Britain is looking to sell the Royal Mail to escape Out of Control Pension Costs

Posted by PITHOCRATES - July 13th, 2013

Week in Review

The United States Postal Service isn’t the only postal service flirting with the idea of privatization.  So is the Royal Mail.  And, predictably, some are not happy about making government jobs like private sector jobs (see Royal Mail privatisation ‘will lead to soaring prices and job losses while taxpayer keeps debts’ by Graham Hiscott posted 7/11/2013 on the Mirror).

STAMP prices will soar and jobs will be slashed when the Royal Mail is privatised.

The warning came from critics as the Government announced its controversial plan to kick off a £3billion sale.

It is feared the sell-off could see a big chunk of the company snapped up by foreign investors, with investment banks raking in millions in fees.

So while the Treasury pockets a pre-election windfall, the taxpayer will still be paying for Royal Mail’s £12billion pension deficit.

Chuka Umunna, Labour’s Shadow Business Secretary, said it amounted to “nationalising its debts and privatising its profits”.

This pretty much says it all.  Pension costs are so out of control that the only way the Royal Mail can survive is with huge government subsidies.  And if they cut those subsidies they will have to pay for those pensions with the revenue from stamps.  Which means stamp prices will have to rise to replace those lost subsidies.  So these government workers can continue to enjoy those generous pensions.

Britain has an aging population.  Like most of the developed world.  People are living longer.  Giving them more time to suffer more diseases.  Raising the cost of pensions and health care for retirees.  Ponzi schemes like state pensions worked when there was an expanding population growth rate with more people entering the workforce than were leaving it.  But those days are long gone.  As are the days of defined benefit pension plans.  Where today they only result in unfunded pension obligations.  And companies like the United States Postal Service and the Royal Mail unable to pay their bills.

The reason why unions resist the privatization is that these business models cannot survive in the private sector.  For their labor costs (pay and benefits) far exceed anything available in the private sector.  And the only way they can keep those generous pay and benefit packages is by having the taxpayer subsiding their cost.  But if they go private and it costs $7.50 to mail a utility payment people aren’t going to mail their utility payments anymore.  And people will see the true cost of union labor.  Which means either unions must match the pay and benefit packages they have in the private sector.  Or they will lose all their union jobs.  Because no one is going to pay $7.50 to mail a letter.

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FT100: “Benefit recipients agree that responsible governing should start AFTER they get theirs.” -Old Pithy

Posted by PITHOCRATES - January 13th, 2012

Fundamental Truth

Legacy Health Care (and Pension) Costs Bankrupted GM

Franklin Delano Roosevelt ruined General Motors (GM).  And created the health care crisis.  How?  With price controls.  By interfering with market pricing mechanisms.  In a misguided effort to fix the economy he instituted a maximum wage.  Meaning companies couldn’t compete for good workers by offering them a higher wage.  So to compete for good workers they started us down a path that is destroying our economy.  Instead of higher wages (which were illegal) they offered benefits.  And the United States would never be the same.

Health care.  Before FDR, we paid for our health care.  After FDR, other people paid for our health care.  And we demanded more because we weren’t paying the bill.  It worked well for awhile.  When there was an expanding population.  When there were always more younger workers than older workers.  And retirees.  But the population aged.  Thanks to birth control.  And abortion.  During FDR’s time it was common for a family to raise 10 children.  Now it’s closer to 2 or 3.  Which means a generation or two later there were no longer more younger workers than older workers and retirees.  And what does this mean?  Well, older workers and retirees consume more health care than younger workers.  So the cost of health care soared for business.

This is what bankrupted GM.  These legacy health care (and pension) costs.  Instituted during a time when they were cheap and easy to provide.  But they became unsustainable.  Because of that declining population growth rate.  Union contract after union contract discussed these legacy costs.  But the way the rank and file felt was that it was their turn.  The system may be flawed.  But it worked before them.  So let them have their benefits they say.  And fix the system after they get theirs.

Social Security and Public Sectors have the same Problems GM Had

Social Security has the same problem.  That declining population growth rate is forcing fewer and fewer workers to support a retired worker.  And they’re living a lot longer than FDR’s actuaries ever calculated thanks to better and better health care.  Which just compounds the problem.  Social Security is a pyramid scheme gone bad.  The top is far wider than the base.  There are more benefit recipients than benefit contributors.  And it will follow GM into bankruptcy.  It’s just a matter of time.

There’s been a lot of talk about privatizing Social Security to prevent its collapse.  But it always meets fierce resistance.  Especially from the elderly and retirees.  Who are stuck in the system never having provided for their own retirement because they believed in the Ponzi scheme that is Social Security.  They say the system may be flawed.  But it worked before them.  So let them have their benefits they say.  And fix the system after they get theirs.

If you combine the rising health care costs and the rising pension costs inherent with a declining birth rate we come to the public sector.  Who have always enjoyed far better benefits than those in the private sector.  But that aging population is requiring ever higher taxes to support these most generous benefits.  And the taxpayers simply can’t sustain them any longer.  Those in the public sector know these systems need to be reformed.  But they worked before them.  So let them have their benefits they say.  And reform the system after they get theirs.

This Generation will Always Kick the Can to the Next Generation

That’s the problem with bad public policy.  Everyone can agree that bad policy needs to be reformed.  But what harm could one more generation do?  So kick that can down the road.  We have time.  After all, it took generations to get where we are now.  So another generation won’t ruin the country.  Even though it very well could.  But the important thing for them is that they get their benefits.  And the responsible governing can start after they get theirs.

But that’s the problem.  This generation always wants the following generation to fix things.  They always want to kick that can down the road.  But the problem is that there will always be another generation to kick that can to.  So they always will.  And no one will fix these problems while there’s a chance to fix them.  One generation will just suffer the consequences of all this can kicking.  As will every generation that follows.

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Governor Scott Walker Takes on the Public Sector Unions in Wisconsin

Posted by PITHOCRATES - February 18th, 2011

40 Percent of Teachers Call in Sick…in West Bloomfield, Michigan

We start not in Wisconsin.  But in Michigan.  Another of the other Great Lakes States where the Republicans won control of their state house.  And there’s teacher trouble in one of their fair cities (see The West Bloomfield Teacher ‘Sick Out’ by Tom Gantert posted 2/18/2011 on Michigan Capitol Confidential).

About 40 percent of the West Bloomfield High School teachers didn’t show up for work on Feb. 15 in the midst of bitter contract negotiations.

Goodness, that’s a lot of teachers.  Pay and benefit packages for teachers in the West Bloomfield school district must be awful.

West Bloomfield teachers do not do any premium sharing for health insurance and do not have a deductible in their plan, Andrees said…

The total compensation of a West Bloomfield teacher grew 173 percent over an 11-year period, going from $47,346 to $129,637, according to information that was presented at a school board meeting in December.

The teacher’s salary started at $31,881 in 1999-00 and grew to $85,836 in 2010-11. Meanwhile, insurance payments climbed from $9,309 to $19,304 per year, and retirement contributions jumped from $3,717 to $16,854 per year.

Wait a tic.  Isn’t Michigan one of those states suffering from record unemployment?  Even though the federal government just spent billions of dollars to bail out GM and Chrysler to save jobs?  I mean, it’s pretty horrible in Michigan.  But I guess we need to put this aside and focus on what’s important.  There are teachers there who have been working a 9-month year for the measly compensation of $129,637.  What vicious, heartless bastards they must have in Michigan.

Incidentally, teachers get the good months off during the year.  The summer months.  How many of you would like to get paid $85,836, get $19,304 worth of healthcare insurance per year free with no deductible, retirement contributions totaling $16,854 per year AND have the three summer months off?  Not to mention all the holidays and breaks during the school year.  I dare say many people would like this.  Especially the taxpayers who pay for this while they themselves get little in compensation compared to this.  So I don’t see a mass outpouring of sympathy for these teachers.

You know, it’s good to be a teacher.  In the public school system.

Public Sector Unions Impoverishing States, Cities and their Trade Union Brethren

Public school teachers are part of the public sector.  And belong to a public sector union.  In the public sector, there is no competition.  We pay the public sector workers with tax dollars.  Unlike their counterparts in trade unions.  These people who build useful things for us are not paid with tax dollars.  The private sector pays them.  As such, they have to respond to market forces.  Unlike their brethren in the public sector (see Labor’s Coming Class War by William McGurn posted 1/4/2011 on The Wall Street Journal).

Suddenly, it’s a different world. In this recession, for example, construction workers are suffering from unemployment levels roughly double the national rate, according to a recent analysis of federal jobs data by the Associated General Contractors of America. They are relearning, the hard way, that without a growing economy, all the labor-friendly laws and regulations in the world won’t keep them working.

What’s more, “blue-collar union workers are beginning to appreciate that the generous pensions and health benefits going to their counterparts in state and local government are coming out of their pockets,” says Steven Malanga, a senior fellow at the Manhattan Institute. “Not only that, they are beginning to understand the dysfunctional relationship between collective bargaining for government employees and their own job prospects.”

They get it.  All pay and benefits come from the private sector.  Whether paid from business profits.  Or taxes on business profits.  (Or taxes on our private paychecks.)  All taxes come from profitable business operations.  But excessive taxes dampen economic activity.  And kill jobs.  Everybody knows this.  Even some union people.  So something has to change.  And some state governors are stepping up.

The signs of this new awakening are gathering. In New Jersey, Gov. Chris Christie rightly becomes a YouTube sensation for taking on his state’s obstinate public-sector unions…

Over in New York, meanwhile, newly inaugurated Gov. Andrew Cuomo faces a similar battle. Mr. Cuomo campaigned on a cap on property taxes and a freeze on state salaries, both anathema to the powerful state-employee unions…

Elsewhere, in 2005 Republican Govs. Mitch Daniels and Matt Blunt used executive orders to end collective bargaining with state employees in Indiana and Missouri, respectively. Now the incoming Republican governors of Ohio and Wisconsin—John Kasich and Scott Walker—are targeting collective bargaining for government workers in their states.

Scott Walker and Wisconsin.  But more of that later. 

In some ways, this new appreciation for the private sector is simply back to the future. FDR, for example, warned in 1937 that collective bargaining “cannot be transplanted into the public service.” In the old days, unions understood economic growth. Mr. Malanga points to AFL-CIO President George Meany’s strong support for the JFK tax cuts as an example.

These days the two types of worker inhabit two very different worlds. In the private sector, union workers increasingly pay for more of their own health care, and they have defined contribution pension plans such as 401(k)s. In this they have something fundamental in common even with the fat cats on Wall Street: Both need their companies to succeed.

By contrast, government unions use their political clout to elect those who set their pay: the politicians. In exchange, these unions are rewarded with contracts whose pension and health-care provisions now threaten many municipalities and states with bankruptcy. In response to the crisis, government unions demand more and higher taxes. Which of course makes people who have money less inclined to look to those states to make the investments that create jobs for, say, iron workers, electricians and construction workers.

Now, with that background, let’s look at Wisconsin.

40 Percent of Teachers Call in Sick…in Madison, Wisconsin

Just like in Bloomfield, Michigan, teachers are calling in sick (see Schools in Wisconsin’s capital close after protesting teachers call in sick posted 2/16/2011 on myfoxorlando.com).

MADISON, Wis (NewsCore) – Public schools in Madison, Wis., were closed Wednesday after 40 percent of the 2,600 teachers protesting a controversial budget bill called in sick.

School officials were forced to cancel classes, as there were not enough substitute teachers available to cover the absentees, Madison Metropolitan School District superintendent Dan Nerad told local newspaper the Journal Sentinel.

Though in Wisconsin they’re saying little about what their current pay and benefits are.  One can only assume they are as generous as they are in West Bloomfield.  Because if they are awful they would have told us how awful they are. 

President Obama Declares War on Ohio, Indiana, Missouri, New Jersey, Pennsylvania and Wisconsin

So how awful are things really in Wisconsin?  From the media reports it sounds like the end of world.  That Wisconsin’s governor, Scott Walker, is bringing back slavery.  Even the president is joining the fight against the elected government of Wisconsin (see Obama joins Wisconsin’s budget battle, opposing Republican anti-union bill by Brady Dennis and Peter Wallsten posted 2/18/2011 on The Washington Post).

The president’s political machine worked in close coordination Thursday with state and national union officials to mobilize thousands of protesters to gather in Madison and to plan similar demonstrations in other state capitals.

Their efforts began to spread, as thousands of labor supporters turned out for a hearing in Columbus, Ohio, to protest a measure from Gov. John Kasich (R) that would cut collective-bargaining rights.

By the end of the day, Democratic Party officials were working to organize additional demonstrations in Ohio and Indiana, where an effort is underway to trim benefits for public workers. Some union activists predicted similar protests in Missouri, New Jersey and Pennsylvania.

So much for federalism.  Thank God Thomas Jefferson didn’t live to see this.  This meddling by the executive power into a state’s affair is worse than he even feared.  Even Alexander Hamilton would not approve.  And he was in favor of a strong executive.

The Worst of the Assault on Public Sector Unions – Asking them to Live like the Rest of Us

So what is so vile, so repugnant, so evil in the state of Wisconsin?

Under Walker’s plan, most public workers – excluding police, firefighters and state troopers – would have to pay half of their pension costs and at least 12 percent of their health-care costs. They would lose bargaining rights for anything other than pay.

Well that doesn’t sound so bad.  People in the private sector often pay 100% of their retirement.  A pretty hefty share of their health-care costs.  And something like 90% of the private sector doesn’t even have any bargaining rights.  Other than quitting a job if it is so vile, so repugnant and so evil.  And, you know what?  Those jobs in Wisconsin must be pretty damn good.  I mean, to protest like that can only mean one thing.  That these jobs are the best jobs around.  For there isn’t a chance in hell they’ll find anything as good in the private sector.  Which is why they simply don’t quit those ‘God-awful’ jobs.

Beyond their short-term fiscal problems, many states face pension and retiree health-care costs that some analysts say are unsustainable. Some states already are curtailing retirement benefits for new employees, although many analysts say it will take much more to bring their long-term obligations in line.

The huge debt burdens coupled with the impending cutoff of federal stimulus aid later this year have spurred talk of a federal bailout. The White House has dismissed such speculation, saying states have the wherewithal to raise taxes, cut programs and renegotiate employee contracts to balance their books.

What?!?  Our federal stimulus paid for those fat pension and healthcare benefits?  Wasn’t that money suppose to stimulate economic activity?  Create jobs?  Could it be that it was a slush fund all along to reward loyal Democratic supporters?  Good God, can it be that Rush Limbaugh was right?

In Wisconsin, state Democratic senators staged a protest of their own Thursday, refusing to show up at the Capitol for an 11 a.m. quorum call – delaying a vote that would have almost certainly seen the spending cuts pass.

I guess elections only have consequences when Democrats win.  When Barack Obama won, he told the Republicans, sure, you can give me your ideas about how to fix the economy.  I won’t use any of them.  Because elections have consequences.  And I won.  Perhaps the Republicans should have hid during the Obamacare vote.

“Many of the companies I went by, like so many others across the state, don’t have pensions, and the 401(k)s they have over the last year or two, they’ve had to suspend the employer contribution,” Walker told Milwaukee radio station WTMJ. “So, not a lot of sympathy from these guys in private-sector manufacturing companies who I think reflect a lot of the workers in the state who say what we’re asking for is pretty modest.”

What’s good for the private sector is good for the private sector.  The public sector apparently deserves better.  And with record unemployment, I’m sure they’ll get a lot of sympathy from the taxpayers paying their salary and benefits.  Not.

Public Sector Unions and the President are trying to Maintain a Privileged Elite

FDR got it.  The trade unions get it.  And most of the taxpayers lucky enough to still have a job in the worst recession since the Great Depression get it.  If you don’t have a healthy economy there is no money for anyone.  High taxes kill economic activity.  And there is only one way to pay generous public sector pay and benefits.  High taxes. 

We have come to a crossroads.  In one direction there is prosperity.  In the other there isn’t.  The governors in New Jersey, New York, Indiana, Missouri, Ohio and, of course, Wisconsin, are trying to go down the road to prosperity.  While public sector unions and the president are trying to maintain a privileged elite.  At the expense of the ordinary American.  Who will win?  We’ll find out in Wisconsin.

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