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Decline of the City (and) State
The problem with the Greeks was ultimately their love of conflict. If anything could be said of the fall of the city-state generally it would be that more than a hundred years of effectively unending warfare (rainy season, fighting season, rainy season, fighting season, lather, rinse, repeat) finally exhausted the resources of the dominant political unit of the time. Sort of troubling in this vein is the connection (and therefore the related failure) of "direct democracy" to the identity and existence of the city-state. Direct democracy was lovely, after all, and philosophically easy to envisage, that is until, in the wake of a crumbling Alexandrian Empire, it collapsed under its own increasing weight (or the increasing weight of military spending). What was left of the polis, the central, individualistic notion that the Citizen was of great particular import, was rather directly absorbed into cosmopolis, and the importance of managerial infrastructure to keep the aqueducts clean. After all, direct democracy (and the mob rule that accompanies it) had killed Socrates, hadn't it? That Plato dedicates The Republic partly to the import of the Philosopher King years later might have been predictable. In the spirit of this background, enter San Diego, a year ago last week:
Lame duck City Attorney Michael Aguirre will ask the City Council during a closed-door hearing today to consider hiring legal counsel to explore taking San Diego into bankruptcy.
Aguirre said Chapter 9 bankruptcy protection would allow for the reorganization of the San Diego City Employees' Retirement System, which faces mounting investment losses amid the national financial crisis.
Actuary Joseph Esuchanko told city lawmakers last week that as of Oct. 31, SDCERS had $3.78 billion in assets, compared to $6.56 billion in commitments to retirees over the coming decades.
If the actuary is correct, the shortfall in San Diego's pension fund has grown to $2.78 billion, up from $1.2 billion in 2007.
"We need someone to help us," Aguirre said.1
No, Michael. Actually, you don't.
While we give you full marks for bravery (obviously it required a lame duck official with no thought of re-election or re-appointment to deliver the hard news that San Diego is a bit of burnt fiscal toast) what you (and most other municipalities) really need is to default. To default and finally and remove any remaining clouds of delusion keeping alive the fantasy that you haven't, for years, spent like a pack of drunken sailors with rich uncles possessed of unduly-liberal purse strings. That you haven't made daunting commitments to municipal employees and looked politely the other way while they gamed their salaries in the last year to double up their lifetime pension benefits. That you haven't racked up obligations that doomed you to require of your investment advisors double digit returns on your pension funds for the next two decades. (Suing the investment bankers is a little cliche after that sort of thing, isn't it?) Now you need "someone" to help you. Well, what you really mean is that you now need everyone to help you, as "someone" here could only be the country's taxpayers via the proxy of a federal bailout. The city-state idea was pretty cool until you had to pay your bills, yes?
Realize it or not, most municipalities are not going to be getting another big fat hunk of the $60 billion dollars in stimulus money that kept them (barely) afloat this year. (Dubai sympathizes). Your Philosopher King has purse problems of his own just now, as it happens. Like it or not you might have to make a go of the city-state thing once again. Deficit spending is going to be a bit harder this time around, however, given what the market will likely require of you in the form of interest rates.
True, some brief flashes of the city-state have flared recently in the growing gloom (California, we are looking at what is apparently your special "IOU" dispensation from Article I, Section 8), but, last minute assaults on Federalism aside, you folks might have to actually adopt some pro-business policies for a change in the coming years to avoid the massive revenue suck you will hear once (say) Dallas figures this out. Those Auction Rate Securities settlements are going to cover about two business days of debt service, you know.
In the end the city-state will be forced to pay its citizens less, have little to offer them in terms of long-term benefits compared to the rich pensions and gold plated health-care plans that were once the hallmark of, e.g., the Chicago Transit Authority (now saddled with multi-billion dollar unfunded pension liabilities). That likely means a much smaller role for the city-state than the city-state had hitherto imagined for itself, and a much larger role for private entities.
The city-state is dead. Long live the (attenuated) city-state.
- 1. Joe Britton, "Outgoing City Attorney Wants San Diego to Mull Bankruptcy," Vallejo Bankruptcy Update.
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Scary stuff.
I'm sure glad that we don't have these kind of problems in New York. Phew.
"...most municipalities are not going to be getting another big fat hunk of the $60 billion dollars in stimulus money that kept them (barely) afloat this year."
This is the area that I will be watching. One of my biggest fears is that Barney Frank and company will try to resurrect the federal guarantee on municipal debt. It could prove to be the greatest bubble ever in the history of mankind.
Who is to blame; the corrupt politicians who keep spending or the spoiled citizens who keep demanding no cuts in services ?
It's a bizarro world especially when Bernie Sanders is the capitalists' best friend:
http://www.reuters.com/article/politicsNews/idUSTRE5AS1FE20091129
Just the beginning, folks...
http://themeanoldinvestor.blogspot.com/2009/11/problem-with-muni-bonds.html
Harvard ignored warnings about investments
http://www.boston.com/news/local/massachusetts/articles/2009/11/29/harva...
and if you missed it the latest from Bob Chapman (posted earlier)
http://theinternationalforecaster.com/International_Forecaster_Weekly/Po...
goddammit; this was beautiful .....
The roots of the San Diego pension fund fiasco.
http://legacy.signonsandiego.com/news/metro/pension/19960621-611-cityhas...
June 21, 1996
Frank Slater, a veteran of 26 years with the city of San Diego, is certain of what he wants to do in retirement: spend several years sailing the South Pacific in his 44-foot sloop, the Starfire.
What's uncertain is when Slater's maritime adventure will begin: At age 55 or at 60.
That depends on what the San Diego City Employees Retirement Board does today. Trustees have been asked by City Manager Jack McGrory to approve a complex set of changes to the $1.6 billion pension system, including giving the city a $110 million break on its contributions over 10 years.
McGrory has sweetened the deal by adding benefit boosts for several classes of workers and retirees. For Slater, 51, they spell the chance of getting 60 percent of his salary at age 55 instead of having to work -- as required in the current plan -- to age 60. But Slater, a management analyst in the Airports Division, is not yet sold. "I can't quite figure out how he's going to save money and pay me more," Slater said. "There's no sense in having 60 percent of nothing."
Ahh, no worries, mate...
Might as well watch global markets go ga-ga at the Dubai rescue.
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Dubai World seems like a typical real estate developer gone bust. The numbers are relatively small, $59 billion of debt. Stuyvesant Town in Manhattan = $5.4 billion. The GM building in Manhattan = $2.8 billion. 200 West (new GoldSach headquarters) = $1 billion in tax free liberty bonds.
The Friday morning panic was a buying opportunity.
um, does that mean that SKI Dubai the indoor ski/snowboard park gets turned into a big fishbowl now? Or a skateboard park? Or an empty warehouse for street-abandoned cars, from all the people taking their last flight out?
http://flashydubai.com/8-wonders-of-dubai-amazing/
I'm going with the last option. Maybe it could be a combo abandoned car warehouse / debtors prison, with the abandoned cars mocking all the debtors who didn't leave fast enough.
I wonder if some of those towers will follow the path of a much older tower once built in the same region?
You mean Dubai non-rescue. The UAE made sure their banks were fine, but that will not save Dubai or Dubai World. It also will do anything to help the countless foreign banking institutions with exposure. It probably won't help the UAE banks either, but I guess at this point even quarter measures are enough to make people dance around like it is nothing but good times.
so what's happened since Mikey's 2008 request?
http://www.vallejobankruptcyupdate.com/vallejo-bankruptcy-news/outgoing.php
and your comment:
have you not heard that there will be yet another stimulus?
all hail unions, which are the ultimate source of creative destruction of the glorious state of CA. There is a web site, that lists the top 500 pension recipients in CA. Most of the top 500 are getting far north of 6 fig pensions not including the benefits.
http://www.californiapensionreform.com/database.asp?vttable=calpers
Excellent links showing the insanity. Reminds me....
There is a decent documentary that I'm betting most have seen titled "who killed the electric car?" - at the end of said documentary it does a neat little job of trying to summarize who was guilty (and not) for the failure-to-launch of the 1st gen all-electric cars in the US.
It really makes the point well that it was D) most if not all of the above. Referring to it's list of usual suspects from Governments, regulatory bodies, Corporations like big oil and big cars and finally the consumers themselves.
The same is true here. It's not just the pension managers and unions. It's the politicians, blind or payed off regulators, the investment banks and even the citizens that knew it wouldn't work that didn't take to the streets instead of watching American Idol and playing Farmville.
Suing people and renegotiating contracts down to 1/20th of what they are today has about the same statistical probability of succedding as forever expecting 8%-14% yields from pension investments.
All's quiet along the social unrest front, but not for long. Not for long.
As long as the proles have bread (food stamps) and circus (cable tv) things will stay quiet. Crime will always go up when enough people don't have a paycheck to pay for their vices, but until we have rolling blackouts and empty shelves in the grocery stores we're the frog in a pot - aaaaaaah!
I suspect, for the 'aware', that our society, if this fiscal madness continues in its long, slow slide, without any sharp adjustments, will begin to resemble the first chapter of The Gulag Archipelago: Arrest.
A riveting introduction! http://preview.tinyurl.com/TGA-Arrest
"In spite of the unceasing efforts made by men in power to conceal this and to ascribe a different meaning to power, power is the application of a rope, a chain by which a person will be bound and dragged along, or of a whip, with which he will be flogged, or of a knife, or an ax with which they will cut off his hands, feet, ears, head—an application of these means or the threat they will be used. Thus it was in the time of Nero and of Ghenghis Khan and thus it is even now, in the most liberal of governments."
Leo Tolstoy
Ding! "...thus it is even now, in the most liberal of governments."
That's a good link but I don't think it lists the top 500 public pension recipients in CA. AFAICS, it did not include the county county systems. There are 20 county systems covered by legislation enacted in 1937. "The giant California Public Employees Retirement System, covering state workers and 1,500 local agencies, sponsored legislation in 1993 to reduce the boosting or “spiking” of pensions. But similar anti-spiking legislation for the “1937 act” county systems failed in 1994."
http://calpensions.com/2009/08/27/local-pensions-whos-minding-the-store/
Because those kinds of practices are still allowed for public employees covered by county pensions, there are often bigger abuses at the county level than at the state level. And the counties employee many high-paid employees like doctors, firefighters, heads of many agencies, etc.
Further, many of the county retirement systems are more severely underfunded than CalPers. County supervisors are reluctant to increase payments to their pension systems even though many are horribly underfunded. In order to do that, they'd have to fire employees and cut back on services, which is politically suicidal. They don't want to cut back on pensions either because that is also very risky politically. So the site you linked to under-reports the problems in CA.
all this crap about the cities and their power grabs started during ww2 with the communist traitor FDR. can you imagine the property tax levied on people in the early 1800's in this country? hell, even the early 1900's for that matter. this is when it all began. the good old boy system. kick backs and contracts to your buddies in various construction trades, building things we don't need with money we don't have and on and on it goes until now. the end of the road. the well is dry. now these bureaucrats must decide just whose side they are on. it is easy to take the money and look the other way and pretend ignorance. i have seen this behavior for so long. i want their boots off of my neck. i say , liberty in my life time. it is quite achievable, really.
CA pensions over 100K:
3090 from CALSTRS
6000 from CAPLERS
nize!
it is always nice to see that sea of green in the metals markets...on a sunday night. warms the cockles of my heart....
Seems to me that (a) and (b) are the same thing:
(a) working and saving money for 30 years and then having the government devalue the money to make your savings worth next to nothing;
(b) working toward a pension for 30 years, and then having the government "file bankruptcy" to make your pension worth next to nothing.
If the municipalities want to raise cash... might I suggest marketing tickets for the town hall meetings where the firefighter, teacher and police unions are told to their face that their $200K/year pensions are toast?
Agree , default is the best option. But to declare default without a progressive master plan, one designed to sustain economic growth, is not an option but a defeat of society. Would be a Very dangerous defeat, and would lead to civil unrest and foment revolution.... not an answer. A default does not need to neglect the sustaining needs of the general population, just a very serious reorganization from top to bottom. . Many cities have over spent without securing the future.... irresponsible. I agree with the author also, that the business climate in California and the whole nation must be improved , first and foremost , taxes reduced and restrictions rolled back , if any master plan for America is to work.
I have to disagree with the analysis of the causes of the City State’s to decline in the ancient world. Conflict was a way of life , it was not loved, but rather accepted as a part of life. The City State being a social construct in an often very dangerous world required that war was not to be ignored. The world was for the strong not the weak. The struggle for survival was never easy, old age was rare most died young from one cause or another. . The City State grew out of this realization, that there was power and security in organization. Organization lead to stability and a far better world. The City State was not defeated but rather became the nation or empire.
cali is out. of. touch.
while they can't pay for their ridiculous spending, they just passed a law requiring law abiding citizens to give a thumb print to buy ammo.
hopefully they will default very soon and start with a clean slate --- of ideas.
An apt analogy. I know what you'll be writing about soon. 700 years forward and the end of empire. Followed by the dark ages.
The Romans had free circus maximus, free warm baths & free corn for all programs.
Today the productive citizens pay for free food, housing, healthcare, education, transportation, retirement, and now investment banksters, invisible international CDS market counter-parties, 20% fantasy GDP economy sectors, multiple failed domestic chariot programs, massive international roman roads via air and sea supremacy - and for a kicker are topped off with the delightful gift of additional thievery through inflated fiat currency.
Clearly Marla, there is no resemblence to fall of rome here. Move along, move along.
"have you not heard that there will be yet another stimulus?"
There will be a "jobs bill".. but whether it includes aid to state and local Gov't is another matter.. but they might do it.
Hey, who can blame them, trying to read from the same playbook GS + others are using. You expect city employees to live/retire in cardboard boxes? I guess we'll be looking south of border for public servants soon.
$100K+ retirement for a city bureaucrat doesn't make sense. Gov. employed risk does not match that kind of reward. How about retirement based on how functional and successful their city remains?
Marla, you aim too high. Forget about the Greeks and what we call politics. Break out that old Jane Goodall and read about the chimps. You will learn all you need to know about human behavior. Really. I'm not kidding. The males form alliances and struggle for hierarchy, when successful they trounce those who threaten them, take most of the resources, and mate with as many females as possible under their protection. The males defend their territory and go to war with invading bands. That's about it, and explains most of what I see around me.
shallow
Hard to capture evo psych and the nuances of our closest genetic relatives in a blog comment. Sorry if I disappointed you. Will try to do better next time.
Read "The Naked Ape" by Desmond Morris. We are animals with primitive instincts and impulses governed by the constraints of the natural world. To suggest otherwise is shallow.
I had a friend years ago who insisted humaans were not animals. I still can't understand what on earth she though we are . . mineral or vegetable then ?
Great article Marla, btw you should spin at my house party , k ttyl
Yo Project: applicable to your post: http://www.zerohedge.com/article/deadly-flu-spreads-across-ukraine
PARIS — French health officials say two
people diagnosed with a slightly mutated swine flu virus that also has
been found in other countries have died.
Last week, the World Health Organization said it is investigating samples of variant swine flu linked to two deaths and one severe case in Norway, but that so far the significance of the mutation is unclear. WHO says the same mutation has been found in both fatal and mild cases elsewhere, including in Brazil, China, Japan, Mexico, Ukraine, and the United States.PARIS — French health officials say two people diagnosed with a slightly mutated swine flu virus that also has been found in other countries have died. The Institute for Health Oversight said Friday that the two people, who have not been identified, had been hospitalized in different cities and died after being diagnosed with the variant swine flu.
http://www.foxnews.com/story/0,2933,577285,00.html
Locally, the State of California robbed the $11 million savings of my socal city and hit the neighbor city to the north for $12 mil. This "alleged" robbery took place during a mid-week in broad daylight. No suspects in custody at this time, though officials have leads pointing to Sacramento.
As long as the concept of panem et circenses doesn't end, I don't see an end to these problems (or other problems). I agree above, its time for some fresh ideas.
Socrates was a bad ass chugging thier poison.
Since the very security of our nation depended upon the stability of our largest financial institutions trillions of dollars were committed to providing "stability" even while eliminating the concept of failure from what were once commercial enterprises in a free market economy. This process has not been lost on those that lead various levels of government and those that staff these bureaucracies as they will say; "Give us what we say we "need" or the nation will collapse". When the concept of "full faith and credit" loses its creditability then why would employees of the public sector or GSE's like AIG for that matter continue to accept compensation that is predicated upon future payment if that commitment to meeting future payment or the concept of the rule of law that governs such transactions is rendered worthless?
Dubai vs San Diego, democracy or monarchy, just asking the age old question, is it better to rule in hell or serve in heaven?
What if heaven had the worse weather?
there won't be any cold turkey defaults.
Example can be seen in NY, NJ, NV, Ohio and other states. Also in the distribution of the first stimulus package contracts by municipality.
Democrats will prop up Democrat leaning municipalities while starving opposition and rural enclaves of subsidies. Except "purple" congressional districts will get more than their fair share.
The point of stimulus is to have the organism react with desired responses. The desired proper response here in the organism is a broken will to fight off government intrusion and usurpation.
Democrats and households making over 200k that vote Democrat have decided being the masters of a catatonic economy is better than being administrators in a vibrant economy.
There will be many forced defaults, if the "kick the FED in the nuts" proposition becomes law.
City-states in XXI century? With the squid running this Zoo? I don't think so. After Alexander, or should I say Aristotle - Alexander's mentor - Greece fell in love with Epicurus, and has never "recovered" since. The stench that I am picking up rather is very similar to that in 200CE in Rome - only the tempo has picked up a bit since. So, this time around it should take only a few years to reach the Dark Ages, but also even less to reach the Renaissance.
I guess you didn't study ancient history too much-
pathetic
Not sure if this is the author's original intent, but i'd just like to point out that in order to disprove Plato's notion of the City State, one would first need a city that fulfils his criterion. A city ruled by a small council of philosopher-kings. Or let's discount that to just a philosopher-king, as befits the modern context (and we all know how difficult it is to attract top talents into government - and then somehow get them elected). Is San Diego such a city? Are there such cities in the US?
Now although i don't know much of the happenings in the US heartlands, one can surmise that any bankruptcy at the municipal level will lead to overall higher bond yields, in turn leading to yet more unserviceable debts; ie. a domino effect. Should this attorney have his way, then in time, we might call this the beginning of the end.