Some things I cannot ignore

Step one...

Megan McArdle from Atlantic has written a short article about the impending crisis of state and local pension system for government workers. By all means, the article is hardly groundbreaking - everyone knows that the existing pension system is unsustainable. During last few decades, the state and local governments in cahoots with government unions were able to build a pension system which is now crushing in front of everyone's eyes. They followed Keynes' old idiom "We are all dead in the long run" and made multiple deals without any consideration for the future - and the future has finally arrived. No longer can the government exchange pension promises for union endorsements - there is no more money left. And the state authorities are faced with few options - all of them bad (except the one where unions are told to go and f*ck themselves - which would make perfect sense). One of the obvious options (and the worst on by far) - raise taxes, cut services and pay up the pensions. MarketKarma very reasonably commented on this option:

What happens to a state locked in a perpetual pension induced budget spiral -- because of the pension obligations, states may have to raise taxes while cutting regular government services to balance their budgets. This will create states that offer the worst of both worlds: high taxes with terrible government services. As people leave those states, the revenue generating base of the state goes down -- creating more pressure on the budget. What business or person stays in a state like that?

It sounds like a fiscal death spiral.

Maybe the subtitle on the "Welcome to California" signs at the border should state:

"Where our taxes are really high, but at least the government services are bad!"

Another reader named Skullberg was somewhat more optimistic"

Mismanaged states will suffer in the short term but come out in a sustainable state on the other end. It will be difficult - as are unwinding other bad decisions - but that doesn't make it impossible.

Skullberg's comment reminded me of an episode from South Park, which in this case can be written thus:

Step one - increase taxes and cut government services.

Step two...

Step three - Profits.

 
What's step two, Skullberg?