Author: Larry Littlefield

The following series of posts is an indulgence. For the past 18 years, and in some ways for the past 30, I’ve become increasingly upset about the way this country and state have sold out the future, and the way the accretion of privileges by entitled special interests has prevented much from being done to turn things around. As a result a resurgence by the City of New York over the past 30 years, previously laid low by similar future self-dealing and future-selling a generation or two ago, is now threatened from without. This frustration is reflected in my writing here on Room Eight.

But it isn’t the case that I am no longer capable of thinking big thoughts about what could be done to improve the common future. These thoughts could be useful in a different place, as in parts of Europe or Asia, or in another time, like the United States at any point in its history until the recent past – back when building a better future for those coming after is something most Americans aspired to. Today all the money is going to debts and pensions and health insurance paid to those 55 or over, at the expense of those 54 and younger, not to investment in a future very few care about. Because those 55 and over wanted benefits for themselves, but didn’t want to pay for them – and now that the country is broke and would prefer to deny to those coming after so they can keep borrowing. But I might as well indulge myself. The following posts describe a pipedream, not a proposal, not because what is laid out is impractical, not useful, or is inherently (as opposed to politically) expensive. It is a pipedream because we are in the Vampire State not Empire State, and this is the era of Generation Greed.

According to a study reported by the Boston Globe, the wealth gap between older and younger Americans is the largest ever. “The typical U.S. household headed by a person age 65 or older has a net worth 47 times greater than a household headed by someone under 35, according to an analysis of census data released Monday. While people typically accumulate assets as they age, this wealth gap is now more than double what it was in 2005 and nearly five times the 10-to-1 disparity a quarter-century ago, after adjusting for inflation.”

This study only measures financial wealth, and a full picture would be much worse for younger generations. For most of U.S. history younger generations were better educated than older generations as education expanded and improved, but this is no longer the case. You can blame the schools, or blame the fact that those now over 55 did a less good job of parenting, but education in this country has plateaued at best. Then there are the public debts, which older households ran up but won’t be around to pay back, since even now there is talk of tax cuts despite huge deficits. And the state of the infrastructure, previously improving but in recent decades deteriorating as the U.S. invests two percent of GDP, or about half the level of Europe. In Boston, the transit system is not only bankrupt (as in the New York area) but it is also falling apart. Finally there are public employee pensions in state and local government and old age benefits provided by the federal government. These were allowed to soar in cost without limit and were retroactively enhanced for older generations, but are being slashed for younger generations who will face poverty when they reach old age.

According to the New York Times, police corruption is rising. "One former Internal Affairs Bureau investigator who was involved in scores of cases in recent years said the number of corruption complaints — ‘logs in police parlance — had been on the rise, climbing to about 65,000 a year from about 45,000 a year in a little under a decade." Why is that?

A little rumor I heard third hand. The soaring number of criminal cops dates from the era when police starting pay was slashed to $25,000 per year. To pay for all the retroactive pension enrichments around the year 2000, which have caused pension spending to soar toward equality with payroll for cops actually on the job. Now we are paying hugely for each police officer, but most of the money is going to the retired. And the police on the job increasingly resent their pay — no matter how much they cost. Take the two together and it isn’t the police who are getting ripped off, at least collectively. Those who pay for them are.

According to the New York Times, “New York City will pay the federal government $70 million to settle a lawsuit that accused the city of overbilling Medicaid by improperly approving home care for frail and elderly clients.” The care in question was personal care, “which could include housecleaning, dressing, bathing and shopping and could cost $75,000 to $150,000 a year.” Actually, it only costs that much when provided in New York City. Which is why the last time I checked, New York State accounted for a huge share of U.S. Medicaid spending on “personal care.” Many states do not even offer personal care as part of their Medicaid program.

Of course “New York City will pay” is not an accurate description of what will happen. The people who live in New York City, and will live in New York City in the future, will pay. They will have their services cut further. They will have their taxes increased further. All to pay for the federal share of underserved services for seniors, with the city’s share having been paid already. Who should the sacrifices be targeted to? Social services for children? Public schools? Should we accept fewer police officers? Stop repainting the Brooklyn Bridge? Raise the property tax? I’d like to see the New York City Council have a debate and identify specifically who will be made worse off to pay this $70 million. As a clue to who is being and will be made worse off the pay for $billions Generation Greed has made off with, leaving debts and unfunded pension obligations behind.

I’m amazed at the over-reaction, in some quarters, to Occupy Wall Street. A bunch of young adults who have nothing better to do, thanks to the lousy economy engineered by those older, sit around in a park and beat on some bongo drums, and suddenly the world is coming to an end. I get the feeling certain people and media outlets are outraged they aren’t doing anything that would allow them to be arrested and thrown in jail. The reason, I believe, is that Occupy Wall Street is undoing the carefully engineered amnesia about the events of and leading up to the financial crisis of 2008, followed by a mass attempt to deflect blame elsewhere and gut any new financial regulation. But there is a way for Occupy Wall Street to really, really terrify the top one percent.

Chanting “End Capitalism” isn’t going to get it done, because once alternatives are considered not only would most Americans prefer the free market alternative, but probably most of those in Occupy Wall Street would as well. Given who controls our federal and state governments, would they really want to give those governments even more power and control over their lives? To decide where they could shop, what they could buy, what would be charged, where they would work and what those working in different fields would be paid – presumably based on campaign contributions and connections with powerful lobbyists? Would they really want to have no alternative to “Too Big to Fail” state-connected organizations, and no possibility of them being challenged by new, competing organizations? No. But there is a very capitalist chant that would have the top one percent recoiling in terror and sputtering with rage. That chant is…“Cut Executive Pay In Half and Increase Dividends.”

Mayor Bloomberg helped to destroy the future of the New York City schools by agreeing to allow teachers to retire seven years earlier, a decision that will suck money out of the classroom year after year for decades. But now he wants to make it up to us, by having New York City taxpayers foot the bill for a project to make it easier for middle and upper middle class New Yorkers to leave the city and its local income tax behind and move to New Jersey, where the kids could get an education. According to the New York Post “Mayor Bloomberg is pushing forward with a proposal to extend the No. 7 train to New Jersey and get the project locked in before he leaves City Hall in two years.” Even as the rest of the NYC subway collapses due to soaring debts, and other retroaction pension enhancements passes some years earlier.

Apparently some of the same issues are present in Europe as in the United States, but across the Atlantic someone has been willing to call them out. According to the Financial Times, commenting on the young taking to the streets from Spain to New York, “politicians have…largely failed to address the issue of intergenerational equity.” While the young protesters are criticized for demanding the redistribution of income “in reality, many policy choices over past decades have themselves been redistributive – in favour of the baby-boomer generation at the expense of their children and especially towards the privileged top end of that generation.”

A year or two ago, the State of Illinois increased its state income tax rate by 60%. It was the right thing to do. Today, Governor Cuomo is refusing to keep a New York State income tax surcharge. That is also the right thing to do. Why the difference? The overall state and local tax burden in Illinois had long been below the national average, unsustainably low given that state’s services and other obligations. New York’s state and local tax burden is the highest in the country, except (in some years) for Alaska and Wyoming where most of the taxes are on mineral extraction and not residents or other businesses. Illinois’ top state income tax rate was increased from 3 percent to 5 percent. The New York State rate is nearly 7 percent without the surcharge – 10 percent in New York City where a local income tax is added, and is 9 percent with the surcharge – or more than 12 percent in New York City.

Throughout the country, public services are being devastated by soaring pension costs caused by two factors – inadequate past funding by taxpayers, and retroactive pension enhancements for public employees. In Illinois, taxpayers deserve the majority of the blame: in many years taxpayers put in zero, and there isn’t nearly enough money even to pay the pensions public employees were promised when hired, even without pension spiking and any of the retroactive deals. In contrast, the public employee unions and their retroactive pension deals may be more to blame in New York City than anyplace else in the country, with the United Federation of Teachers the most guilty of all (based on the difference between what was promised when workers where hired and what they took later).

This post is the final discussion of the spreadsheet of the U.S. Census Bureau’s state and local government employment and payroll data, which is linked from this post. The data can be downloaded by following the link. In March 2010, U.S state governments employed just under 1,400 full time equivalent workers per 100,000 U.S. residents, a small number compared with the nearly 4,000 local government workers, and more than 5,500 workers in the private health care, social services, and heavy construction sectors, which are substantially government-funded.

The three levels of government may be described this way: the federal government takes in the most money, but sends it right back out again in payments to individuals (Social Security, interest on the debt), the private sector (Medicare), and aid to the states. It actually does very little other than national defense and the Post Office. Local governments do most of the work actually done by government workers. State governments, however, make most of the decisions on the margin, control how local governments do their work, and supply much of their funding. The primary work of state governments, as opposed to work done by local governments and the private sector in part with state money, are state colleges and universities, state correctional institutions, and state hospitals (mostly mental hospitals). These three functions accounted for nearly 60.0% of all U.S. state government employment in March 2010. A discussion of how the State of New York compares follows.

For the past near 40 years, more and more U.S. income has become concentrated at the top, as the average worker has earned less and less adjusted for inflation, and yet this had not been reflected either in what businesses could sell, or how most Americans lived. A rising share of Americans had a car, had more than one car, lived in bigger housing units with more bathrooms, had color TVs, had more than one TV, had air conditioners, ate meals prepared by others, and traveled on airplanes. Falling inflation-adjusted wages, particularly for younger generations, were offset by more workers per household as more women entered the labor force, and at first overall household income (and spending) kept rising. Then by lost future income, as defined benefit pensions were replaced by defined contribution retirement plans in the private sector, and then the defined contributions stopped. That didn’t effect past spending, but it will lead to much less spending by retirees when the affected younger generations reach old age. In the final phase, millions of Americans went on a debt binge to keep the spending going as real wages kept falling. That finally collapsed, leaving soaring public debts as the only source of demand preventing consumer-based economies from a downward spiral.

The questions for the wealthy, U.S. businesses and older generations are this: Who are you going to sell your product or service to, now that not only your employees but everyone else’s employees (or former employees) don’t have any money and can’t borrow anymore? When you want to sell stock or your home, how much can the next generation pay for it, given that they are much worse off? I’ve been saying this for some time. The surprise – the shock really – is that suddenly a bunch of economists and financial analysts now seem to understand this, as this article on Bloomberg News lays out essentially the same argument.  Read it, to the end, where the dicussion of political effects is followed by a discussion of economic effects.