Wisconsin: The Unionist Greek Tragedy

Wisconsin was once one of those states that called itself “progressive”, which meant that it taxed its citizens highly to support “public interest” projects that required thousands of  state employees.  Those employees began to unionize and utilize their collective bargaining power during the 1970’s and 1980’s.  Unionization of public employees began in earnest when the union population in manufacturing began to decline in the 1970’s and 1980’s.  The American Federation of Teachers (the AFT) is now one of the strongest and most vocal unions, along with the Service Employees International Union (the SEIU), and the American Federation of State, County and Municipal Employees.  These unions now tower over the once powerful United Auto Workers (UAW), and International Union of Electrical Workers (IUE). 

For decades collective bargaining netted unions generous pension and health care promises that were largely built on future promises, and only portions of the future promises were then currently funded.  Union peace was purchased with these future promises.  In order to not paralyze the public institutions that were now controlled by the unionized workforce, legislatures and other elected officials negotiated with unions to give the unions an entitlement to a payment in the future to keep public institutions running today.  For decades it looked as if this system of future promises would work: after all, the populations of the states were increasing, the gross output of the states increased each year, and tax revenues on average increased each year.  In 2008, with 18 years since the last major recession, it appeared that the game of future promises without current funding could be continued forever.

The Great Recession caused massive drops in state and local tax revenues, making it difficult if not impossible for states to fund even small portions of their current and future health and pension promises.  Furthermore, recent accounting rules began to require state and local authorities to report their liabilities for pension and health obligations when issuing tax exempt bonds. The combination of huge funding deficits with public disclosure made it increasingly difficult for states and municipalities to borrow to pay for their current expenditures.  The municipal bond markets began to disbelieve that both the bonds and the future pension and health benefits could be paid.  Accordingly, most states are having to cut state and local employee costs.  Wisconsin is no exception, but the reaction of its unions is exceptional.

The Wisconsin governor has proposed terminating collective bargaining rights for state and local employees except firefighters and police.  He has proposed that the employees contribute a larger share themselves to their own pensions and future health care benefits.  The union members are upset with the proposed changes, and have protested in the Wisconsin statehouse.  In fact, large numbers of state teachers cancelled their classes this week to go to Madison to protest.  It appears that their mission of educating students does not come first: protecting their collective bargaining rights does.  The elected state democrats physically fled the state to deprive the Wisconsin legislative senate its needed quorum of 20 to conduct business.  Only 19 senators were in the state for the deliberations. 

This is all eerily similar to what happened in Greece in 2010 when the Greek public employees who had early retirement at between ages 50 and 55 were told that Greece did not have the money for their pensions, and that the Greek public employee retirement system had to be reformed.  The Greek unionists took to the streets in massive public protests — only what were they protesting?  The system that they had worked in was bankrupt.  Their protests would not make it solvent.  They appeared to be protesting in support of maintaining the bankrupt system that brought the system to the point of bankruptcy.  At that time, some pundits in the U.S. said that the our federal, state, and municipal leaders should solve these similar problems in their jurisdictions before we have protests like those in Greece here in the U.S.  Wisconsin is the first of these Greek tragedies. Our states and municipalities, and even our federal government, will need more than protests and teachers playing hooky to solve these problems.  The proposed Wisconsin solutions is a good first step.