“I may have many faults, but being wrong ain’t one of them” – Jimmy Hoffa
In my day job, the one I actually get paid for, I work with radar tracking systems (primarily for the military). Years ago I worked on a project that was looking to address some fairly broad-sweeping technical and political challenges (I won’t give you the name). During one meeting of a technical group we got to chatting about how we didn’t see any way that the program would be able to continue, given (a) all of the technical challenges and (b) all of the entrenched interests (with major pull) that were against it. At this point one of the more senior members of the technical team chimed in and indicated that he had seen (perhaps even had a copy of) a signed letter by some deputy Secretary of Defense that insisted that our program was to be brought to completion, and that all of those entrenched interests had to toe the line. We paused for a moment, looked at each other, and then snickered. That promise was worth the paper it was printed on, and everybody but this guy knew it.
Sure enough, another year came and went and the program died unceremoniously. I never did get a chance to ask that fellow if he still had a copy of the letter guaranteeing the program’s success.
Sometimes promises just aren’t any good. No matter how honest the intention, no matter how sincere the sentiment, sometimes people promise things that they cannot possibly deliver. It is wise to ask yourself when hearing a promise of this or that, whether the person making the promise can actually deliver. Even if they think they can, you have skin in the game and have to do some due diligence to see if the promises are any good.
This week there was some minor news out of Detroit regarding a ruling by a federal bankruptcy judge. Despite public union protests, the judge ruled that the city of Detroit had acted in good faith when it attempted to negotiate a settlement for unpayable debts, and could proceed with bankruptcy. Bill McGurn has a nice piece on it here.
The problems facing Detroit are far-reaching. The industrial base has collapsed, the population is dwindling, and the city cannot even come close to meeting all of its financial promises. Somebody has been promised something that they will not get. Whether it is the city’s bondholders, who have been promised that they’d get paid back, or the city’s retirees, who have been promised that they can continue to collect their pensions, is unclear – but somebody won’t be getting what they were promised (perhaps everybody will lose something). And that sucks, across the board. It’s no good when you have made deals and made life plans based on somebody else’s promises only to find out that those promises are no good.
So where to from here? If you read the McGurn article, you might notice the signs being held by union protestors – signs reading “make the banks pay” and “the banks owe us”. The first is typical of the self-worship that is so intertwined in human nature. Everybody is under threat of feeling pain (the pain of unfulfilled promises) – so the person who should pay is the other guy! Why? Because I don’t feel his pain, but I sure as heck feel mine. (We should all have care when deciding what someone else ought to pay so that we don’t have to.)
The second rallying cry is just confusing though. The banks owe us? How is that? The banks loaned money to the city – thus the city owes the banks. Therein lies the issue. The city owes money to the banks and the pensioners and can’t afford to pay both … and eventually may not even be able to pay either.
So what will happen? What will the bankruptcy judge decide? I don’t know. At some point you have to figure there will be a push to pass the costs on to the taxpayers, either at the Detroit city level, or the state of Michigan level, or even the federal level. I suspect those efforts will fail, but they will be tried. What happens next will send some serious shock waves through the system. Either the judge will rule that the pensioners will take a “haircut” and not get their promised benefits – or the judge will rule that the bondholders will take a “haircut” and not get the full payment for their loans (or possibly both parties will take a loss).
Either of those outcomes will shake things up. If the bondholders are forced to suffer a loss, every other municipality in the country could face a near-instantaneous rise in borrowing rates, which could lead to a snowball effect of more and more bankruptcies. If the unions are forced to give up some benefits, public worker unions across the country will go into panic mode over what would appear to be “union busting” (and would doubtless have a union-busting effect regardless of the intent).
I’m not here to promote union-busting, of course. I fully support freedom of association, which includes the right of a group of people to negotiate en masse rather than individually. Of course, the right also extends to the other party in the negotiation (the government/taxpayer in the case of public worker unions) – who can choose not to enter into collective negotiations. When the working of unions is nothing more than collective negotiation, then I suspect it is a good thing.
In the olden days, the unions worked to give clout to the skilled (or less-than-skilled) laborer. Laborers wanted the owners of capital to compete for their services, and the owners of capital wanted laborers to compete for access to that capital, and thus access to a job. There were days in this country when capital became aggregated in the hands of a sparse few, and the government made sure that no small competitors could enter the market (boy that sounds familiar). Unions stood in the way of this unholy alliance and gave the worker a voice.
Today things have become less romantic. Unions seem bent on getting as much money, and as many benefits, for as little work as they can. It’s an understandable goal, but hardly morally defensible. They will go to bat for anybody or anything as long as it’s part of the union. For instance, a Michigan teachers union is fighting to get a $10,000 severance package for one of its teachers who plead guilty to molesting an 8th grade student (he was charged with rape, but apparently got the deal plead down to molestation). Seriously, union? This is who you fight for? No matter what one of your members does you defend him and demand that the taxpayer fund even more payments? This is madness.
I can only imagine that there are members of this teachers union who are outraged by the behavior of their representatives. Outraged enough to get new leaders? We’ll see … but I doubt it.
So the Detroit bankruptcy rolls on. The judge is going to break some promises for the city and see if this mess can be salvaged. People across the country who have been made promises by various municipalities will likely start to ask whether they can rely on those promises – which is a good thing, but also a question that should have been asked long ago.