy seems based on spend, spend, spend. There seems little virtue in saving. Besides, saving delays gratification, which seems to be unacceptable.

The entitlement attitude opposes saving as well. Even the poorest of folk, supported entirely by government handouts, feel entitled to the newest phones, the fanciest gym shoes, and nightly dinners in restaurants. Why else can food stamps be used to purchase such ridiculously expensive food?

My children do not always appreciate my frugality, but they will appreciate it when I can afford to live until I'm 100 on my dime, not theirs.

Sriram Khé said...

Unlike you, I don't ever think that the poorest folk are the problem. In fact, I believe that we ought to do more to help out the poorest amongst us. I have been arguing for a long time that we need to rewrite the social contract and this is a classic example.
The rich and the middle class have built ourselves awesome taxbreaks and subsidies and retirement benefits that we apparently don't want to question :( A retired football coach earning 50,000 dollars per month--yes, per month--as retirement income is the problem--not a poor person using food stamps to buy what you consider to be an "ridiculously expensive food" ...