Ernie Arnold is a nice guy, a sensible guy (I actually met him once), but I cannot allow his facile, and currently in vogue assessment of South Pasadena’s public sector financing crisis to go unchallenged. A few facts first:
- About one-half of South Pasadena households earn more than $75,000 annually.
- The California State median income is about $58,000.
- South Pasadena has nearly double the percentage of households—earning $200,000 annually—than the rest of California.
While economic times are certainly tough across the United States following the housing bubble and financial sector collapse of 2008, South Pasadena, by almost any measure, remains a relatively wealthy city. And while it is fundamentally true that all public sector services such as fire, police, infrastructure maintenance and schools can only be funded at a level which can be supported by the surrounding real estate and business sector tax contributions, it would be a mistake to look at just one side of the budgetary equation when considering cuts to services, salaries and benefits in the public sector.
Ernie Arnold states that, “Public sector employees have become accustomed to and expect regular pay raises and fully funded pension and health benefits,” as if that was some sort of crime or not the norm in the private sector world.
It should be noted that within one year of receiving multi-billion dollar publicly funded bailouts, the State Comptroller of New York indicates that Wall Street Firms have paid out $22.5 billion dollars in bonuses to its workers. These are the same good corporate citizens that packaged the deceptive, irresponsible, and highly leveraged financial instruments that imploded our national economy. Somehow, that kind of productive, private sector behavior is deemed worthy of recompense, while the work of those who provide necessary community services is suspect and needful of trimming.
Mr. Arnold seems quite proud of this private sector achievement, “As Chief Financial Officer for a firm, I had to close an entire department and lay people off in order to save the company.”
While it is true that the rigors of the free market can often force private businesses to make difficult, cost-cutting decisions, it is less clear that other corporate strategies cannot be utilized to soften the blow or share the pain of economic downturns, especially when it comes to job loss. Germany (a high labor cost country) entered the current recession with strong employment protection legislation, which “has been supplemented with a short-time work scheme, which provides subsidies to employers who reduce workers’ hours rather than laying them off. These measures didn’t prevent a nasty recession, but Germany got through the recession with remarkably few job losses,” reported the New York Times.
South Pasadena is a smart town—one look at the resumes of our School Board is enough to intimidate anybody. So rather than crow about firing people, might we not be better served by leaders who are willing to learn from and adopt better, job sustaining strategies rather than simply “closing entire departments?"
Here is Mr. Arnold’s premise: “The income of many South Pasadena residents have not increased over the past five years…..The private sector has moved away from fully-funded retirement plans but instead provides matching funds to employee contributions. The private sector moved away from defined benefits because it is unsustainable."
While I’m sure that a number of City residents have experienced financial hardship in one way or another during the recent downturn, as the income data I’ve provided indicates, South Pasadena remains a relatively prosperous town. I’m certain, as has been demonstrated among public (Wisconsin) and for that matter, private (General Motors) unions across the United States, that the public sector workers in our town are not blind to economic realities, and would be quite willing to negotiate some reductions in their pay and benefit scales. I would be disappointed in them if that was not the case.
Mr. Arnold uses the term “unsustainable” to justify both cuts in public sector funding as well as private sector reductions in retirement and medical insurance plans, again, as if the economic facts suggest that there is no alternative. It is time, I think, to absorb a few more economic facts:
- The 400 richest people in the United States now own more wealth than 150 million Americans.
- The ratio of CEO pay to average workers has risen from about 40-1 in 1970 to about 300-1 in 2009 (in Japan it is 16-21).
- Wages and salaries now make up the lowest share of the nation’s gross domestic product since the government began recording the data in 1947, while corporate profits have climbed to their highest share since the 1960’s.
- Since 1980, U.S. gross domestic product (GDP) per capita has increased 67%, while median household income has only increased by 15%.
- Between 1993 and 2008, the top 1 percent of Americans captured 52 percent of all income growth in the United States.
These economic numbers are significant, because they capture the reality of economic growth and performance in the United States in a big picture kind of way. For a host of complicated reasons, income has been flowing (by historic comparison) to a disproportionately smaller segment of our society—when corporate profits and worker productivity is high, but median income and workers salaries decline or stagnate, that is not a sign of a properly functioning economy.
When 1% of society captures 52% of all income growth over the past 15 years, and 400 people own more wealth than half of America that too is bad sign—unless one believes in a plutocracy. Mr. Arnold, and no doubt others, while highly alert to the worker/wage aspect of our current difficulties, seem quite content to ignore these “other” negative aspects of our changing economic landscape.
More importantly, he reflects a certain knee-jerk reaction to what has been described as the “new reality” by blithely placing all the burden of coping with difficult economic times on the worker side of the equation. If CEO’s are earning 300 times their average workers, and corporate profits are soaring, and Wall Street can see fit to pay billions in bonuses after receiving a publicly funded bailout, might that not indicate that a different approach to balancing the revenue/cost sides of the equation is in order?
Like I said, Ed Arnold is a nice guy, but he’s also a guy who’s a little too eager to apply status quo analyses and remedies to today’s “new reality” economic problems. We can do better than that in South Pasadena.