Detroit

The City of Detroit made it official today, when it filed for bankruptcy. For those who watch this sort of thing it was no surprise. Each city has its own particular problems but one thing they all have in common, is payments to retirees in the form of health care and pensions. While these were the result of collective bargaining, there was a built in distortion because of public unions. It happens at all levels starting with city unions, county unions and state unions. It is also a part of teachers unions. It is the reason why a liberal no less than FDR warned against public unions, in that he knew when people gained the power to determine their own benefits, they would overdo it. One example of how this works would be to look at county workers. The situation would be the same if you looked at state or city workers. The county workers organize and form a union. They then select a candidate to run for county commissioner and then they proceed to get him elected. They help him with their votes, the votes of their relatives and friends. They help him by campaigning door to door calling on their neighbors. They help him by holding coffee parties in their homes along with financial aid to help pay for his campaign. Once elected, they select another candidate and repeat the process and promise those in office, their help in reelection campaigns. Next they sit down across the table from these elected officials and negotiate their benefits. The public unions across the country started this process just after WW 11 and they have worked long and hard to achieve the success they now enjoy. There was nothing illegal or unethical about what they did. It was the American way. Set your goals, work hard to achieve them and then enjoy your success. They have now become the victims of their own success and thus the reason why FDR warned against them. In regards to Detroit why doesn’t the federal government step in like they did with the auto industry? The city is 19 billion in debt and the Fed is printing up 85 billion per month so they could just pay off the city’s debt. This would set the precedent to bail out all of the other cities that will fail over the next few years. If the government can give billions to the big banks, why not give billions to the cities? Could it be those city employees who are going to lose their promised benefits don’t have a lobbyist or perhaps they don’t have enough votes? So much for looking out for the little guy. Now on to the more serious situation in California where it is said that, as goes California so goes the country. Here cities, counties and the state are deep in debt much like many other states and they recently raised taxes on the rich that is expected to bring in about 6 billion dollars per year. Now you might think that this money would go toward reducing the deficit but you would be wrong. It will be spent on education. If world peace broke out and the US no longer needed to be concerned about national defense and we freed up 700 billion, do you think this money would be used to reduce the deficit or do you think all the elected officials would line up to spend this new found treasure, to provide benefits to their constituents to guarantee their reelection? California is now proposing a state tax of 3% on all earnings to take care of people when they retire. The reasoning is that the state will have to provide for people when they get old so they might as well collect up front to cover the future cost. This is similar to social security and you see what has happened there. They transferred the social security fund money into the general account to provide current benefits in other areas. I suspect the same thing would happen in California with their new 3% tax. The elected officials would quickly line up at the government trough to start new programs to get votes. Once this is approved to can bet the 3% will rise just as what happened to social security that started as one percent and is now 6%. Jack