Newsletter 25.1
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Newsletter of The Independent Institute Volume 25 | Number 1 Spring 2015 California’s Public Pension Crisis: Lessons for America By Lawrence J. McQuillan ALIFORNIA IS KNOWN FOR CRISES: the workers’ is called an unfunded pension liability, and now Ccompensation crisis in the early 2000s, the taxpayers are on the hook to make up the differ- budget crisis following the 2008–09 Great ence between pension promises and pension assets. Recession, and the California’s unfunded public pension liability, water crisis that has when measured correctly, is two to four times threatened parched as large as official government estimates: at least California. But the big- $23,000 per California household, and even gest crisis of them all is higher if you live in a com- the state’s government munity with an unfunded pension problem. city or county pension plan. California’s state In total, California’s 86 and local government defined-benefit public pen- employees receive sion plans are underfunded defined-benefit pensions that guarantee by a staggering $430 billion. specific monthly payments to retirees for This is the state’s greatest life. A leading study found that Califor- financial challenge since the nia state workers receive a compensation Great Depression. premium of about 30 percent from their The massive tax increases government pensions alone, compared to identi- needed to make state and local cal private-sector workers in California. pension funds solvent have proven to be politi- In theory, these generous pensions are paid cally impossible to enact, making the pension for by taking contributions from government systems financially unsustainable. The failure to agencies and their employees, investing the fully fund the pension promises has allowed the contributions, and using the investment proceeds current generation to receive public services that to pay the promised pension benefits 20, 30, or they are not fully paying for, pushing the pension 40 years down the road after employees retire. problem onto future generations. Politicians kick But in reality, pension officials and politicians the can down the road as pension debts mount. of both political parties have deliberately lowballed The unwillingness to confront the true scope of the contributions and increased the benefits such California’s pension costs, to pay for the promises that there isn’t enough money in the bank today to made, and to make changes to control future ob- eventually pay the promised benefits. This deficit ligations means these costs are being pushed onto California’s children and grandchildren, who are IN THIS ISSUE being forced to pay for promises they did not make and for services they did not agree to. The injustice California’s Public Pension Crisis: Lessons for America ....... 1 of this system is apparent to anyone who cares to see. President’s Letter ...........................................................2 Left unchanged, the financial burden of the The Independent Review ...............................................3 pension problem will crush younger generations, Independent Institute in the News ................................4 leaving them with a depleted future and a depleted Institute Redoubles Three Book Campaigns ..................5 California. The responsibility to fix this problem is Healthcare Solutions for Post-Obamacare America ........7 as great as any moral imperative because it directly Inspire New Advocates for Liberty ..................................8 (continued on page 6) 2 The INDEPENDENT EXECUTIVE STAFF David J. Theroux Robert M. Whaples Founder, President, Managing Editor, President’s Letter and Chief Executive Officer The Independent Review Mary L. G. Theroux Bruce L. Benson Senior Vice President Senior Fellow Martin Buerger Ivan Eland Vice President and Senior Fellow A New Year and Chief Operating Officer John C. Goodman William F. Shughart II Senior Fellow Research Director and Senior Fellow Robert Higgs New Congress Carl P. Close Senior Fellow Research Fellow, Senior Editor Lawrence J. McQuillan Roy M. Carlisle Senior Fellow Acquisitions Director Robert H. Nelson S THE 2014 ELECTIONS Kim Cloidt Senior Fellow showed, American pub- Marketing and Charles V. Peña A Communications Director Senior Fellow Gail Saari Benjamin Powell lic opinion continues to grow Publications Director Senior Fellow Paul J. Theroux Randy T. Simmons in opposition to Obamacare Technology Director Senior Fellow Kyle Palermo Alexander T. Tabarrok (ACA) and Big Government Development Manager Senior Fellow Denise Tsui Alvaro Vargas Llosa more broadly. After the elec- Production Manager Senior Fellow Richard K. Vedder tion, a Gallop survey found Senior Fellow that only 37% of Americans BOARD OF DIRECTORS Gilbert I. Collins Susan Solinsky approved of Obamacare; moreover, independents Private Equity Manager Partner, Reditus Revenue Solutions John Hagel III W. Dieter Tede and non-whites gave President Obama’s signature Co-Chairman, Center for the Edge, President, Hopper Creek Winery Deloitte & Touche USA LLC David J. Teece, Ph.D. healthcare law an approval rating of only 33% and Sally S. Harris Chairman and CEO, Vice Chairman of the Board, Berkeley Research Group, LLC 56%, respectively. Albert Schweitzer Fellowship David J. Theroux Peter A. Howley Founder and President, Even Harvard University faculty are in revolt. As the Chairman, Howley Management Group The Independent Institute Philip Hudner, Esq. Mary L. G. Theroux New York Times reported: “Harvard’s experts on health Of Counsel, Botto Law Group, LLC Former Chairman, Garvey International Gary G. Schlarbaum, Ph.D., CFA Sally von Behren economics and policy have advised presidents and Con- Managing Director, Palliser Bay Businesswoman Investment Management gress on how to provide health benefits. But those remedies will now be applied to the Harvard faculty, BOARD OF ADVISORS Leszak Balcerowicz June E. O’Neill Professor of Economics, Director, Center for the Study of and the professors are in an uproar.” The university’s Warsaw School of Economics Business and Government, Jonathan Bean Baruch College Faculty of Arts and Sciences voted overwhelmingly Professor of History, P. J. O’Rourke Southern Illinois University Author, Don’t Vote! - It Just against the Obamacare-driven changes to their health Herman Belz Encourages the Bastards and The Professor of History, Baby Boom plans, such as greater cost sharing and a narrower choice University of Maryland Tom Peters Thomas Bethell Co-Author, In Search of Excellence: of doctors and hospitals, but they were too late. Author, The Noblest Triumph: Lessons from America’s Best-Run Property and Prosperity Through Companies Bewildered by Harvard’s cuts in benefits, sociology the Ages Charles E. Phelps Thomas Borcherding Provost and Professor of Political professor Mary Waters asked the Times: “What is the Professor of Economics, Science and Economics, Claremont Graduate School University of Rochester crisis?” Could it be that ACA architect Jonathan Gru- Boudewijn Bouckaert Nathan Rosenberg Professor of Law, Fairleigh S. Dickinson, Jr. Professor of ber’s now well-known derision of average voters—that University of Ghent, Belgium Economics, Stanford University Allan C. Carlson Paul H. Rubin they were “too stupid” to hear the truth about Obama - President, Howard Center for Family, Professor of Economics and Law, Religion, and Society Emory University care—applies to Harvard’s own self-satisfied elites? Robert D. Cooter Bruce M. Russett Herman F. Selvin Professor of Law, Dean Acheson Professor of International How will the new Congress respond to the public University of California, Berkeley Relations, Yale University Robert W. Crandall Pascal Salin Senior Fellow, Brookings Institution Professor of Economics, clamor? Will it replace Obamacare with market- Richard A. Epstein University of Paris, France New York University Vernon L. Smith based healthcare? Senior Fellow John Goodman has George Gilder Nobel Laureate in Economic Sciences, Senior Fellow, Discovery Institute George Mason University shown that, in a free market, consumers would be Nathan Glazer Joel H. Spring Professor of Education and Sociology, Professor of Education, free to choose plans and treatment options tailored Harvard University State University of New York, Steve H. Hanke Old Westbury to their own needs—not those of special interests. Professor of Applied Economics, Richard L. Stroup Johns Hopkins University Professor of Economics, In addition, competition would drive down costs James J. Heckman Montana State University Nobel Laureate in Economic Sciences, Robert D. Tollison while increasing access and quality. Details can be University of Chicago Professor of Economics and Wendy Kaminer BB&T Senior Fellow, found in our award-winning book by Dr. Good- Contributing Editor, The Atlantic Clemson University Lawrence A. Kudlow Arnold S. Trebach man, Priceless: Curing the Healthcare Crisis, and Chief Executive Officer, Professor of Criminal Justice, Kudlow & Company American University in our forthcoming book by him, A Better Choice: John R. MacArthur William Tucker Publisher, Harper’s Magazine Author, The Excluded Americans: Healthcare Solutions for America. Deirdre N. McCloskey Homelessness and Housing Policies Distinguished Professor of Liberal Richard E. Wagner To help us move such ideas into impact, please Arts and Sciences, Univ. of Illinois Hobart R. Harris Professor of Economics, at Chicago George Mason University J. Huston McCulloch Paul H. Weaver join with us as an Independent Associate.