Federal Reserve Z1 data on total U.S. debt for 2017 was released in March, and it appears that while it took eight years, the Obama Administration finally had an economic year it could be proud of. A year when inflation-adjusted GDP increased moderately, in this case by 2.3%, but the increase was not driven primarily by rising debts, with Americans continuing to sell off its future to consume today. Total U.S. non-financial debt actually fell by 0.5% of GDP, from 253.5% of GDP in 2016 to 253.0% of GDP in 2017. Federal government debt fell from 86.0% of GDP to 84.9% of GDP, the first decrease of the Obama Administration. Household debt edged down from 78.8% of GDP to 78.7% of GDP. These improvements took place, aside from 20 days, after President Obama had left office, but while the policies he had hashed out with Congress mostly remained in effect.
By the end of 2017, however, the new President and “King of Debt” Donald Trump finally began to get some of his agenda through. His huge, deficit-increasing tax cut was signed on December 22, and will take effect in 2018. A huge deficit increasing spending bill followed this March. And he has been moving to get rid of government restrictions intended to prevent the financial sector from lending people more money than they could pay back, and from speculating on derivative bets while having taxpayers bailout their losses. Last year I wrote that Generation Greed was planning one more economic and fiscal orgy at the expense of its children and grandchildren, and at the expense of the future of the United States. This year, in light of the Harvey Weinstein brouhaha, the term “orgy” seems too consensual. The last economic and fiscal gang rape is probably more like it.
Coming into office eight years ago, New Jersey Governor Chris Christie faced a fiscal disaster, following decades of shortsighted but popular policies that robbed the future. He talked like a problem solver, and could have made difficult choices to raise taxes and tolls, and reduce public services for everyone, not just for transit riders. But since the majority of New Jersey residents don’t follow state and local government closely, this would have meant Christie received all the blame for all that had gone before. So he punted, and shifted costs from the past further into the future, to the extent that this was possible. As a result he won a second term. But the future continues to become the present, and the bills continue to come due. He is leaving office as one of the most despised politicians in the country.
Coming into office today, therefore, New Jersey Governor-elect Phil Murphy also faces a fiscal disaster, this time at the peak of an economic cycle rather than in a deep recession. A fiscal disaster that is certain to get even worse when the next recession hits and the stock market corrects to something like fair value. And he faces those same two options. Raise taxes, cut services, and perhaps tell his public employee union supporters that they have to give up more to get back in solidarity with their fellow state residents. And be blamed for all of the above. Or hope that state residents have gotten used to how bad things are under Christie, kick the can a little further, and try to sneak into a second term before the additional bills come due. And then leave office as despised as Christie and outgoing Connecticut Governor Malloy.
Across the country taxpayer pension costs for public schools are soaring, and state and local taxes are being increased while money actually spent on education is being cut to pay for it. You see it in California, where a huge tax increase “for education” went exclusively to pensions, and in Illinois, where the City of Chicago’s schools are on the brink of bankruptcy. You see it in Kansas and Oklahoma. In some cases soaring pension costs are the result of past taxpayers’ unwillingness to fund the pensions teachers had been promised, promised for some in lieu of Social Security, which those teachers will not be eligible to receive. In other cases pension costs are soaring because politically powerful teachers’ unions cut deals with the politicians they controlled to drastically increase pension benefits, beyond what had been promised and funded. In many cases there is a mix of both factors.
New York City happens to be the place where the teachers’ union, the United Federation of Teachers (UFT), is perhaps the most guilty, and taxpayers are the least guilty, with regard to the pension crisis. And it the place where the burden of teacher retirement is the greatest. The result is large class sizes despite extremely high public school spending, and a host of services that New York City children do not receive. With virtually all New York politicians in on the deals that have left the New York City Teachers’ Retirement System (NYC TRS) among the most underfunded in the country, however, there has been a desperate attempt to cover up the damage. So the consequences of retroactive pension increases for NYC teachers (and police officers and firefighters) have shown up not so much in education (and policing and firefighting), but in every other public service in New York. And all of this is under Omerta.
New York City and New Jersey, like most places, have separate pension plans for teachers, police officers, and firefighters, and large general pension plans for all other public employees combined. This post is about updated Census Bureau data, for the years 1957 to 2016, for the general pension plans: the New York City Employees Retirement System (NYCERS), which also covers New York City transit workers, the New York (state) Public Employees Pension and Retirement System, which also covers local government workers (including police officers and firefighters) in the rest of New York State, and the New Jersey Public Employees Retirement System, which covers most public employees in New Jersey. In general the findings are the same as they were the last time I analyzed this data.
It has been a few years, however, so I have decided to repeat the analysis and update the charts below, and add a further discussion on hedge funds and the rate of return at the end. The data shows a pension disaster not only for New Jersey, where taxpayers have contributed very little over the years, but also for New York City, where taxes are high and taxpayers have contributed massively. The New York State system is in somewhat better shape – but in much worse shape than a decade ago.
Last year, when I went to update the tables I had compiled of U.S. Census Bureau data on public employee pensions over the decades, I found that the City of New York had started misreporting data for the NYC teacher pension fund.
Reporting to the Bureau that the teachers’ own money in their Tax Deferred Annuity (TDA) accounts was actually pension fund money, to make the pension fund deficit seem less disastrous. And not reporting the payments from the actual pension fund to those TDA accounts as pension benefits, to make teacher pensions seem less costly than they actually are. I spoke with the Bureau about this, and they told me that they intended to speak with NYC about it, but no corrections would be made until this year. So I chose not to finish updating the tables and write posts.
This year I downloaded the data, and found the same errors. The Bureau told me it had intended to make a correction, but the incorrect data had “crept back in.” But if I waited until next year at this time, surely the data will be corrected. But instead of waiting another year, I decided to use the Annual Report of the NYC Teachers Retirement System to correct the data myself. The results are in the spreadsheets linked and available for download below.
Last December I wrote a quick post expressing concern that the U.S. might have reached peak transparency, now that the Democratic Party, as a result of the rising burden of public employee pensions, has turned against the dissemination of accurate, factual information about government and society. Joining the Republicans, who have been against providing access to such information for a couple of decades.
Since then I’ve seen the same concern expressed by many others, now that Donald Trump, hardly Mr. Transparency himself, is President, with reports of government bureaucrats spiriting away statistical information to a secure location before the change of regime, lest it be deleted. Even so, I’m always on the hunt for alternative sources of actual facts, and this January I happened to think of one – the Social Security Administration. And wrote a letter to the Deputy Chief of the Office of Long-Range Actuarial Estimates, the office “responsible for estimates for up to 75 years in the future, based on economic/demographic assumptions developed for the annual Trustees Report.”
I didn’t receive an answer. Given that people need to keep their jobs until they can collect their pensions, and having worked for the government for 20 years myself and knowing what it’s like, I didn’t expect one. It is fair to say that I wrote the letter that follows for the purpose of publishing it on this blog after a reasonable period of waiting for a response had passed.
After a three-decade party, with some folks getting to party a lot more than others, there is suddenly no way to avoid the reality other than drifting into closed-eyed fantasy. The generations I have identified as Generation Greed, the richest in American history, are leaving the generations to follow are much worse off in many ways. And, in many cases, those at the back end of Generation Greed are facing old age much worse off then they themselves had been, forced by their prior excess consumption, debts and prior lack of savings to downsize a material lifestyle that for many of them had been the whole project of their lives. As I most recently noted in detail in my previous post.
The consequence of this realization has not been an increase in empathy or an attempt to change the worst aspects of a collective legacy while there is still time. There is still no willingness to make any personal sacrifices in the present for the collective future. The fact that the non-greedy minority of Generation Greed hasn’t stepped up to face the facts and battle for their own offspring is one final disappointment. The desperate desire of some of its rich to insulate their own children from the consequences of a diminished society — by repealing the estate tax — is the only effective example of concern by today’s seniors with what they will leave behind. Rather, the media they dominate remains filled with demands for scapegoats and rationalizations, and one more round of “what about my needs!” Needs that are somehow supposed to be met by latter born generations that are poorer, and yet are having large economic burdens shifted to them that will diminish their entire future.
But if one uses the right search terms, one can find some examples over the past year of younger generations beginning to resent the country they have inherited, albeit not enough to get off the couch and do something about it.