Legislative Nullification is an Assault on Democracy

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The Wisconsin and Indiana union protests, and the disappearance of union-allied legislators, is an assault on democracy. An election was held in November. There is no Constitutional or legal basis for the union bosses to substitute their decisions for those of elected officials.

We must do more than renegotiate contracts. We must end collective bargaining for public employees, which has warped the democratic system in the states. Right now, when the two sides sit down, it's the union negotiating with the union-backed politicians. Taxpayers are not at the table. It's the old story of a concentrated interest of the unions vs. the diffused interests of taxpayers at large.

We need paycheck protection for public employees, allowing them to opt out of paying union dues. My father was a public school teacher in Massachusetts for forty years. Not only did he not wish to be represented by the Massachusetts Teachers Association, he was forced to bankroll causes that violated his political and religious beliefs.

The social compact has been reversed. It used to be that public employees received lower salaries than their private sector counterparts. In exchange, they would enjoy better job and retirement security. Now public employees get BOTH higher wages and superior pensions and retirement benefits.

It is not a question of "if" we should renegotiate public sector employment contracts but "how soon." Employment, benefit and pension obligations are bankrupting the states. States and localities can't just print money. They have been relying on debt, but there is a limit. In the last decade, state and local debt has almost doubled.

Officially, state pension plans are underfunded by $1 Trillon. The real figure is more like $3 Trillion. Most state and local governments provide health care to retirees. Unfunded obligations for health care are $1.4 Trillion. It is not underfunding, it is overpromising.

Government spending is in a bubble.  Like all other bubbles, it will burst. Even without the pension time bomb, states face skyrocketing costs for Medicaid under ObamaCare. Forty three percent of state and local government employees are unionized. The state debt crisis is most acute where there is unionization.

Municipal bonds are already suffering declines. A collapse in the municipal bond market will occur if the pace of defaults accelerates. It is inevitable unless governors like Scott Walker succeed. The contagion could spread to other asset classes and pose a threat to the entire economic system.