After threatening to cut their agreed on pay to minimum wage until the state budget was resolved, California's Governor, Arnold Schwarzenegger has finally pressed state workers to accept cuts to their pension contracts. Someone tell the White House economic team at once.
Last March, White House economic advisor, Lawrence Summers, said, "We're not a country where contracts just get abrogated, willy nilly." That seems like a clear statement of national values, I'm sure he'll want to get right on this.
Of course, Summers was talking about contractual bonuses paid to derivatives traders at AIG, after the company took $173 billion in taxpayer bailout dollars to stave off a complete financial collapse caused in part by risky derivatives trading. He's made no such pronouncement regarding public workers' pensions.
Even though the traders got their bonuses, Forbes magazine published an outraged editorial full of horrified cringing at the very thought that the Obama administration, or anyone else, was offended by the idea of paying bonuses to the very people who'd caused the problem. The bonuses were, after all, contractual obligations, which is what the insurance business claims it's all about.
It seems likely that those contracts, and the nature of the derivative bets managed by those AIG traders, were used as an implied threat to default and leave taxpayers on the hook for hundreds of billions of dollars more in liabilities.
So it was that AIG's contracts with some of its wealthiest employees were held sacred, even as the pay and benefits defined in the contracts of thousands of middle class autoworkers were slashed. Unlike the bank bailouts, which were offered nearly unconditionally, the government told the auto companies that loans to keep the doors open were conditional on cutting contractual obligations to workers.
If those GM workers were paying attention to what happened in other corporate bankruptcies, which have been used for some time as an easy way to get out of pension promises and keep going, they probably knew that they had to choose between losing, and losing badly. From manufacturing to the airline industry, private employers have increasingly defaulted on pensions and shifted the liability to the federal government so that promises made to their workers in years past can be realized as current profits.
Because if you're one of the many American workers that can't afford a lawyer, contractual promises made to you don't matter as much as they might seem to.
Worse, instead of raising the ire of business editors and politically prominent economists across the country, breaking promises made to ordinary workers of pay, benefits or future pensions will earn only praise from those same people. Breaking financial promises made to the working class, to the middle class, isn't offensive, but responsible.
We're seeing this again now, across the country, as public employees are being told that the cost of the economic crisis must come out of their contracts. Come out of their pay. Come out of their benefits. Come out of their pensions.
Public employees--who worked hard for less than they could have made in the private sector, who trusted that promises were made to them in good faith--are being asked to sacrifice because of the banks' reckless gambling and an obstinate Senate.
They cared for the children and elderly and disabled, kept streets safe, cleaned up messes, drove buses, put out fires, fixed sewer mains and just kept things running so everyone else could have a nice life. For these years of service, they must pay, and pay dearly.
That seems unfair. If anyone's contracts should be honored, why not the contracts of those who worked hard, played by the rules and acted in the public interest?
