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    Bankrupt Detroit Seeks Not to Pay Promised Retirement and Medical Benefits

    08/03/2013

    Democracy and Power 114: The Power Players

    Who actually controls the force of government?  Politicians and interest groups control the American political process. Special-interest groups – i.e. big business,  big unions, education, seniors, etc. - seek favors, such as tax breaks, subsidies, exclusive legislation, and more. Interest groups give enormous amounts of money to political campaigns and receive gigantic benefits in return.

    Bankrupt Detroit Seeks Not to Pay Promised Retirement and Medical Benefits

    Detroit Emergency Manager Kevyn Orr recently acknowledged the city's lack of funds to pay for promised, pension benefits, which totals close to $3.5 billion.  With this discovery, Orr requested to make "significant cuts in accrued, vested pension amounts for both active and currently retired persons." In other words, Detroit is seeking to reduce the promised benefit amounts to current employees as well as pensions for retirees.  Today, the citizens of Detroit are the victims of terrible and immoral governance.  To be fair to Mr. Orr, he did not create this financial catastrophe; he is seeking practical solutions to the problem.   

    In my previous post, Detroit & Stockton Bankruptcies Expose Democracy's Great Flaw – Short-Term Politics Trumps Long Term Planning, I explained that in all democracies the popularly elected politicians are intently focused and concerned about being re-elected.  Thus, they buy the votes of present-day voters and stick the debt on future generations.

    Again, today the citizens of Detroit are experiencing the burden of democracy's Great Flaw.  Beware America, Democracy's Great Flaw – Short-Term Politics Trumps Long-Term Planning plagues states and cities throughout our country.  Terrible, long-term finances threaten Illinois, Stockton, New York, Chicago, California, the United States of America and many more.  

    How did this happen?  Special-interest politics, of course.  Government-employee unions use the enormous power of government to extract lavish salaries and pensions.  The following are the mechanics of how government unions became powerful and rich as I explained during the recall battle in Wisconsin - Wisconsin Recall: All About Taxes and Political Power.

    Over many years, government-employee unions have become a powerful, special-interest group.  Similar to other special-interest groups – Wall Street, big business, big unions and thousands more – the government-employee unions exploit the coercive power of government in order to secure good wages and excellent medical and retirement benefits.

    Actually, government unions have exceeded the reach of most special interest groups.  Government unions have achieved lavish pay and retirement benefits for their members as well as funded the Democratic Party by taxing every American worker.

    The system basically works in the following fashion: 

    • Government employees are, generally, required to join a union.
    • The union demands a payment of dues. 
    • The government takes the dues out of the employee’s paycheck and sends the money to the union bosses. 
    • The union bosses give the money to their favorite politicians’ campaigns - almost universally Democrats. 
    • The elected politicians determine the salaries, medical benefits and retirement programs of the government employees.  

    The circular flow of money, power and benefits enriches all the active participants – power for the politicians and exceptional retirement and medical benefits for the government workers.  Of course, this scheme costs money – taxpayers’ cash.  The circular flow of lavish benefits in exchange for political power is continuously maintained by government extracting dues from the employee’s paycheck, which perpetually enriches the Democratic Party. Michael Barone at Real Clear Politics explains:

    Public employee unions insist that dues money be deducted from members' paychecks and sent directly to union treasuries. So in practice, public employee unions are a mechanism for the involuntary transfer of taxpayers' money to the Democratic Party.

    With all the flow of money, how could Detroit be broke?  Remember, invariably politicians please present voters and stick the debt – a must be paid tax bill – on future workers.  Thus, politicians do not adequately fund retirement accounts purposely.  Hence, Detroit's pension system lacks $3.5 billion.  As explained in Wisconsin Recall: All About Taxes and Political Power

    ... hiding the actual cost.  Cleverly, the politicians, union bosses and the employees surreptitiously agree to push the cost off to the future.  Better stated, the cost is hidden until the retirement benefits must be paid. 

    Today, Detroit's bankruptcy is a disaster for residents and government workers – active and retired.  Detroit is bankrupt and seeks “significant cuts in accrued, vested pensions,” which is a practical solution, but does continue bad governance.  The proposed breach of contract violates our basic duty of governance in a free society, which is honoring contracts and protecting private property.  

    Beware America, Democracy's Great Flaw – Short-Term Politics Trumps Long Term Planning plagues most of our cities, states and the federal government.  We must find solutions to Democracy's Great Flaw.

    Stay tuned: solutions will be forthcoming.


     
     
    Related blog:

    Similar to the City of Stockton - America is Bankrupt: Why and Who Pays?