HN Explorer

190 comments

[ 2.6 ms ] story [ 207 ms ] thread
robryan
Who's lending California this money now? It seems quiet a risky deal.
yummyfajitas
It's not that risky. The most likely outcome is simply that the fiscally responsible states will be forced to bail California out.
jswinghammer
Depends on who holds the bonds. If the majority of those people are well connected a bailout is likely. It won't come without concessions though. Bondholders will be forced to take a haircut on their investment. Seems crazy to me.
maxawaytoolong
Except aren't there only like 3 "fiscally responsible" states? I don't think Wyoming and North Dakota are going to be able to pull off such a bailout.
yummyfajitas
Perhaps I should have said "less fiscally irresponsible".
nlavezzo
Everyone who buys California state bonds (which are income tax exempt) is loaning the money. The interest rate California has had to pay to entice people to buy these increasingly riskier bonds, has increased accordingly as the state's financial condition has deteriorated. It is a risky deal, and buying CA state bonds to hold until maturity is basically a bet that the state will get bailed out by the federal government.
robryan
Yeah I knew it would be bonds, just seemed like a risky proposition. I guess any responsible economic action here isn't going to be popular so it's not going to happen?

Hypothetically what would happen if the state decided to reform these pensions, slashing them right back to something they could realistically afford?

nlavezzo
I think responsible economic action is very popular with the population of California in general. Unfortunately, the general population of a given state doesn't get involved in local elections (what's the name of your local state delegate?) unless they work for the government they're voting in. Therefore even though the population in general might be howling for reform, the state delegates that have to push it through have no incentive to, since they know the great majority of people that actually know who they are and are going to vote in the next election, are against reform.
btilly
The fundamental problem is that a large amount of possible government action is hampered by a constitutional rule that says that 60% of the house has to agree on any budget. Structurally neither party has the power to get to 60% of the state legislature, voting for taxes is political suicide for Republicans, and voting to cut benefits is political suicide for Democrats. So we have permanent deadlock with no attempted solutions being politically viable.

With your example, if California tried that before declaring bankruptcy, there would be court challenges that California would lose. Even if contracts going forward were amended, that wouldn't help the structural problems from what has already happened.

Therefore California requires either bankruptcy or extraordinary assistance. And the Obama administration has indicated that no extraordinary assistance will be forthcoming.

It is worth noting here that California is one of the few states that pays more into the federal government than we get out, and the amount extra we have paid in over the years is more than enough to rescue the state government.

ghshephard
s/60% of the house/66% of the house/

From: http://www.leginfo.ca.gov/.const/.article_4

Const., Art. IV, Sec. 12 actually stipulates

" (d) No bill except the budget bill may contain more than one item of appropriation, and that for one certain, expressed purpose. Appropriations from the General Fund of the State, except appropriations for the public schools, are void unless passed in each house by rollcall vote entered in the journal, two-thirds of the membership concurring."

billswift
Another problem there is that there is no mechanism for a State to declare bankruptcy. There were several discussions about this on Megan McArdle's blog http://meganmcardle.theatlantic.com (I think from last fall through early this summer).
Eliezer
They're all betting they can sell those bonds on a liquid market a week before the market officially wakes up and realizes a disaster is coming.
korch
The Federal gov't won't ever let California outright default on its debt. Why? It is the largest economy inside the US, it serves critical national security purposes, and being the biggest state debtor it will take dozens of other broke states down with it. A default would trigger a copycat landslide in the dozen other states who are also crippled with massive debt. If half the states default, all the dike holes the Fed has been filling with fingers over the past 2 years will have been for nought. It just can't be allowed to happen, period. At least in plain sight.

It's exactly like how the banks are keeping their 1+ years worth of "shadow" housing inventory off the market, so as to keep a floor on prices and prevent everyone from panicking and running for the exits at once.

And just like how the Federal bailouts were passed through back channels(i.e. Maiden Lane I & II, reserve swaps with foreign central banks, etc), and arcane accounting tricks that no congress-critter can comprehend, and the biggest political smoke & mirrors America has ever seen, so too will it go for the bailing out involvent states. It won't be Obama handing Schwarzenegger an oversized $30 billion dollar check on TV like a grinning Ed McMahon. No, it'll be a thousand tiny accounting tricks to prop up California, and keep the markets in perpetual doubt about the overall fiscal status of California.

Our entire Federal fiscal and monetary policy is a waiting game. They don't know what will happen, but the thinking is if we can all just hang on long enough for everyone to adjust to the economic new normal, then we can at least avoid an outright national collapse. Nobody on the planet can even know if this will work, but there are zero alternatives.

jumby
i like how the 2nd graph is totally wrong: those numbers aren't in billions, but in millions. i guess no one understands how to read graphs anymore
crad
Where's the source of the 2nd graph being wrong? It's labeled as billions and the article mentions "This year, retirement benefits—more than $6 billion—will exceed what the state is spending on higher education."

That statement is in agreement with the graph.

dminor
Yes, but the graph has it at $6,000 billion, i.e. $6 trillion.
crad
Ah yeah good catch...
[deleted]
(comment deleted)
[deleted]
(comment deleted)
dminor
Not to mention the first graph would be far more useful if it displayed relative job losses rather than absolute.
noahlt
Forgive my ignorance -- what does "relative job losses" mean, and how does it differ from "absolute job losses"?
muzz
I think he means as a percentage rather than absolute number. I doubt the state even has 1.2M public sector employees; this CNN article indicates 240,000 so even if every single one was fired it would still make the graph look like the public sector wasn't cut enough: http://money.cnn.com/2010/07/08/news/economy/california_pay_...
stanleydrew
Relative meaning take the ratio of jobs lost to total jobs in each sector and compare.
[deleted]
(comment deleted)
muzz
Yes but then it wouldn't make the (largely political) point that he wanted to make.

The comparison itself seems odd. If the state's private sector loses 1.2M jobs, should the public sector shed a proportional number of employees i.e. teachers, firemen, policemen, prison guards, etc?

noahlt
His point isn't that the public sector should shed a proportional number of employees, but that the collective income of private sector taxpayers has decreased, yet they are forced to sustain public-sector pensions with that decreased income.
_delirium
How is that particular graph making that point? I can see for the 2nd pension-cost graph, but the job-losses graph appears to me to be implying "private-sector employment is falling much faster than public-sector employment". But, by using absolute numbers, it implies that the "correct" outcome, where the two curves would roughly track each other, would be for public-sector job losses in raw numbers to be equal to private-sector job losses, which would be absurd given the large difference in total jobs. With those scales, there is almost no economic situation that would result in the public-sector line being anything but flat, because its raw numbers are far too small to register much of a blip in either direction.

It's hard for me to come up with a good reason for that particular choice of graph other than "political spin". One of many reasons I've switched to reading The Economist rather than the Wall Street Journal for economics-meets-politics news, since the Economist makes a more conscientious effort imo to avoid slanting their data or infographics in the direction of their editorial line (and they do take roughly the same free-market editorial line).

roc
To be fair, most readers aren't even listening to the arguments, so it doesn't matter if the graph is right or wrong.

They've settled on a conclusion before they even looked at the data, let alone read the article. Given how difficult it is to collect all the necessary data for actual objective analysis and how little that ultimately influences any party policy, I'm not even sure you can blame the readers.

You can rest assured that each party-line talking head is going to present skewed justifications that inevitably support their own preconceived conclusion. So what does anyone gain by reading through it? It's not like you can change the mind of a talking head by pointing out oversights, contradictions, or flat-out errors in their argument.

I mean, does anyone honestly expect a party politician might sit down to analyze some data and come away with a policy that goes against the party philosophy? Any Californian politician knows whether they should solve the budget crisis with cuts or taxes long before they even knew how big the problem was or where the money went.

Anymore, I'm fairly certain the only data involved in policy decisions are poll numbers.

alecco
As a foreigner, this is like bizarre fiction.

  * Arnold Schwarzenegger, a former bodybuilder champion now politician
  * Governor of nearly bankrupt California
  * A state scammed out of 40 to 50bn by Enron and pals
  * AS career was supported by Enron (from Forbes)
  * Writing an opinion column on Fox owned WSJ against state pensions
My sympathies to all californians. The world owes you so much.
alecco
Your down votes signal you read those facts and it upsets your beliefs. I didn't write this for people who agree with my point of view. I wrote this for you. Thank you.
LargeWu
You're probably getting downvoted because you seem to be implying, without real evidence, that California is bankrupt because Arnold was complicit in cheating California out of billions because of shady dealings with Enron.

These are the sorts of allegations that one would typically see in a political forum populated by partisans and hacks. Downvoting is just HN's way of saying this sort of discussion belongs elsewhere.

alecco
While it didn't bankrupt California the economic impact is very relevant with regards of the sums required to pay state pensions.

Also I assumed everybody knows it was Davis who allowed that to happen, well before Schwarzenegger was elected.

chadmalik
Actually if you followed the whole looting of California by Enron & friends, the final conclusion was Schwarzenegger taking office and refusing to pursue a serious lawsuit agains the perps and letting them off with token payments to the state. And yes the proof was and is very clear that the "crisis" was in fact looting. The energy traders who implemented it were taped per regulation and the leaked tapes were ugly. It was a crime and the perps got off. So YES, IN FACT, the governor is culpable for what happened, or to be very exact, refusing to pursue serious restitution.
chadmalik
proof:

http://www.cbsnews.com/stories/2005/02/03/eveningnews/main67...

Enron also pulled power out of states like California, causing emergency conditions to worsen.

"Sorry California," an Enron trader says. "I'm bringing all our power out of state today. I moved out six — over six hundred megawatts."

The "shut downs" and "pull outs" triggered sky high power prices.

"We're just making money hand over fist!" one voice is heard saying on the tape.

And when states complained, the guys at Enron seemed to have a response.

"Get a f clue," one says. "Yeah," another chimes in. "Leave us alone. Let us make a little bit of money."

"Exactly," says another trader.

[deleted]
(comment deleted)
mquander
My downvote signals that if you want people to take interest in claims like that, you need to substantiate them. It also expresses disapproval at the insertion of a tangentially-related, flamebait ad hominem into a thread discussing a particular set of economic statistics.

EDIT: I retract my statement that it's an ad hominem. I think the parent has a reasonable point.

alecco
This is disorienting. What is your recount of what happened in the California Energy Crisis involving Enron? Can you tell me which of those points are questionable, please?
mquander
I actually changed my mind, after thinking about your points and refreshing myself on the relevant history. I agree that your portrait of the situation is worth reflecting on, and not that much of an ad hominem. I wish you would have elaborated on your statements instead of just dropping them off, though.
alecco
Thanks! I didn't want to add opinion. In fact the idea was to make people reflect on those facts, given the heavily biased op-ed in the WSJ.

If I mentioned his lack of credentials it would've been ad hominem. His credentials being bodybuilder champion, action hero actor, and marrying into a well connected family. Ouch, now I did it!

[deleted]
(comment deleted)
mark_l_watson
About 25 years ago in California, Orange Country went bankrupt and public employees had to do "give backs" of (if I remember correctly) about 1/2 of their retirement funds and other concessions.

I think that this will be the model for the future, but a state levels.

It may not seem fair to change the rules on public employees, but effectively the rules have changed for private employees because the economy at federal, state, local, and personal levels will keep getting worse.

When I was younger, I worked with techs working for the federal government and they received much lower salary, but a retirement. Now, they tend to make equivalent salaries and have more job security. I am as disgusted with unions lobbying Congress as I am with corporate lobbyists.

pragmatic
That was before federal workers earned twice as much as their private counterparts.

"Federal civil servants earned average pay and benefits of $123,049 in 2009 while private workers made $61,051 in total compensation, according to the Bureau of Economic Analysis. The data are the latest available."

http://abcnews.go.com/Politics/federal-workers-earning-doubl...

CWuestefeld
I'm sympathetic to your point, but you can't really make this comparison, because it's apples-to-oranges. The set of jobs in each set is quite different. For example, there are few farmers in the government employ.

However, we can still reach interesting conclusions from the data. For example, I would expect that regardless of the salary of the job, benefits such as healthcare insurance would be fairly constant for employees anywhere, and that in the private sector, healthcare is probably the single largest chunk of benefits. With this observation, we'd have to conclude that whatever salary you're making, the government is throwing in a pretty significant amount of extra value into their employee's benefits, whatever that employee's job might be.

dpifke
Even when broken down by industry group and job type (apples-to-apples), public-sector employees make significantly more than their private-sector counterparts, see this Department of Labor press release:

http://www.bls.gov/news.release/pdf/ecec.pdf

(On page 3 is a comparison of % spent on different benefits for public- vs. private-sector; not sure what conclusions can be drawn from it.)

richieb
Really it is the private sector employees that make much less than public employees. Except of course the CEOs and other way over paid executives.....
nkassis
This varies very much depending on the state or department you work in. I work for the Government in Florida and the average IT pay was much lower than comparable jobs in the private sector. In IT I saw differences of about 20K in pay. I was looking at the salary scales and comparing them to the average for things like DBA/Sys Admin/Programmer.
Anechoic
Page 4: "Compensation cost levels in State and local government should not be directly compared with levels in private industry. Differences between these sectors stem from factors such as variation in work activities and occupational structures. Manufacturing and sales, for example, make up a large part of private industry work activities but are rare in State and local government. Professional and administrative support occupations (including teachers) account for two-thirds of the State and local government workforce, compared with one-half of private industry."
jordanb
It's worth observing that:

1) Orange County went bankrupt by cooking the books. After the scandal broke, their treasurer went to jail.

2) The Republican administration turned a blind eye to the Democratic treasurer's malfeasance because it was allowing them to keep taxes very low, which was making their government very popular.

3) The government refused to raise even a temporary tax to avoid bankruptcy, as that position was highly unpopular among the wealthy residents of the county. At various points the county insisted that it should receive bailouts from the California state and federal government, which drew anger from across the nation as Orange County is among the wealthiest places in the nation.

4) In bankruptcy, Orange County cut $200 million from its budget by clawing back commitments to its low level employees who had no part in the high level corruption, as well as through layoffs and reduced services. The OC bankruptcy, from the perspective of the average person, is like a minified version of the bank bailouts. It was a "heads I win, tails you lose" bargain between the wealthy people of OC and the average people who were hurt most by the layoffs and reduced services.

yummyfajitas
...low level employees who had no part in the high level corruption,...

The low level employees didn't vote for and join unions which helped that Dem treasurer to get elected? They didn't push for overly generous pensions and non-transparent accounting?

They must have behaved very differently than contemporary unions.

jbooth
Give me a break.

Those low level employees do a job under a contract which was supposedly negotiated in good faith.

Now because you don't like "unions" or "government" it's ok to stiff people who perform a public service for a previously agreed upon wage and benefits? What, because highway workers weren't doing financial due diligence on the multi-hundred-million dollar county's books? It was their responsibility to do this? I thought that was the responsibility of the guy who got thrown in jail for cooking the books.

This is what that professor was talking about when he was apologizing. Everybody wants to cut taxes and make public servants work for free, whether it's out of simple selfishness or a more highly evolved ideology (aka fancy selfishness).

yummyfajitas
Union contracts are not negotiated in good faith. That's the problem. Our politicians do not get into negotiations with the union, driving as hard a bargain as possible and looking out for the taxpayers. Our politicians are in league with the unions hoping to get their support in the next election.

In any case, no one wants unions to supply labor for free - all anyone is advocating is that the government pay it's suppliers market rates or below. I.e., the politicians should look out for the taxpayers, not government suppliers.

As I've pointed out to you before, most liberals get strongly outraged when there is even a hint that a military contractor might have gotten a sweetheart deal. And yet, there is a strong defense of Big Labor when they get a similar sweetheart deal. Why is that?

jbooth
Liberals don't claim that the government should renege on a contract that was lawfully entered into with a military contractor. In fact, nobody claims that, ever. Yet whenever local budgets are crunched, we always hear about how greedy the municipal workers are. You know what policemen and highway workers get paid?

I've negotiated union deals from the government side. I negotiated fairly, in good faith, and nobody attempted to bribe me with campaign contributions or do 1/10 of the stuff that regularly happens in Washington with military contractors.

Your assumption that the deal must be crooked because it's paying workers is ridiculous. How about the fact that they were out of money because they were cooking the books? How come the workers have to pay for that screwup?

houseabsolute
> You know what policemen and highway workers get paid?

Policemen get paid a lot of money where I live. (http://sf-police.org/index.aspx?page=1655). Personally I think an entry-level pay of $80k for someone with only a high-school diploma is pretty good. There are other areas in the Bay where pay is even higher, like Oakland.

I can't speak to highway workers.

jshen
My wife happens to be a teacher in L.A. (not lausd). Her entry level salary was barely 40k and she is now in the 50k range after 6 years. I'm a programmer with less education, less years of experience, and I make more than double what she makes. If they are getting a posh deal I sure as hell don't see it.

But, neither of our single data points says anything about the situation. I'm assuming most people on here took statistics and understand that both are meaningless. We need the average, and the standard deviation at a minimum to say anything meaningful.

houseabsolute
> If they are getting a posh deal I sure as hell don't see it.

We were talking about policemen and road workers, but now that you mention teachers, we can talk about them too. Among other things, it's almost impossible for them to get fired and their raises don't seem to be connected to performance. They also get to take three months off during the summer, bringing their annualized salary up to about 70k. If you throw their pension plans into the mix, it is actually very profitable compared to most employment pursuits available to liberal arts majors.

Also, it's hard to compare the deal they are getting versus the one you are getting, because unlike yours, the price on teachers' labor is not set in a market environment. You might also say that the labor of a construction worker or fast food cook is more back-breaking and intensive than yours, but ultimately that is not the criterion on which wages are decided. The same goes for level of education and experience. None of these are the sole factors that determine what an individual's labor is worth.

jbooth
If they have such a great deal, why aren't you a teacher?
houseabsolute
Different people have different tolerance for risk, different preferences for activity, different sets of cultivated skills etc. Mine line up better with programming than teaching, and I can make more doing it to boot.

Earlier, you were claiming that teachers are getting a raw deal because you are paid so much better as a programmer. To put the previous paragraph in completely unambiguous terms, let me ask you this: "If programming is so great, why isn't your wife working as a programmer?" Does that really sound like a reasonable or relevant question to you?

jshen
Your confusing different commenters.
houseabsolute
My apologies. I'll edit my post to reflect the reality of the situation.

Edit: as it turns out, I can't, so you'll have to make do with my apologies. :)

jshen
most programmers pay isn't related to their performance, hell most ceos pay isn't related to their performance, so that's a red herring.

I'd love to know what factors actually set programmer or ceo pay. Saying, "market factors" is just hand waving.

Now on to the specifics. According to this article they probably aren't going to get the pension they were promised since it's insolvent. They don't get 3 months off, exaggerating won't help your point. It's closer to two months. I get 3 weeks off.

So I'm still failing to see the posh deal. An insolvent pension, and an extra 5 weeks of vacation is traded for a loss of 60k of money right now. That's a pretty lousy deal if you ask me.

yummyfajitas
In NYC, teachers get july, august, 1 week of september, the week after christmas and a week of spring break. That's 2 months 3 weeks, though obviously this varies from place to place.

I'm not sure why you think teachers take a loss of 60k right now - most teachers are low human capital individuals and would not be earning $100k/year right out of college.

And yes, most programmers pay is related to their performance. Rock stars quickly get paid more, either at their current job or they quit and move on. If they suck, they get fired (a concept teachers may find somewhat foreign). That's what "market factors" means. In contrast, teacher pay is set by politics and longevity.

Also, most teachers get early retirement (at 55, vs 65 for the programmer) on a defined benefit pension. Maybe it's insolvent, but most likely the rest of us will be forced to pay. In contrast, if my 401k tanks, I'm fucked.

jshen
Ok, I wasn't counting holidays for my time off, only vacation days, so the difference is still the same.

I didn't earn 100k a year right out of college, your trying to change the facts of the comparison.

"And yes, most programmers pay is related to their performance."

It really isn't, it's based primarily on years of experience, who you know, and how outspokenly confident you are (regardless of whether the confidence is deserved). Every company I've ever been at has had programmers there were twice as productive as other programmers. They never got paid twice as much, and there was no correlation at all really, even it it isn't linear.

Every programmer I know with 5-10 years experience gets a salary within a narrow range.

"If they suck, they get fired (a concept teachers may find somewhat foreign)."

No they don't. I get the distinct impression that you have an ideal in your head that isn't remotely close to the reality. If you are at a company of any size it's very hard to fire someone.

Just curious, how old are you?

yummyfajitas
I'm not counting holidays, I'm counting week long periods where NYC teachers don't have to work. Do you get spring break and a week long Christmas vacation at your job?

I got the number $100k from you: a teacher makes $40k, and when one takes a job as a teacher, "an extra 5 weeks of vacation is traded for a loss of 60k of money". Then I used fancy mathematics.

As for programmer pay, I'll just tell you the range from the last time I looked for a job. My lowest offer [1] was about 40% of my highest offer, but they weren't seeking great developers. I also happen to know of someone considerably better than me making 50% more (at the same level of experience).

As for firing the incompetent, I don't know what company you are talking about. Plenty of people get fired. In NYC, until very recently, they were paid to show up to rubber rooms for years.

[1] Not technically an offer, but salary was discussed.

HaloZero
Programming is a very difficult field to enter and it is very lucrative. You can't really compare the programming job vs any regular government job. Consider that most employees in private areas are probably more desk jobs (not programming) they get equivalent salaries minus all the lush retirement.
jshen
I wouldn't call teaching a regular government desk job. In fact, it's rather absurd tobsuggest such a thing.
whyenot
Policemen get paid a lot of money where I live.

They work in a city where it's difficult to buy a home for less than a million dollars. Contrary to your assertion, further highly specialized education beyond a bachelor's degree is required to be a police officer (hint: http://en.wikipedia.org/wiki/San_Francisco_Police_Department... ). Also contrary to your assertion, it appears starting pay is no higher in Oakland than SF (hint: http://www.opdjobs.com/ ). They perform a very important service and risk their lives doing it. They deserve every cent IMO.

houseabsolute
> They work in a city where it's difficult to buy a home for less than a million dollars.

Yet Starbucks baristas still get paid the same as anywhere else (modulo some minor cost of living adjustments) and don't get to retire at 50 with 90% of their last year's income (which should be a good deal more than the starting salary).

> further highly specialized education beyond a bachelor's degree

You should say "separate from," since all that is required to join is a high school diploma: http://sf-police.org/index.aspx?page=1646. Then, I suppose, you must attend police academy, but it's not clear from your links exactly how much time you have to spend there. Given that the mayor cancelled two thirds of their classes, either the force must have cut hiring by 66% or those classes are not required for all kinds of police duty. That "hint" bit was rude, I should know since I troll occasionally too, but you'd be better off avoiding it if you want people to listen to you.

> Also contrary to your assertion, it appears starting pay is no higher in Oakland than SF.

I believe my claim was about overall pay, not starting pay, for Oakland. That said, I don't have numbers to back that up. I can only say, "I heard it from Michael Krasny on Forum." Being that he seems to lean left, I don't see any reason for him to exaggerate the pay of unionized government workers, but it's possible he got it wrong or I am not remembering correctly.

> They perform a very important service and risk their lives doing it. They deserve every cent IMO.

Being a policeman is not really that risky. http://en.wikipedia.org/wiki/Police_officer#Line_of_duty_dea.... Pizza drivers are at greater risk of death and you don't see them getting paid six figures for their work. Politicians beholden to unions is a much better explanation. I do believe they deserve to get paid something, but I don't think their jobs are so hard that they should have money thrown at them the way they do.

It's fine for you to "feel" the way you do, but to my eyes you haven't provided much rational justification for it.

jbooth
Why don't you do it then, if it's such a great deal?
houseabsolute
Please read the other thread. I already dispensed with this idiocy regarding teachers and I'm not going to address it again.
gwern
> and risk their lives doing it

Lots of people risk their lives. I risk my life every day driving to work.

Did you know that policemen don't even make the top 10 list of most dangerous jobs? http://money.cnn.com/2005/08/26/pf/jobs_jeopardy/

Garbage men, BTW, perform a very important service and risk their lives (#5) doing it, and are paid much much less.. They deserve every cent IMO.

WildUtah
> You know what policemen and highway workers get paid?

$400,000.

Cops and some prison guards and firemen in most of New York, New Jersey, Massachusetts, California, and other poorly managed jurisdictions with public unions average $300,000 to $500,000 in total compensation. To be fair, the job does require a bachelor's degree and not just a high school diploma. And you usually need a good friend who can pull strings to get you hired, obviously.

The mid career base salaries are about $150,000 and the pension plan usually are full final-year pay and benefits retirement at 45 or 50. That pension plan costs more in present value than the salary according to sane actuarial assumptions. Furthermore, there are effectively eight weeks of paid vacation, a short work week, generous overtime pay, and pensions are usually calculated based on final year pay including overtime and vacation cash-out so they can be well over official salary.

State highway workers get paid considerably more than the market rate paid by contractors but not as much as cops.

yummyfajitas
Liberals generally favor making it easier to renege on contracts when the financial consequences of paying off one's debt might be dire. Here is Krugman's opinion on the topic:

http://www.nytimes.com/2005/03/08/opinion/08krugman.html?_r=...

The workers pay for the screwup just like any other creditor would. It's not as if OC bondholders were paid off but workers were not.

In general, I assume a deal is crooked when one party gets consistently above-market rates for their product, when there are laws on the books explicitly giving one party massive advantages, and when the political interference of one party is plain to see for anyone with a TV.

ubernostrum
I fail to see a logical connection between "you joined a union" and "you lose the right to have contracts you signed upheld". Perhaps you could elaborate?
yummyfajitas
I fail to see why you think I implied there was a logical connection. I was simply disputing the idea which I quoted.
jbarham
Whereas "temporary" taxes are popular with non-wealthy people? Nice try w/ the class warfare.

FWIW I live in Orange County but what really matters is what city you live in within OC.

lr
This is a GOP strategy called "starve the beast", and Paul Krugman has been writing about it for years: http://www.google.com/search?q=starve+the+beast+krugman
CWuestefeld
This same thing is also an extreme Liberal strategy. Sorry, I can't remember the name to look it up.

The theory is that you can so overload the government that it simply can't stand up anymore (like the USSR I suppose). It crumbles, and that gives you the opportunity to erect a new one in its place, doing away with all those things that stand in your way, like Constitutional restrictions on the government.

UPDATE: the name is "Cloward-Piven" (http://en.wikipedia.org/wiki/Cloward%E2%80%93Piven_strategy#... ), see my follow-up below.

itsgoats
Except there's no mainstream, tea-party-a-like leftists loudly advocating that strategy in the US.
CWuestefeld
... Which doesn't change a thing about it.

I finally found a reference, it's called the Cloward-Piven strategy.

http://en.wikipedia.org/wiki/Cloward%E2%80%93Piven_strategy#...

>>Cloward and Piven’s article is focused on forcing the Democratic Party, which in 1966 controlled the presidency and both houses of the United States Congress, to take federal action to help the poor. They argued that full enrollment of those eligible for welfare "would produce bureaucratic disruption in welfare agencies and fiscal disruption in local and state governments" that would "deepen existing divisions among elements in the big-city Democratic coalition: the remaining white middle class, the white working-class ethnic groups and the growing minority poor. To avoid a further weakening of that historic coalition, a national Democratic administration would be constrained to advance a federal solution to poverty that would override local welfare failures, local class and racial conflicts and local revenue dilemmas."

infinite8s
I think by Liberal he meant to say Libertarian
CWuestefeld
No, I meant "Liberal". Read the article at the link.
illumin8
Ah yes, I never understood why on earth anyone would elect someone to public office that hates government so much they would try to destroy it... It would be like hiring a developer that hates code so much he would delete it from your repository to reduce kloc counts.
celoyd
Your analogy is actually a pretty charitable reading. HN often discusses how the best coders are sometimes the ones who produce less code. Some principled fiscal conservatives don’t hate government, they have waste, and electing them to reduce the institution they’re part of is not absurd.

For what it’s worth, I think starve-the-beast is empirically a bad strategy. But it’s not a logical fallacy, as people sometimes seem to think.

ubernostrum
Some principled fiscal conservatives don’t hate government, they have waste, and electing them to reduce the institution they’re part of is not absurd.

Unfortunately, principles do not win elections. The ones who actually win are the ones who want to deregulate business and regulate morals.

jacoblyles
There's a Krugman interview where he advocates higher handouts that he knows the government can't pay for with current revenues, which he believes will force the government to raise taxes in the future.

So there is a left wing version of playing chicken with the budget as well, but it doesn't have a catchy phrase to describe it. Maybe "Binge the Beast"?

MaysonL
Actually, OC went bankrupt because they had lousy financial controls, and the treasurer made some insanely large bets on interest rate derivatives, which worked for a while and then went sour.
_delirium
> It may not seem fair to change the rules on public employees, but effectively the rules have changed for private employees

It's possible this has happened some places, but not at any major companies I know about. Companies that have phased out defined-benefit pensions have generally not done so retroactively, but only closed them to new hires. Phasing them out retroactively would be a breach of contract, since the employee performed work for you under the expectation that you'd honor the employment contract they signed, including the pension terms. Pension is a kind of remuneration, so you can't decide not to pay it after receiving the work.

Much easier legally to simply stop making those pension promises to new employees, but not breach the ones you already made.

learner4life
Actually, IBM did retroactively change the pension eligibility criteria as well as the payoff during its restructuring under Lou Gerstner(This is the late 90s). There is still a pending lawsuit if I remember correctly. It makes no sense to me as to why it is OK to underfund pension accounts. One major reason IBM was able to make the change is because it had no unions(FWIW I am no fan of unions as they encourage sloth in organisations).
camiller
Also some of the old phone company (AT&T prior to the 1974 breakup) employees had their retirement benefits whittled away over the years, my father-in-law included. Additionally most private sector employees are not under any sort of contract. I didn't sign a contract at any of the three corporations I've ever worked for (over the past 22 years). Fortunately my retirement was all 401k and as I changed jobs I rolled those into a rollover IRA under my control so I don't have to worry about under-funded pensions, I only have to worry about how bad I suck at picking stocks.
_delirium
Interesting re: the contracts. I don't think I've worked any job, even relatively minor summer jobs, without signing a contract of some sort. It usually covers both obligations to me (salary, termination conditions, benefits, etc.) as well as my obligations to the company (intellectual property ownership, non-solicitation if I leave to start a competitor, etc.).
kenjackson
I knows probably more than 100 private tech employees that regularly make more than $1M/year (salary plus stock/bonus). I don't know any federal tech employees that make more than $150k/year.

Either you only know private tech code monkeys or have found the highest paying federal agency that no one has ever heard of.

illumin8
Yes, but those private employees making more than $1M are probably some of the best talent in the industry, where as the federal employees could have any range of talent from "breathes, and has a pulse" to "rockstar developer."

Also, the private employees when they retire get no health benefits and have to fund their own retirement from a 401k, whereas the federal employees have guaranteed health care for life and a guaranteed pension. The health care and pension alone are worth at least a few million if you live to a decent age.

_delirium
I don't think that assumption is usually true. Knowing a lot of people in finance, it doesn't seem hard to me to conclude that the employees making over $1M can have any range of talent from "breathes, and has a pulse" to "rockstar finance guru". To the extent talent is required, it's often bureaucratic ladder-climbing talent.
kenjackson
You're right on most counts. But this is the tradeoff.

Private: Can make it rich. Really rich, And on average probably make more money while working, assuming the same type of work. OTOH, if you don't make it rich your retirement may not be as nice as you'd like.

Public: Will never be rich. You can solve P=NP, factor large numbers in constant time, and create a revolutionary new UI that every loves, and you'll still get paid as a GS-13, but you'll get a level bump next time your promotion comes up. But when you retire, you'll be comfortable.

It's kind of like the same deal judges get. Almost all federal judges would make a boatload more money as attorneys. But they take the lower pay with job security, salary for life, and a different kind of prestige.

CWuestefeld
Considering the early age that many public pensions allow you to retire at, you can have your cake and eat it too. Retire early on a guaranteed public pension, then take your chances in the private sector.

Or don't take chances. It's very common for bureaucrats to retire to become lobbyists, working for private industry at comfortable salaries in order to exploit the regulatory system for others.

kenjackson
I'd actually do it the opposite way. Take your chances when your young and are more willing to work 24/7. When you get older, do the gov't job with the pension ready at the normal retirement age.
gwern
You might have a hard time getting into an equivalent government job, and many government jobs have mandatory retirement ages (which I think are not as common in the private sector); so if you tried that, you could find yourself shut out with not enough years at the high ranks to make the pension worthwhile. Read about cop salaries and notice how much of their pensions are based on their final years out of 20 or 30. ('spiking' and vacation-time etc.)
aswanson
I knows probably more than 100 private tech employees that regularly make more than $1M/year (salary plus stock/bonus)

Where? Serious question.

kenjackson
The simplest way is to simply go to Yahoo Finance and look at stock for insiders for tech companies. You'll find plenty of techies. From Sergey to Bill to Jerry.

But even non-founders, those in purely technical roles. People like David Cutler or Jeffrey Dean or Amit Singhal. At virtually ever major tech company you'll find a continuum of these.

Go to the federal gov't and you'll see much flatter pay structure. I don't care how rockstar you are in the Air Force, you are never going to see Sergey or even Jeff Dean type of money. Never.

mkramlich
I'm curious, what sorts of roles do those 100+ people have, that you say make more than $1M/year? I have guesses but want to learn specifics.
kenjackson
Depends on the person.

Obviously Gates and Sergey have a visionary/uber-architect role. Others like Sweeney, Cutler and Carmack are hairy-chested devs who checkin just as much code, if not more, than your typical senior dev.

And of course there's the gamut in-between.

And for a lot of these people, they don't even consider it a lot of money. I had a friend who made $10M after an IPO. I asked how it felt and he said, "For what? To become Silicon Valley middle class?"

mkramlich
oh I thought you knew them personally. regardless, yeah sounds like the common thread among the guys you cited is that they all were founders/owners of a company. That's generally the sense I've gotten, if you want your ceiling to be $100-200k/year, work for somebody else. But if you want your ceiling to be millions or billions, you have to be a founder/owner.
irons
You're right: voiding other people's contracts because they (collectively) negotiated better deals than you did doesn't seem fair at all. Arnold knows exactly how to push your buttons.
anamax
> You're right: voiding other people's contracts because they (collectively) negotiated better deals than you did doesn't seem fair at all.

You're forgetting that govt is a monopoly. GM can promise anything it wants to its retirees, but if its customers decide to buy Toyota, GM won't honor those promises (unless the govt bails them out).

If San Jose makes promises, folks who had nothing to do with those promises are forced to make good.

That's why public employees and public works projects (SJ Arena, light rail, pro-sports facilities) should be on a pay-as-you go or collateral basis. That way, the stadium failure won't be a burden on future tax payers.

If you think that such things are a great idea, buy the bonds. If you're correct, great. If you're wrong, you get to foreclose.

hammmatt
Can someone confirm that indeed 80 cents of every tax dollar goes to pensions?
philk
From the article:

roughly 80 cents of every government dollar in California goes to employee compensation and benefits

So that's salaries as well as pensions (and salaries will be making up the lions share of the 80%).

To quote Felix Dennis "Overhead walks on two legs".

16s
Employees are the biggest expense for any business, not just governments.
larrywright
This is true, but not 80%. This number is way, way out of whack.
billswift
Usually the biggest single expense, but not usually more than half of the total expenses.
maukdaddy
That first graph is insane, yet believable.

Here in Chicago, there have been a few layoffs of city personnel, but mostly furlough days. City workers are forced to take 24 unpaid days this year. So our public/private graph probably looks the same.

Comments reflect my personal views and not my employers, etc.

pg
I have a feeling these graphs do more to explain the problems that Berkeley professor wrote about (http://blogs.berkeley.edu/2010/08/24/a-letter-to-my-students...) than the explanations he proposed.
tomsaffell
He being the Berkley professor, if I read right. (I had to read it a few times to parse..)
donaldc
Since UCB gets state funding, this may make the professor and his pension a part of the very problem he (the professor) is complaining about.
callmeed
And makes it more laughable that he framed his letter as "an apology"
timr
Remember, this is one side of the debate. There's a lot more to the story than you're reading here, so perhaps you should hold off on the laughter.

I generally agree with the governor, but I also tend to believe that the state has to make good on past obligations -- especially when real people have planned their lives around those obligations. The 55-year-old retiree with fat benefits is a political straw man, but reality is much less clear.

shin_lao
I was thinking exactly the same thing.

In addition when you know an employee is going to cost you a lot of money in pension, the incentive to reduce the work force as much as possible is high.

You end up in a situation where your budget is used to pay for the retired employees and you have nothing left for active employees.

One of the reasons you are there is that it's pretty tempting for someone in command to offer a lot in pension. Under his command the budget remains clean and the employees are happy. That has got to ease elections!

One way to avoid that would be to change the way the yearly budget is computed so that it includes "known future expenses" clearly.

dantheman
Just don't allow future expenses.
_delirium
I could see some definite pros to that. I'm trying to think of problematic things that might also get banned as a result, and not thinking of a lot. One thing that'd get banned along with large pension promises, if that rule were applied consistently, would be golden parachutes.
amalcon
So, in other words, the bottom line in the budget should be delta (assets - liabilities). This is how individuals are encouraged to do their own budgeting; how would it hurt to require the same of the state?
erikpukinskis
Isn't there a government office that calculates that stuff? The long-term fiscal impacts of each bill? I want to say it's the GAO, but I don't think it is.... it's driving me nuts!
gwern
There are, but it's very easy to fudge the numbers. For example, New York State is supposedly one of the best-funded state pension plans around, but if you change the predicted annual rate of return for the pension plan's investment from 8% to 5 or 6% IIRC, it's suddenly deep in the red. Small looking obscure change, big difference.
jimbokun
"Under his command the budget remains clean and the employees are happy."

Don't any of these places have accountants? Surely, there should be some requirement to recognize the future costs being taken on, properly discounted for net present value?

Or am I just naive?

jerf
This is the reason my replies on that topic focused so much on total outlay issues, rather than education spending directly, which seemed more directly on topic. I had a hard time expressing my logic, but it was pretty much the issue of the amount of spending on potentially useful things getting crowded out. It's easy to frame it in terms of people not wanting the government to have their money, and I felt the professor tried to establish that with some of his phrasing, but that's not the real problem that needs solving. The problem is allocation.
ericb
I think this is a game theory problem. CEOs (looking at you, GM) and politicians up against tough unions have an easy out with no "cost" to themselves. They pass the buck by placating unions with pension concessions so all seems well during their tenure. Long after they've collected their bonuses or enjoyed reelection, someone else gets to deal with the unsustainable consequences.
aswanson
One solution may be to have taxpayers directly vote on benefits for public servants...make the unions take on the people who will be paying for it rather than temporary placeholders with no real skin in the game.
dasil003
Assuming reasonably educated voters. But as we've seen in California, the ballot initiative process only helps the idea that can be distilled down to a compelling soundbyte and is championed by the deeper pockets.

I'm afraid public employee compensation reform probably loses on both counts.

houseabsolute
Or to require that the value of the benefits start being paid down in a sustainable way immediately. Only if those who are benefitting from the delayed benefits are required to fund them will this problem really be solved. In the private lending market we call this a downpayment.
WildUtah
The Federal Employee Retirement Income Security Act (ERISA) requires that private employers that offer pensions do pay as they go.

Defined contribution 403(b) and 401(k) programs have to have their deposits made soon after each year end. Defined benefit plans are more complicated, but there are big federal fines for companies that fail to deposit the increase in expected value of future payments each year. There are extensive (but imperfect) actuarial rules in the US Code to make the actual minimum contribution match the needs of the pension fund. Big funds need to buy insurance, too, in case things go wrong.

States and municipalities are immune from the federal standards. That's why they're ignoring the consequences and just promising to pay pensions without depositing enough money according to their own actuarial computations. A private company would have had to cut back on promises or pay the full current cost of future benefits.

Heck, even the Federal Government is keeping up with employee pension planning. The trouble is all in states and municipalities.

The states know they are doing this; actuarial science is not a mystery. But governors and legislators figure that public employee unions must be satisfied. And the problem won't explode until they're out of office and then it's someone else's problem.

And we voters who don't hold them responsible are ultimately at fault. Public employee unions couldn't hold politicians captive if we were willing to vote out pols who kowtow to irresponsible demands.

anigbrowl
Do you really think people are going to go to the polls and vote to cut pay for prison officers, police, firemen etc.? Sure, it may actually be legislation targeted at specific kinds of pensions and double dipping, but on TV it's going to be 'our cops and firefighters can't even put food on the table'.

Anyway, the whole point of representative democracy is to not have to consult the electorate for every little thing. Voting on pay is too nitpicky. The best alternative I can think of is that no one bargaining contract can run longer than 5 years, but that just swaps one set of problems for another.

aswanson
Christie is doing it: http://blog.nj.com/njv_bob_braun/2010/05/nj_gov_christie_bud...

Approval rating seems ok:http://www.washingtonexaminer.com/opinion/blogs/beltway-conf...

anigbrowl
I didn't visit HN for a few days, sorry I didn't reply to your comment at the time. It's not that I don't think it would be a good thing to change policies this way, I agree that economics demands such a change.

Where we differ is in our belief over whether California voters would actually pass such an initiative at the polls. On past forms, I think campaign slogans would beat out economics or critical thinking. I do think ballot initiatives are a good thing in general, but as a state we have also passed some very foolish laws, whose long-term impact was not appreciated at the time. 'Three strikes' leading to life in prison is the most obvious example.

MaysonL
I have a feeling those graphs are more than a little fishy - the bottom one especially. Retirement costs went up ~5X from 2000 to 2010? And they'll go up by the same from 2010 to 2020? I call BS.
spoiledtechie
Its not BS at all. Many states have problems with this. And if you even get close to state budgets at all which very rarely do citizens do, you will see this problem in more than just a few states and cities and even counties...
MaysonL
I agree that California and other state and local governments have a problem with pensions. What I'm saying is that the graph severely overstates the magnitude of the change in costs over the past and future decades.
farmerbuzz
Do you have some evidence to support this?
CWuestefeld
It's a very reasonable number. Consider that there are three factors feeding this:

1. Increased promises to the public sector workforce.

2. The need to make up shortfall in the funding due to market declines.

3. The need to make up shortfall because the funding was insufficient to begin with, owing to accounting ... creativity.

MaysonL
And these three factors are going to continue for the next 10 years? I strongly doubt it.
recoil
You missed two other points:

4. The boomers are just now hitting retirement, so the number of people retiring in a given year is increasing (Actually, it'd be interesting if somebody could pull out some hard numbers on this - I've heard this spoken of anecdotally a lot lately).

5. Retirees are drawing on their pensions for longer because they have longer lives.

arohner
The costs are going up for several reasons:

1) Many pensions are underfunded. The state has to play "catch up" because they weren't putting enough money in the fund in the past.

2) Pension funds play the stock market. In a recession, the fund needs more money because the market is down.

3) (I'm not sure this is the case for California, but it's definitely the case for the federal gov't) The gov't often guarantees pensions issued by bankrupt companies. The gov't just takes on the extra debt, and often bankrupt companies don't keep up with their pension contributions.

[deleted]
(comment deleted)
whatusername
The label on the 2nd one is off. WSJ states that it is in Billions and then has 5000 on the left hand scale. I'm pretty sure California doesn't have $5 Trillion in Pension costs. Pretty sloppy fact checking.
jhickner
That's the total projected pension cost for each year from now until the last currently retired employee dies, which may be 30+ years from now. So it's not debt, per se, since that cost is amortized over the same 30+ years. It's a projection of the total cost over that time period.
jbooth
They do, and the biggest part of those projected costs is the healthcare for retirees. Many government insurance pools are self-insured, and old people consume a lot of healthcare.

But the Berkeley professor is still right in a way. Every single dollar in future retirement pay or health benefits for a public employee was negotiated in good faith in exchange for lower pay right now, this year, so we can balance the budget. Throw in term limits and a little demagoguery and politicians have every incentive to cut a deal that balances the budget this year while kicking costs down the road.

So when the Prof mentioned that for the last 30 years, our society has been taking out a loan for our kids to repay, he was still correct, especially when looking at these graphs.

vishaldpatel
Found this in the comments to that prof's blog post: http://www.scribd.com/doc/36538677/1004-Bbg-Professors-and-P...

Basically, yes - pensions are a problem. But the graph on the number of California gov't employees that lost their jobs vs. private sector employees may be misleading because we _need_ the public sector employees to service basic needs in the state, and California employs one of the lowest number of public sector employees per capita of any state.

[dead] apphacker
Seems like he makes a convincing argument to me. Basically it boils down to:

1. California can't afford to pay promised pensions. 2. Public pensions are far more generous than similar private sector retirement options.

I'd like to know:

Are the facts as presented correct? Any errors or misleading statements? If not, then the governor's argument is very strong.

A Republican attacking size of government is par for the course. He assails unions, also par for the course for a Republican. Is he also ignoring special pro-business,anti-tax interest groups that influence his side of the aisle (also par for the course). Having said that, seems to me that assuming his facts are straight that changes are needed.

Personal bias: Except for first responders, my own perception of government employees is one of rude, under-skilled and self-entitled people who unlike private sector employees don't have to worry about: customer satisfaction, providing value, increasing sales or the company's profitability. In fact, just as an example anecdote, when I was in the military, my experience was that one had to spend as much of the allotted budget or else next year's budget would be smaller. So at the end of the year we ordered a bunch of useless shit we didn't need, created fake orders etc just so we could spend enough to match our budget. The focus wasn't on reducing spending. Seems like government employees fill up some allotted headcount by breathing air, and maybe get some work done sometimes.

I realize that my personal bias is probably wrong, which is why it's called a 'bias.'

pchristensen
If he forces through public pension reform, my opinion of Arnold as a politician would go way, way, up.
sliverstorm
When I was a kid and he was elected, I thought he would be a bit of a joke. A movie star elected governor by Hollywood- California really is crazy!

My opinion has changed drastically since then, and I find myself proud to have him as our governor.

dantheman
He got that exactly right, unfortunately he didn't go far enough -- debt financed projects are also a huge problem. Look at the big dig & the mbta.

People need to learn that you pay as you go, that's why 401ks are great the total cost of an employee is understood completely.

Taking debt in someone else's name, which is what essentially all government debt is, is fundamentally immoral and shouldn't be allowed. It causes people to be reckless since they're not the ones paying for it.

DanielBMarkham
Interesting point about taking debt in someone else's name.

Over the last year I've begun to wonder if people aren't going to start feeling like the deal is off. If granddad elected somebody who made so much of a debt obligation that my taxes can't fix the roads? Why does granddad get to leave me his debt? He's not even around anymore. How can dead people vote to make living people 100 years later poor? In some ways this was the exact same problem the colonies were having with Great Britain -- taxation without representation. One bunch of people making the rules and taxes, and another bunch of people having to live it. (And yes, I'm aware of the counter-argument that current voters can change the budget at will, but for all intents and purposes, practically speaking these things are our "legacy" code. We're stuck with them by default. It takes great upheaval to change even the smallest of things in these matters)

I don't think we're there yet. But we're not far off.

CWuestefeld
In some ways this was the exact same problem the colonies were having with Great Britain -- taxation without representation.

Interesting idea. The American Revolution dealt with geographical representation. You're making an argument for temporal representation as well.

This seems worth some pondering...

patrickgzill
Lysander Spooner wrote about some of these ideas - that the Constitution was only in effect for those who were living at the time, and did those folks then mean for it to be binding on everyone else in perpetuity? -- as one example of his thinking.

http://en.wikipedia.org/wiki/Lysander_Spooner

igravious
What an interesting perspective. Making war with the spirits of your departed ancestors is a movie that I'd buy a ticket for.
treeface
> that's why 401ks are great the total cost of an employee is understood completely

This isn't true. There is no definitive way to determine the total amount of the future burden of a matching 401(k) plan because:

1) You don't know how long the employee will continue working there. 2) You don't know the interest rate at which to discount this future liability. 3) You don't know what future voters are going to change in the current matching system.

In fairness, determining the funded status of the future liability of a retirement pension is a lot more difficult than determining the expected cash flows for 401(k) plans.

dantheman
I don't understand your position at all. The company puts money into a 401k, either as a grant or via some sort of matching scheme. The employee sets up their deductions, normally happens once a year. From that point you know exactly how much that employee will be paid in all compensation that year.

There is no future liability. The money has been paid to the employee in it is in their hands now, and their retirement becomes their responsibility.

I think you might be thinking of some other type of retirement plan.

lionhearted
After this one gets to +250 can we have a politics moratorium for a while?
[deleted]
(comment deleted)
akmiller
What, you don't thing that a State (especially California, the startup capital of the world) in a serious budget crisis has anything to do with entrepreneurs that may be attempting to start their own businesses in such a climate?
_delirium
Although I've unfortunately added to it, I don't think on the whole HN discussions on the subject have been particularly enlightening, partly because, unlike with technical topics, HN posters don't generally have expertise or particularly unique insights into this area. We just have a mix of libertarian-leaning and social-democratic-leaning people arguing with each other (with a moderate majority for the libertarians).
[deleted]
(comment deleted)
lionhearted
> We just have a mix of libertarian-leaning and social-democratic-leaning people arguing with each other (with a moderate majority for the libertarians).

Indeed, I decided I'm going to bow out of politics conversations. It's relevant tangentially, but it adds noise and friction. I'd rather connect cooperatively with like-minded people in entrepreneurship and technology, I don't want to get into arguments, build bad will, etc. with people here. Like Delirium says, at this point the argument quality isn't even particularly insightful.

jtg
This is a legitimate concern, but the subject of this article concerns issues that directly affect the interests of the HN community. It's clear to many of us that political grandstanding, personal drama, and he-said-she-said do not belong on HN.

At the same time, many current and aspiring startup founders have embraced the cultural shift to learning about traditionally non-technical areas such as sales and marketing. And rightfully so; this is after the previous shift (or "great opening up") to learning about design and a good user experience.

We've done all this because there's no escaping the cold, hard reality that the success of our companies depends on getting the word out and selling people on our ideas. Good code is not enough.

The skyrocketing cost of public pensions in California affects the solvency of the state government. When the state government is desperate and must make ends meet, tax hikes are the first and most obvious options, and are always taken into consideration. When you're thinking about starting a company and setting up shop in Silicon Valley, the tax burden is a huge factor to take into account.

As things stand today, the benefits of the personal network, concentration of talent, and the established tech ecosystem in Silicon Valley are still more than enough to outweigh the comparatively high tax burden for those who wish to start and operate a successful company. "Political" articles like this are of interest to us because they tell us about important future changes in the formula we use to calculate where we want to set up shop.

izendejas
This article was definitely informative and I say keep these coming.

But I agree... Data, data, data! Or keep your political bias out of here!

btilly
The pension problem is scarier than he says. I wish that they merely projected rosy numbers. However they have also been accepting risk to try to make those numbers. When those risky investments fail, we'll suddenly have an even worse hole.

Note that I say "when", not "if". I say that because significant investments were made in private equity funds during their spending spree a few years back. There is every reason to believe that those investments are going to blow up.

It is worth noting that this is the second time that private equity went on a big spending spree. The previous time was in the late 80s, and the big investors were the savings & loans institutions. Google S&L crisis for more on how poorly that turned out. Then note that the recent spending spree was over an order of magnitude bigger.

chadmalik
No mention of Prop 13 eh? PG&E etc. are able to pay insanely low property taxes, often creating shell companies so the property can be passed between owners, while regular working schmoes pay sky high property taxes.

And what about Arnold's refusal to tax offshore drilling the same way red states like Alaska do?

Yes there need to be cuts in spending but refusing to raise a single tax is simply absurd. Both things need to happen to balance the budget.

The real problem is the need to have a 2/3 majority to pass a budget in the legislature. That is simply absurd.

jfarmer
The 2/3 requirement for raising taxes also comes from Prop. 13.

Best proposition ever!

sabat
It was overkill, and selfish. I was in 5th grade when Prop 13 went through, and by 6th grade school programs had to be cut, school supplies were all but non-existent, and teachers were being fired. For the sake of what -- big corporations? Baby boomer tax rates? Tax cut we can afford, sure.
furyg3
The "job losses" graph is basically trash, since there are far more private sector workers than public sector workers. Better would be to rate it by percentage.

I'm slightly shocked that the WSJ would print it (the graph, not the article).

aresant
Here's the real data which is still striking, eg private is 2x the rate of public:

Job losses June 2008 to June 2010

State government

Statewide: -8,800 / -3.3%

County government

Statewide: -18,500 / -5.1%

City government

Statewide: -14,100 / -4.9%

Private sector

Statewide: -1,200,000 / -9.3%

Via

http://www.signonsandiego.com/news/2010/aug/23/government-jo...

nostromo
I dismissed the chart entirely as overtly biased -- but I wish he had just used these numbers because they make his point much better, and honestly.
furyg3
Indeed it's still a big difference, but it's not "off the charts!" as the graph would have you believe.

Plus, it's fairly reasonable that there would be such a difference between private / public job loss rates.

Employment rates in the operations department of most companies I've worked for are relatively flat during both boom and bust times, when the rates of the rest of the organisation fluctuate wildly. In boom times you need IT/HR/Facilities/Finance... and in bust times you do, too. Sales? R&D? Maybe not so much.

I can imagine that most public services are more on the Ops side and less on the Sales side.

nkassis
I worked for a University in florida and the largest department was by far the Facilities one. Maintaining buildings, keeping them clean etc.. is very expensive. You can't cut those jobs and for each new building, you to add more of these people.

The University tried to freeze hiring but a few new buildings were entering operation, they had to keep getting more janitors/grounds keepers etc.

[deleted]
(comment deleted)
[deleted]
(comment deleted)
WalterBright
I don't really understand the fairness of being able to retire at 55 with a full pension. The retirement age should be 70.
erikstarck
"The problem with socialism is that eventually you run out of other people's money." -Margaret Thatcher
johnny22
maybe you'll run out of this quote some day too. try making one of your own.
lowglow
Is anyone else reading this in his voice?
mkramlich
I don't think any employer should take on the role of providing pensions, as a part of the employment relationship. There is a lot of reasonable argument in favor of the value of something like Social Security, as a sort of minimum social safety net. And such a thing probably makes the most sense being provided by the government. But I'd love to see the day where employers just give cash to their employees, and it's up to them to decide what to do with that cash. It would make for so much less paperwork and reduced overhead costs, and increased simplicity, for business owners and management. Less distortion, greater focus on their core business.
ruang
Defined benefits should be outlawed.

If mutual funds and hedge funds are not permitted to guarantee returns, then neither should pension funds.

cce
Many people took positions in government when it wasn't anywhere near a high-paying job. I know an engineer friend who took a job with the government in 1994 for a 40% pay difference (45k vs 75k) -- how the lower wage was justified: (a) more job security, (b) an actual pension plan with ~28 years service. The two were viewed at that time as being equivalent: with the government compensation a bit less than working for a contracting firm. I know of teachers who choose their profession, not based on the yearly compensation, but based on the idea that "yea, so after 26 years of letting children beat down on me, I can retire and not have to worry so much". I'm sure police/firemen who agree to risk their life every day for 20-some odd years make similar calculations. It's a rational choice -- and a promise of compensation made.

I simply don't understand how anyone could justify retroactive gutting of plans. Can we do retroactive taxation on those that went without the pension as part of their compensation plan?

Elimination of pension going forward -- perhaps. I'm curious to see how recruitment of these positions works... likely, the Government won't be able to attract as good candidates as it might otherwise.