Megan McArdle recalls how she, as an economics writer, used to rail at the Third World:
And the other journalists and I would cluck our tongues and say "Why can't they do the right thing when it's so . . . bleeding . . . obvious?"Well, now we start to get it. It's all too easy to for politicians of any stripe to hand out promises and goodies to their supporters. The problem comes later on when the bill comes due and the supporters start to get really angry, and refuse to admit that their freeloading benefits have got to go. Cue Greece, Italy, California, and now Ohio. When voters get really angry, the politicians bolt.
If you want to know how things will develop, a good example is Vallejo, California, which recently emerged from three years in bankruptcy. Here is the report from the liberal Huffington Post.
In an article on the state of California's legendary fiscal troubles, Vanity Fair scribe Michael Lewis pins the blame for the city's economic woes squarely on public sector pensions. "Eighty percent of the city's budget—and the lion's share of the claims that had thrown it into bankruptcy," wrote Lewis, "were wrapped up in the pay and benefits of public-safety workers."At present the courts have been reluctant to cut public pensions, so the cuts will fall elsewhere. There will be spending cuts and the firefighters are getting a new lower pension deal. But here is the kicker: "some creditors [will be] only getting back as little as five percent of the full amount they are owed by the city."
That will probably be the pattern. A lot of spending cuts in jobs and libraries. Some public employee give-backs. And a real haircut to the creditors.
Call this the battle of the freeloaders. Freeloader public employees want their pensions and health care. But the number of public jobs is going to go down. Seniors demand their entitlements. But they are taking a haircut in low interest rates on their savings accounts and facing a haircut on their bonds.
We are humans, social animals. We can do better than that.