because he was a sexy figure. did he contribute that much? no. but he was a ministry for 35 years to you can say that name, everyone knows. the real hero i think is alexander butterfield. he had worked for nixon. he was one of the five people who knew about the taping system. the fbi asked him questions and then he was sent over to the faa. it was alexander butterfield oddly enough july 13, 1973, which is a friday, who testified and was asked a question, was there any, we talk about nixon having a dictaphone. was there anything else, and he said, and he told me, he said, he was republican. i will give them a fuzzy after but if they asked a direct question, i'm going to give them a trek to answer. and once he did that, that was july 13, by august, you know,
eight, nixon resigned. the supreme court came down with a decision to turn the case over. i think there's no question that without the takes nixon would have gotten off and they made all the different. sorry to jump in here. >> no, no. to good point. let me respond to the good points. the taping system, when johnson first advise nixon to do this, nixon was disgusted. one of his first acts as president was to order the taping system ripped out. but then as he was present for a while and he saw the people said one thing to him and another thing elsewhere, he decided he wanted the taping system partly to protect himself, as well as the eagle. and he ordered them put in. here's the difference lyndon johnson's taping system and jfk's and eisenhower before that and even order presidents come these presidents control the button of when it went on and when it went off. nixon did not.
nixon was very inapt mechanically. [laughter] truly. he was awkward, and, you know, so they installed what was then the latest technology, voice-activated taping. so the result was they take everything. if you move your chair, and it may sound, and the reels and started recording. so the result was there were thousands of hours of tapes. and it documented everything, including his crimes. so that was, you know, the problem there. and, in fact, the mechanical ineptitude is probably part of the 18 and a half minute gap. there was this gap of 18 and half minutes into tapes a few days after the watergate break-in. the expert analysts said it was a race to five different times. this was no accident the ray scheppach it was delivered. most historians think it was richard nixon himself who did. he had to do it five times. and i'm sure want to make sure that whatever was there was gone
and we can speculate about what was there. but no one really knows. in the last thing about deep throat and conspiracy theories, if you will. and there are a number of different conspiracy theories of watergate as with other big events, you know, the kennedy assassination, 9/11. you know, there are conspiracy theories. and sometimes these conspiracy theories have merit, but i think more often and in watergate i don't buy the conspiracy theories about watergate, that was a cia plot to topple nixon because, or a right wing plot to topple nixon because, you know, dismantle the cia or stop his overtures to the soviets and the chinese, or that there was a call girl ring that one of nixon's aides was running, or involved with that you're trying to cover out. i don't find evidence persuasive. i looked at that during my research for this book.
but what i think is something larger is that people want big explanations too big events. president, john kennedy who was beloved, is slain down in a prime of his youth by this loner weirdo? it's too upsetting to believe. the president of united states is toppled, you know, you of some larger explanation. and i think that's what some of these conspiracy theories are rooted. that doesn't mean there may not be some new things to dig up, and i would like to think i found some here, but i think essential contours of what we know about watergate, human, are more or less correct. i think essential contours of some of these things, i suspect the same is true. what i do think is that this is -- i'm biased -- a battle between nixon and anderson. godzilla versus king kong, the "new york times" called it in its book review. if you don't buy into the larger
issues of how this affected our poison scandal culture today, and i hope you will, but i hope you at least enjoy the battle of these two men, you know, this a have and the well of modern times and i thank you very much for your patience and listening to me that i hope you'll buy the book, and recommended to your friends. and thank you for coming out tonight in salt lake city. [applause] >> and thank you to my host. >> mark feldstein is former investigative correspondent for cnn and abc. he received two george foster peabody awards. king's english bookshop in salt lake city, utah, hosted the event. "city journal" senior editor
steven malanga argues that public sector unions and government financed community activists, president obama's been constituents, are bankrupting the country by pushing big government solutions for our economic problems. he spoke at an event hosted by the manhattan institute in new york city. [inaudible] [inaudible]
that operate on private donations into government contractors. before long, these contractors alliance with another rising player, the big government coalition. public employee unions, end quote. that was nearly 50 years ago. as you can see, we are still dealing with the poison fruit of those roots. that coalition has been on a march to power ever since, and it continues to this very day. which is why this book so perfectly timed at this moment, when taxpayers finally see mad enough to say stop, to take back the power. or at least some of it. i don't think anyone in this room is to be reminded of the choking cost of the government. it's all around us here in new york city and new york state. new york city and its agencies
have more than 362000 full-time employees. according to the citizens budget commission, of the $63 billion operating budget, more than 57%, or 36 billion, is directly spent on employee compensation. in 2002, the city-based $1.3 billion of pension costs. this year, 7.4 billion. if you remembered nothing else, remember that. i will repeat it. in 2002, $1.3 billion in pension costs. this year, 7.4 billion. altogether, the city will spend $6.1 billion more on employee benefits this year than it did eight years ago. and still the advocates complain, it's not enough. it never is. it can't be. we didn't get here by accident. that's the context of
"shakedown." steve shows how, state-by-state, union by janine, politician by politicians, the new new left gain power over public finances. there so many choice nuggets in the book that our restrained myself to a few favorites. one involves the california nurses union, kind and caring people, right? no. you will see nurses the same way again after you read how their union, angry at governor schwarzenegger, flu and add blitz over his house, trillion out of state, spent $1000 in attack ads, and then join the teamsters. [laughter] and nurses and the teamsters, i do know, sounds like a biker's group to me. [laughter] the chapter on steve's home state has a tony soprano ring to it. the mob the lack to jersey. that would be the government mob
that took a low tax state to one of the highest, and yet has chronic budget crisis, even in the boom times. a bad case of the blue state blues, steve writes, on the road to the next california. until chris christie entered the picture. steve tells the story of the community development block grants, over $100 billion spent in 30 years, a horrible record of failure, yet it lives on. a classic case of a bad program, instead of being killed, continuously expands. there are some success stories do. welfare reform being the most important. cbs, the drugstore chain, has died 63,000 people off welfare rolls in the last decade. but still must fight the bureaucracy turning up its nose at the jobs it offers. a company official tells the, quote, there's a perception among those who run welfare
programs that intracouple jobs are not good enough. right, they should all start out as managers. which brings me to my final point, this economic disaster came about in part because cultural values were also swept aside. and my favorite quote comes from the 1992 report of the federal reserve, the boston federal reserve best get on earth did, urging new standards on mortgages, the federal reserve in boston conclude that conventional standards might be quote unintentionally biased, unquote. because big economic culture of urban lower income and nontraditional customers. we know how that ended, or as steve puts it, we now have a culture of entitlement everywhere. steve, congratulations. thank you, thank you, thank you for a wonderful work. [applause]
>> thank you, michael, for those wonderful words. i also want to thank you for putting extensively from the book, a whole -- hold on a sec while i cost us so many sections sections of my speech. [laughter] >> we didn't coordinate. >> that's okay. and thank you all for being here with the weather as it is outside. a lot of familiar faces, and a lot of friendly faces. some of whom i think know what i'm going to say. but let me start by saying that back in 2005 i published a book called a new new left in which i describe what i called the most important force within politics in america, a coalition i defined as the self interest left, or the public sector union, social service advocacy in the conference that i have
been observing the new new left more than decade or ugly back to 1994 story i wrote, they took all the heat for me saying things back and i'm going to say now, were completely politically uncracked back. how many people to have cancel subscriptions? there were many, i remember th that. but i had been saying these things for more than a decade, and i realize this group have become the most significant coalition in state and local politics in many places. by 2005 what i realized was the truth of a tip o'neill famous observation that all politics is local. because the power that this new big government coalition was gathering gave an enormous resources and graduates making them players in national politics, too. 2004, for instance, the election 2004 was perhaps the first time this coalition led by enormous
contributions from public unions, government worker unions, nationwide, and by grassroots work such as voter registration drives by groups like acorn, that actually made an impact on the national election that was really visible. now some of the critics of the book dismissed it as alarmism. what they said is that, after all, conservatives depending on your definition of a conservative, controlled the white house. and also controlled old houses of congress at the time. so i mean, how powerful was this new new left actually be. i thought the critics were underestimate this new coalition. but even i would not have been foolish enough back then to predict that within three years we would have had a former community activist in the white house, and that whole parts of the new new left agenda would now be advanced in washington as part of federal policy. what is the new new left, where did it come from ?-quewhat i
call the self interest of the left because it is always for bigger government, and more programs, and more spending. even more spending on programs that have failed miserable. because this coalition benefits always from a growing public sector. coalition was created in part by the architects of the war on poverty who believe someone naïvely that government could eliminate poverty and divide neighborhoods by spending billions of tax dollars on local community groups creating a constellation of new programs, most of them completely untested. well, the war on poverty standards did create through this money was something almost entirely new. local community groups headed by activists who existed entirely off of government money. the war on poverty also transformed many traditional charities, michael, which present introduce private donations to offer the poor a
hand up. instead they were transformed, many of them, into government contractors who adapted the ideology of the war on poverty which saw the poor as victims of an unjust system. some of the programs financed by the war and poverty were really nothing more than tax finance committee activists. that is, big programs that use of tax dollars to help people become more political influential. under the notion that those who advocate for themselves somehow benefit from this community work. not surprising that he performed in randy's programs quickly became politically active themselves. because they rapidly realize that they needed leverage to keep the money flowing. the government money that is. by the late 1980s, nearly 20% of the new city council were products of this government-funded nonprofit sectors. they were among the most striking advocates for higher taxes and more government spending. in other cities from chicago to
cleveland to los angeles, the road to electoral success increasing the ram to the government funded social service sector. spending directed boomed through both the public and democratic administrations. the nonprofit service sector has never been richer or more powerful, wrote former recipient teresa funicello in a 1993 book called the tyranny of climate. except for the poor, today poverty is a mega business. from the very beginning there were a few controls on how this money was spent. and today 42 years later, much of the money goes to fund programs with no track record of success. the community develop a block program to which i devoted a chapter because i think it's symbolic of the problem, has spent some $120 billion in its history with little to show for it in many places. even though its original goal was to alleviate poverty and
revive community. take one example of how the program capital early uses taxpayer money. at the 1992 los angeles riots, they gave the city $40 million in grants to help address quote the underlying causes of the riots. now, since no to even agree with those causes were, the city simply gave the money to committee groups it was already funding. and a subsequent audit disclosed that city didn't even know how most of the money had been spent. similarly, the federal government and states have invested billions in financing job training programs run by politically connected social service groups that really know little about how to find people jobs. that's one reason why these programs have a dismal placement rate. that's not surprising because the money is really meant as a jobs program for nonprofits. the gao honor of the federal government key placement program found that only about 40% of the
money designated for retraining workers actually went to the workers themselves, while administrative costs took up the rest. our president branch is such a existing off federal grants that was started by a coalition of churches in chicago, but which was designed to live mostly off government money, not contributions from parishioners, or even donations from private donations -- foundation. it was just this kind of group that you would have it should political ambition and wanted to make the right connections. this group of government-funded social service activists soon sound natural allies in another group, namely, one of the biggest and most important political forces in this country today, public sector unions which got their start any late 1950s like new city mayor robert wagner decided grants workers are right to unionize as a way of making them political allies.
previously government workers had been denied that right on the grounds that they were already detected by civil service and because government was a monopoly, without any competition to restrain unreasonable wage and benefit demands. quickly the fears of many critics about public unionization came to pass. for those who remember, the 1960s were very tumultuous time in this field. in 1966 alone, teachers of strikes shut down in september of that year some three dozen major urban school systems around america. now what happened is states quickly began limiting the right to strike by public employees, and unions figured that they need a new strategy which involve becoming politically active in state legislatures and in city council. let's take one example of how quickly the evolution happened. in california in the 1970s, the most influential groups, sacramento, where private industry associations run by groups like the trial lawyers,
doctors and hospitals, and insurance companies. by the mid 1980s the biggest donors to political campaigns and the biggest winners on lobbying dollars in sacramento had become groups like teachers unions and service employees international union, the public safety workers unions, namely police and fire. tellingly, these public sectors unions garnered the most are in states that were economically vibrant at the time, places like california, new york, new jersey and illinois. this wasn't a coincidence. as states prosper, the opportunity they afforded people attracted population, which require government to grow bigger to accommodate newcomers. at the same time prosperity brought with it higher standards of living. and as living standards rise, people inevitably begin to ask more services from government. prosperity also brings a certain overconfidence with it.
states like new york and california in the 1960s and 1970s, in new jersey in the 1980s, came to imagine that businesses and people seeking opportunity had no choice but to do business with them and how wrong they were. at some point in these places, government reached a tipping point. in californcalifornia, for instance, the number of government jobs grew from a mere 875,000 in 1960 to nearly 2.1 million in 1990. that led to exploding public sector union membership. in the late 1970s, when the california teachers were first given the right to organize, and to bargain collectively, the union had a 170,000 members. today, that union has about 340,000 members. if you multiply 340,000 members by annual dues of more than $1000 a year, you can understand the enormous resources of these unions. with so much in a way resources
these groups became politically savvy over time, and expert at garnering wages and benefits for themselves. and for spending on state programs like medicaid which also was sort of what i would say is in there with us if you'll for reasons i will explain in a little while. they also worked to change the mechanics of government in many places so that i'm doing the spending became harder and harder and harder. let's talk about some of their maneuvers. and their victories which there are remarkable seminaries around the country, and that's no accident. one extreme is successful area for them has been health care, which is nominally private but really increasingly is a public sector industry in america today, and is going to become more so. in the 1990s, for instance, many states began looking for ways to cut down on growing nursing home costs that they
were paying for under medicaid. one strategy was to use more at home care rather than expensive institutional care. in california, service employees international union's initiate a long legal effort to have these workers who were independent contractors declared a government employees. when the courts finally agree, the union think that local politicians, the county politicians that is, to agree to boost wages and benefits if seiu were able to organize the workers. that was an easy task because government rarely opposes unionizing tribes. not wanting to sing anti-work. the seiu's biggest victory was and when representation for 74,000 home health care workers in los angeles county in one drive, the single largest organizing drive since the united auto workers united auto workers had units in general motors in 1937. taxpayers paid a steep price. home health care costs became the fastest-growing part of the los angeles county budget and
after the tragedy bargain for higher wages and benefits for these workers. many of whom didn't even know they were being organized until they start having union dues taken out of their wages. the entire effort, in other words, consisted mostly of deals between the union and elected officials not traditional picket lines, not traditional organizing. that is what union organizing has become in the public sector, and in many of these related industries like health care, heavily influenced and heavily regulated by public money. it is about backroom deals, not about picking, not about organizing drive. the growing influence of unions over health policy led to all kinds of new alliances between labor and management at the expense of taxpayers. in places like ohio, california and new york, for instance, health care unions may deals with hospitals and nursing homes administrators to set aside their differencescome and use their combined them public would
influence to lobby for higher wages and higher reimbursement rates from government. in new york as many people here know, this coalition even persuaded state government several years ago to devote several billion dollars of public money to raises for hospital workers, an unprecedented public expected for private workers. nominally private workers that the transformation of state and local health care policy into a vehicle of growth from a new new left helps to explain the battle over health care reform. during this long political fight, a number of people wondered why the advocates of health reform were willing to pursue this legislation in washington, even though it was so politically unpopular. and remains today on popular. the answer is easy. just as medicaid and medicare transform health care in america, getting government bureaucrats and politically connected unions a tremendous say over health policy, this new legislation would even further
expand their powers and at taxpayer expense. health policy is temporally taken a backseat to the intense pressure states we've been discussed are being over budget. and here the issue has become the pay and especially the benefit of public workers. back in 2005 i wrote the rapid escalation of pay in the as a symbol pension funds were going to create a crisis. even though i could not have imagined that would be as all consuming as the ones we now see. at the heart of many state problems are a series of deals in which politicians and unions negotiated to take whatever budget surplus states and cities were running during the go-go years of the 1990s and the bubble years of 2000-2005. and dedicate much of this money to employee perks. california's fiscal devil is a result of a series of such deals in 1999 and 2000. with the states treasure was actually flush with tax dollars from a the technology revolution
in silicon valley. in 2000, for instance, teachers in the state already among the highest-paid in the country, began dying some $2 billion in budget surpluses. they travel to sacramento and stood on the steps of the state capitol where they chanted we want money, we want money, we want money. [laughter] that's what they wanted. [laughter] gray davis, the governor had been elected with almost universal union support made in several offers, eventually devoting someone $.8 million of surplus money to the education system. the union got this money just four years after they had won $1 million a year in additional funding to lower class sizes in california, though subsequent research by rand show that this one had made no difference to student performance. this is only part of the problem. the state also agreed to legislation starting in 1999 that while the increased pension
benefits for state employees. it included an unprecedented retroactive cost-of-living adjustments for those already had retired, and a phaseout of a cheaper pension plan that governor wilson had instituted in the face -- state in 1992. did you also grant public safety workers the right to retire as early as 90% of their salary. to justify this incredible enhancement, davis and the legislature turned to the california pension board, calpers, which was stocked with mems were either you directors or who were appointed by state officials who themselves had been elected with union help. the calpers board which had lobbied for the pension bill issued a preposterous opinion that the state to provide a new benefits mostly out of the pension systems existing surplus and future stockmarket gains. when the stock market is leading 2000, both the state and also
local california government got state's land with enormous bills, which if you consider where the market is today, have persisted for more than a decade in the total some $12 billion today. that's resulted in the bankruptcy of at least one local california municipality and perpetual state and local budget problems. many legislatures would've voted for the pension legislation, including all but seven republicans, later claimed that they had no idea that its fiscal impact would be so devastating. they have swallowed the rosy calpers projections, even though they knew very well that, as one can achieve put it, calpers was a fox in the henhouse. other states had also been driven to the financial edge by rich public sectors salaries and benefits. actuaries are now predicting that jersey's pension fund could run out of money by 2014. that's not under fund. that is run out of money. this take that into this mess when it, in 2001, it greatly enhanced public sector pensions
because of a so-called surplus in the pension funds but the surplus was going to get acts he came from money that the states borrowed to put into the phone to make the fun look well-funded which prompted the public sector unions to its claims we have a surplus, we want more pension benefits, and republican temporary governor can't remember christie whitman went to washington, and the democratically controlled legislature gave them what they wanted. i've actually looked at this jersey borrowing that was supposed to make the pension fund look flushed, and i can't believe that jersey's taken all that borrowed money and put in the stocks in the dow, the dow would have to be a 33,000 right now for the state to behold on that borrowing. since the dow is now at what, every has the automatic system for since the dow is at 10 cents come you can imagine why the
jersey is in the problem and fix it is in now. the projections of hefty annual investment returns by jersey and california pension funds are not unusual. their impact is part of the fiscal maneuvering that the public officials and union officials and union officials taxpayers expense, and is often a sophisticated scheme which among others, is e.j. here, e.j. mcmahon, has written about extensively taxpayers expense, and is often a sophisticated scheme which among others, is e.j. here, e.j. mcmahon, has written about extensively. pension funds, public pension funds assume an unrealistic 8% annual investment return which make about that. bernie madoff on a claim he was getting 12% a year. we knew he was cheating. [laughter] no profit passionate private pension fund can get way with these kind of rosy projections that, in fact, kosatka singh is this unrealistic 8% return last year, that when the montana board a year ago was looking for a new actuarial firm to work for it's fun, the board said in his
request for proposal that no firm which believe the public pensions should adhere to a lower board realistic average annual investment return should even bother applying for the job. realism, in other words, will get you nowhere in the world of public sector pensions. the combination of rich benefits and rising salaries has given state and local workers a big compensation premium over private workers which is a huge reversal from 30 to 40 years ago. several years ago the nonpartisan employee benefit research institute actually had the guts to take at this question. they estimate on average the public sector worker compensation was now 46% higher than compensation in the private sector, when you include employee benefits. moreover, as we know, the federal government has dedicated hundreds of billions of stimulus of dollars to preserving state and local jobs any two successive stimulus package is
but one thing that money did was encourage unions to hold fast under which demand even as private sector wages stagnated or declined. in new york city the bloomberg administration estimated that new york city could have saved one saved $1.2 billion if public workers in the city agreed to forgo raises of 4%. instead the unions asked for higher wages. in jersey governor christie as the local school boards could absorb more than $800 million in school aid cuts if unions merely agree to take no wage increases this particular year, not an on rage's request. union locals and 90% of school districts refused. it isn't just the fiscal problems that made this recession different for states and cities from the budget crisis in the late 1970s and
early 1990s, which if you remember provoked their own individual tax revolt. what taxpayers are waking up in discovering this time around is that the new new left which is a kind of permanent organizing and lobbying machine now, has been at work changing the very new rules which government operates. so that reform has become much harder. state legislatures in places like california, new york for instance, have been so completely gerrymandered that on seeing incumbents has become very, very difficult to in new york polls show that fewer than 20% of voters approve the job the legislature is doing, but 98% of incumbents get reelected in new york. the two numbers simply don't fit together, except when you look at the way in which a deck has been stacked against democracy in new york state. while few people were watching other changes had been made. legislators have written into law and even into the state constitutions rules that prevent
ever rolling back the rate at which a public employee accrues pension and health benefits once these are working for government. and an absurd events is unsustainable. world's for resolving contract dispute have also been rigged. in some states, for instance, arbitration rules are designed so that arbitrators actually don't have to take into account whether a municipality can afford a contract before ruling on it. they can sit back, refused to negotiate contract don't get them in trouble with taxpayers and then just let arbitrators do their work. face with this kind of fiscal reality, we are saying essentially services in more and more places. that is finally promoting a bit of a revolt. though the new new left today is much more formidable and capable of beating back this change than have ever been before, already about a dozen states have made changes to the public employee
pension systems to cut costs, though so far the changes could be described as taking the low-hanging fruit. states and cities are ending the most egregious practices such as double dipping, which is intended to public pensions at once, or salary spike in which raises your pension benefits by spiking a sour in the last year or so. or allowing workers to achaemenid enormous retirement payouts based on unused sick or vacation days. while these are popular, these reforms are by their, they won't do enough because the current system of defined benefits and early retirement programs is unsustainable, in these reforms only really chip away at them. because of the fiscal stress is so great we are likely in the next few years to see a few titanic court cases in which are tested some of state laws which guarantee workers the right for as long as they work to get or and retirement benefits at the highest level possible without any changes to the pension plans
for as long as they work. if the courts ruling favors of workers, i so they don't know what will happen in some of the worst places short of a federal bailout because the costs and the obligations are just that i. the real battles for reform are going to be thought over political processes and maneuvers, because without rolling back some of these changes that have stacked the deck against taxpayers it won't be easy to solve many of the fiscal problems attributed to the transit. in new jersey, for instant the new governor chris christie waged budget battles all spring but that was really only the prelude to reform. he is now proposing what he calls a toolkit of 33 reforms designed to make it easier to control public sector compensation house, including making changes to the states arbitration process which would require arbitrators to take into consideration what taxpayers can afford contract. some states are also
experimenting with redistricting in order to redistricting reform to end gerrymandering in california voters approved a new nonpartisan redistricting panel which will now have the responsibility for writing legislative districts, taking that away from state lawmakers. perhaps the biggest message the taxpayer groups have absorbed and are absorbing in his budget crisis is that vigilance is now necessary because public sector unions and advocacy groups have the resources at taxpayers expense to be a permanent residence in the halls of legislatures and city councils. in pennsylvania the commonwealth foundation, free market think tank encounters someone and 15 staffers working for the state teachers union, including dozens of lobbyists. in california the teachers unions been an astounding $57 million to defeat initiative they oppose in the crucial 2005 election. in connecticut school reformers discovered every time they visited the offices of state
legislators who were on the state education subcommittees, they found teachers unions they're sitting outside the door keeping track of who was visiting. in new jersey, when a prominent businessman decided to fund a school reform initiative, naïvely believing that everyone could be for this, he was taken to trend, then inform that was occupied by the state teachers union and to they would oppose everything he wanted to accomplish. without on e-mail changes, taxpayers are going to face increasing pay, not just in the form of higher taxes but also declining service. this will be the greatest challenge for tax reform. the average taxpayer faced with declining police protection or growing class sizes in school districts will sometimes opt for higher taxes. we are seeing public employee unions force this choice nationwide. cops aren't on average an astounding $160,000 a year in salary and benefits, the city
got its police force by 10%, and the police chief announced that cops will no longer respond to a many of about 44 different quality crimes because they don't have the four-story. in jersey were governor christie point out school districts could absorb his cuts, if teachers medicaid of their pay raises, 90% said no. strategy is clear. created crisis at the state and local level, in force choices that are costly, including either higher taxes or a federal bailout. the other alternative for taxpayers is long-term structural reform of the sort i suggested, but by the very nature that will be difficult and will force hard choices on taxpayers. the new new left is hoping that most voters don't have the stomach for that fight. thank you. [applause]
>> well, you're envisioning the today senate and that's exactly public unions want you to do. let me give you alternative. when mayor bloomberg took office, and this was right after 9/11, new york city was facing a series of fiscal crises including, the pension crisis that michael described here was visible at that particular time. we at the institute said it michael bloomberg will simply work to get public pensions changed right now for every future employee, by the time he leaves office, half of the workforce will be under a new system and the city will be changing billions of dollars. so the point is that you can also engineered a revolution, evolutionary thing. you don't have to do it, i mean, the id we're just going to fire everyone right now and let the system collapse, based on, you know, the structure that they build, that's not the way it's going to happen. but it's amazing that when you
have prosperity and economic growth and you merely come as chris christie is suggested, put a 2% or 3% cap on the growth of government in a place like new jersey, completely your answer was. and that surplus is going. that is the point that the point is it's possible to have a revolution. that's why you see a property tax based place in places like that. running ahead of others. so i mean, you know, i think chris christie approach, which is number one, change the fundamental. number two, put in place tax caps and spending caps that are effective. or we hope are effective. is always a debate about that. at that point prosperity begins to take over and so you don't have what you have had come in this is the thing that it didn't talk about this in detail, but he mentioned this in the piece, if you look at spending increases at the state and local level have been going into certain times, seven, eight, 9%
above from year to year. sometimes five, 6% above inflation. that's what the problem is. stop that and you will quickly, without, you know, without firing 200,000 people, you will quickly change the political landscape. yes? >> using the idea of this new york, anything they can't go on forever will end, let's assume that this incidentally, that the tactics of the public service are successfully, everyone is panic, how would you envision the worst-case scenario as to how this will finally end? >> well, we have seen worse case and you that it's called new york city in the 1970s. you remember, new york city had to chop its work force, its police and fire, you remember the stories of places like bushwick whether weren't enough
police and fire to respond to writing. to respond to arson. that's the worst-case center. that's another is playing out in places in california. malaysia, the city, the small city that went bankrupt was forced to use slash a third of its police force, its fire, its fire. and so, they are testing strategy. how many please do we need? they'll answer that question. so that's the way, that's the way it ends in the worst-case scenario. it ends with, i don't know how many people revenue in the 1970s, but if you live in bushwick, if you live in the south bronx, if you're acutely aware, for instance, that there weren't enough police to respond or there wasn't enough of a presence of the fire department to respond to arson. that's i guess worst case scenario, you know.
>> hi. future of capitalism.com. i had a question about these assumed rates of return in the pension fund. first, isn't it a bit of a contradiction for free market forces who are argument for privatizing social security accounts with the same rows returned scenarios to then say the public pension funds, well, those returns are way too optimistic? and secondly, you know, what do you think is a reasonable rate of return to assume any public pension fund? and what do you base it on, other than, you know, the historical returns? >> well, first of all let's look to the private sector. i don't know what particular projections you're looking at in terms of people who want to privatize social security, but i'm not sure there are many people who would expect that someone's account would return an average of 8% over its retirement lifetime. first of all, that is dangerous
investing, particularly as you grow older you're supposed to be growing more and more of your ira or whatever your account, whatever it is, into mark defensive conservative investment. private sector pensions that are mature, by mature i think there at the point where they already paying, not just collecting money but paying, they need, for instance, i mean, the average they're shooting for is about 4%. the reason for that is what you people who have retired, you need to take a certain chunk of your pension fund and put it in things like safe bonds, treasures and so forth, to ensure that those people will be paid. public pensions are not doing that. so nobody, you know, you can do very well if you have social security accounts or ira, throughout the entire life where you generate three or 4% a year. you can do very well for yourself as long as you are
making contributions, too. so i don't see that, i do think anybody should, you know, shoot for 8% of a year over the course of their lifetime in the retirement account. god bless you if you get that. i probably would be retired right now. larry? >> larry mead from nyu. and the private sector when unions overreach and the company goes bankrupt, going to is some kind of bankruptcy procedures and judges have can set aside pay, is or any equivalent in public sector speak with there is for municipalities that they can go bankrupt but not states. technically. and you know, it's very interesting, one of the think chris christie says all time is that you will get separate state and local finances.
actually intimately connected. states finance their municipalities and let municipalities finance themselvethemselves and giveaways but it's very intimately connected. but the music us can go bankrupt, and wincing that around the country. or we are seeing many on the verge of default. and in some cases again what's happening is the state is taking an insane, i need help and in other cases as in vallejo they're not. how judges react in that kind of bankruptcy there is. bankruptcy is not one sort of thing. in fact, when i was at crain we get a long series on bankruptcy and you find judges are all of the plate. some of them are pro-debtor and some of them are pro-credit. in municipal bankruptcy, some of them are pro-union. in vallejo they held their governments get to the fire. they cut some benefits but they required him to continue something that you don't i will play out. you really can't make a generalization but it depends
on, often the case in a justice, it depends on the judge that you get. the other thing is that virtually all municipalities have to finance themselves using debt. want to get into the debt market, the exercise a certain discipline. unless you happen to be gm bondholders and less, then you're screwed. presumably that will happen. but we will see actually. so bondholders assumes will exercise a certain amount of control of these cases. and that control will push its way up to the states that if you look at harrisburg which is on the verge of defaulting, and should have evolved, in pennsylvania, ed rendell was, government tell was happy to let them be fought until he realized of the municipalities wouldn't be able to borrow in the state, and then he sort of backed them, at least back their next payment. so it's really an individual
issue. and as for the states, they technically can't go bankrupt which means, well, i can imagine of government allowing california, new jersey to default on the bonds that tie imagine some way or another, a front or back door bailout would be in order. we have are we seeing some of this with the stimulus bill, build america bonds. >> i think what would seem to be a solution would be to have state and local government follow a stride accounting standards, gaap, and, therefore, it would be incumbent upon the federal government to pass a law on the a conservative administration that says you can't raise money, selling usable bonds unless you follow the appropriate generally accepted accounting principles. that would force the right rates
of return for pension plans and it would eliminate both payday by one day and boucher budget, and force everyone to come forward with on its books and records. have people talk about this? >> after new jersey was cited for fraud by the security and exchange commission recently, in its municipal bond offerings, which is some of you are aware, i was on a show with harvey pitt, the former sec commissioner, who pointed out that, of course, the securities and exchange commission has lesd market than any other bond market. that is not coincidental. i would remind you the problem is that everyone of our representatives in congress, from both parties, represents either a state or a district of cities in is about as, and municipal finance is heavily protected in washington. and that is one of the reasons
why there are lots of rational solutions like applying private sector standards that go nowhere for that reason. is that part of the reform agenda? absolutely. it would have to be a real powerful agenda, one in which, let's say, a massive change in a year like, i don't know, 2010, so scared of the incumbents in office that they're willing to do that. but it is a protected part of government in america, both parties protecting it. yes, back there. >> have you thought about examining another area of where spending has increased extra in a fast in large amounts, and that's defense and military? it's hard to measure, that we
probably are spending more for our military than all the rest of the countries in the world. and would this be worth -- >> actually one of our, one of our fellows, josh, has done and is doing that as part of, has written about that as part of a federal reduction. this book is really about state and local government. and that's really been my area of expertise. but it's not as if we are able get, and i would actually urge you to read some of josh's pieces on this which have been on real to markets. and it is an area, absolutely, upgrade coming debate. absolutely. >> in the beginning of the talk, you commented that these problems, under republican
democratic administration, unified it was both democrats and republicans as well. in contrast, the union, about 95% ar oppose a federal politicl contributions and efforts into democratic parties. are the unions be naïve and not realizing that there are both parties, are you being naïve? >> well, no. let's start by saying that 95% is essentially the last national election with 96%, but there's a great difference in state and local level. while it is true that public sector unions most frequently are members of the councils of the democratic party, all you have to do is look at a state like new york or new jersey and understand the extent to which republicans are conspired with democrats to keep themselves in
office by granting, if you will, favors to the democratic party, to the unions. the republican-controlled state senate in new york was the biggest friend of the 1199, which is the new branch of the service employees international union during the 1990s. they granted them all of the deals come including a 1999, the health care reform deal, which basically took billions of dollars of tobacco money that new york state was receiving on the nationwide tobacco settlement, and put it into essentially 1199. other states are putting the money into biotech research, and they put into it 1199. and in new jersey, the republicans in new jersey in 2001 what they did this page and it was practically ruined the state, republicans had the governorship and had one of the two houses of the legislature.
so at the state and local level, no. no. yes, federal policy, yes, i would say. illinois is another state that you talk to the, at taxpayer grants and tax advocates in illinois, don't mention republicans as an area, as a party of reform in illinois. so no, not at the state and local of a. yes. >> hi. i'm on the hoboken new jersey school board where we spent $60 million in 2012 -- on 2000 children. >> i live in west when we spent 101 million note on 6000 children so you're ahead of us. you have an advantage. spent but we are going into teachers union contract negotiations this fall. our teachers union doesn't pay any thi a