Asymmetric Risk, Bicycles and SUVs (December 18, 2008)
Many who felt invulnerable enough to demand ever larger salary and benefit packages are discovering risk is not as asymmetric (i.e. "we're protected") as they thought: auto workers and financial-sector employees were Wave One, in 2009 municipal and local government employees will be a gigantic Wave Two.
Here is my metaphor for asymmetric risk: bicycles and SUVs. Both share the same street, both are transport--but the risks inherent in each are very asymmetric. The bicyclist (I know because I ride over 1,000 miles a year on city streets and bogus "bike lanes" which are merely white stripes on busy streets) must be alert at all times because a 1-ton vehicle can do a lot of damage to a 35-pound bike and a 175-pound rider.
I've been knocked off my bike by other bicyclists, hit huge potholes, skidded on loose gravel--the list of risks a bicyclist faces every moment on city streets is long and varied. A risk-free world is an illusion no bicyclist can afford.
The SUV driver is the exact opposite. Comfortably seated in a large vehicle of steel and safety glass, warmed by the vehicle's heater and soothed by its sound system, the driver is easily lulled into a false sense of security.
Our nation's financial situation is roughly akin to driving an SUV while sitting on the front bumper. Oh, and the brakes are iffy, the shocks are shot, the fuel tank is almost empty, and the electrical system's erratic at best. Have fun driving.
Various groups have, via massive political contributions and lobbying, attempted to sequester themselves from real-world risk. This includes government contractors, of course, and shadowy financial/banking players who were pleased to beg for relaxed oversight and regulation of their little paper games.
But the average urban dweller doesn't see these well-cloaked beneficiaries of asymmetric risk--the ones they see as protected from the risks they themselves face are city, county and state employees.
When you have either fake healthcare coverage (such as a $5,000 deductable) or no coverage at all, and you just got your hours cut, you tend to look at articles like this with a slightly jaundiced eye: Cities pay huge salaries despite fiscal crises (S.F. Chronicle)
Sure, maybe the public employees drawing $200K+ a year work long hours, but then so do tens of millions of people earning $40,000 or less in "the real world" (i,.e. private employment).
Here is how city department heads deal with threats to their perks, like their own private drivers: they reshuffle the budget as needed to keep their drivers. According to some MSM reports, local government employees are shocked by the animosity they feel from the general public. Hmm, I wonder why? Perhaps if they read the above article and this one, they would understand how asymmetric risk (i.e. we face risks squarely while you're protected by our tax payments) strikes the taxpaying public as supremely unfair: Wage freeze proposed for S.F. unions (S.F. Chronicle)
The city currently has a $6.5 billion budget and a shortfall of up to $125 million. Next year's deficit could reach $575 million - or nearly half of the city's $1.2 million discretionary spending account.So the city is facing an unprecedented fiscal crisis, and the battalion chiefs are moving Heaven and Earth to save their private drivers. Nice work if you can get it, eh? I would strongly suggest that the battalion chiefs consider that the asymmetries in risk are about to equalize, and as a result they maybe seeking to staff a largely volunteer fire department by 2014. In fact, they may be no battalion chiefs at all; there will only be an actual paid firefighter or two at each station; the rest of the firefighters will be volunteers.
Now that's driving from the bumper of the SUV, not from inside.
The latest news in San Francisco is that Apple is dropping out of the MacWorld trade show--the death knell to the city's fat $25 million revenue it pulled in from the show. Now subtract all the other trade shows which will be cancelled as pointless in 2009, the steep reduction in foreign tourism as the depression guts economies from the U.K. to China, and you get a city which will soon be facing not a 50% cut in discretionary spending ("only" $1.2 billion for a city of 800,000 residents-- then there's $5 billion more in non-discretionary tax-paid expenses) but a 100% cut in discretionary spending--there won't be any at all.
Welcome to life on a bicycle.
The S.F. Fire Depertment battalion chiefs are obviously willing to steer their luxury SUV from the front bumper, but as small businesses are decimated, once-plump charity endowments are slashed and corporations flee the high-tax environs of S.F., the battalion chiefs will find the steering's getting a little squirrely on their luxury SUV and they might run into a fiscal ditch.
It's been a nice gig, sequestered in the plush comfort of "safe" tax revenues, but as businesses wither and die, so do tax revenues; and the general public-- overtaxed, hours cut, benefits slashed, laid off, pissed off--may not take kindly to municipal or state "revenue enhancement" schemes whose sole purpose is protecting the benefits (i.e. dodging the risks of the real world) of public employees.
Longtime correspondent Albert T. checks in from New York City with a related story: raising fares in a recession to cover pension shortfalls:
Here in NYC there is a proposal to (ahem) lift fares for metro/bus etc from $2 per ride to $3. nbcnewyork.com. to close a $1.2 billion dollar gap...Thank you, Albert. Public employees will undoubtedly feel the fare increases are absolutely justified, and the disgruntlement of the public will be dismissed. Yes, the public employees were "promised" benefits, but the promises were unrealistic. Now risk is no longer asymmetric--it's spreading everywhere.
Those riding bicycles will resent those still locked inside their toasty-warm
luxury SUVs, seemingly impervious to risk--and when the SUV flips over and crashes,
as it most surely will,
the occupants--corporate chiefs and battalion chiefs alike--shouldn't expect much
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