What Exactly Is A Government Liability?

You might think it is a bond or something similar.  There are others.

There is a recent case in Illinois wherein the State Supreme Court decided unanimously that the government could not change the terms of employee pensions.  They had tried to do so by  a 2013 law that they hoped would reduce the unfunded liability by $105 billion.

Now what?

  • Government services in Illinois will fall.  The allocation will be challenging.
  • Tax revenue will rise.  They balance their budget by unbalancing yours.
  • They will borrow to pay the bills and make the future even more bleak.

The problem could have been avoided if the judges had decided to make pensioners the target of the reductions.  But that would not have been fair either.  The point is that government promises are worth nothing if they could change them to suit themselves.

This may have come as a surprise to the government.  It will be a similar surprise in many other states and it all arises from several government deficiencies.

  1. Few legislators look far ahead to see the effect of decisions that are comfortable in the present.
  2. Many legislators think governing is the same as campaigning.  I can promise anything so long as I reserve the right to change my mind.
  3. Many legislators are not evenhanded.  They value their friends more than they value the others.
  4. Many legislators value their comfort and position more than they accept the duty of service.

You can fool some of the people into believing that delusions are real, but you cannot do it forever.  Eventually, nature in its harshness demands objectivity.  Eventually has come for Illinois and there are other states near the line.

Finance is little more than common sense.  You cannot spend more than you bring in for long.   You cannot promise to pay in the future anything that you could not pay today unless you have complete and absolute evidence of how your future will be different.  All future obligations have the added burden of interest or inflation or both.

Governments cannot rely on their history to make people believe that they are going to work it out.  They have amply shown themselves to be self-indulgent and deceitful.  Their opponents offer little of value on either of those scales.

Many large institutions have run out their streak.  Governments, religions, school boards, hospitals and universities have become a laughing stock.  They are relying on the goodwill built up decades ago.  They have lost their right to be taken seriously.

As the money runs down, they will reform.  It will be messy.

Voters have a similar obligation.  Voters cannot vote for delusions either.  There will not be more money, and there should probably be less, allocated to feel good projects.  Voters must demand that politicians stop deluding us with trivia.

The current evidence shows that the urgency of what politicians talk about and what people are concerned about do not match.  Perhaps the skill requirement to solve real problems is beyond them.

Government debt is simply a tax they have not yet collected from the people.  Pity they don’t have the courage to live within their means.

Contact: don@moneyfyi.com  

Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

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