San Diego’s Two Santa Claus Problem

This is this first installment of a multi-piece analysis of San Diego’s pension challenges.

San Diego’s current pension system doesn’t work. By now, most everyone is at least on that page, and those that aren’t have at least accepted that this is the discussion we’ll be having for the next 18 months. Over the course of a decade or more, the city’s pension system hasn’t been managed in a sustainable fashion, and now we’re faced with a debate over how to spread around that failure – in the form of economic hardship – in something resembling an equitable manner.

Everyone who has come in contact with the pension system during this run can be held responsible for not fixing it – indeed usually for not meaningfully trying to fix it – but it’s important to remember that it isn’t just the political cynicism and self-interest of political actors that led us to this point. Everyone has a share in this mess.

At its root is California’s particular relationship with the Two Santa Claus theory:

By 1974, Jude Wanniski had had enough. The Democrats got to play Santa Claus when they passed out Social Security and Unemployment checks – both programs of the New Deal – as well as when their “big government” projects like roads, bridges, and highways were built giving a healthy union paycheck to construction workers. They kept raising taxes on businesses and rich people to pay for things, which didn’t seem to have much effect at all on working people (wages were steadily going up, in fact), and that made them seem like a party of Robin Hoods, taking from the rich to fund programs for the poor and the working class. Americans loved it. And every time Republicans railed against these programs, they lost elections

Democrats, (Wanniski) said, had been able to be “Santa Clauses” by giving people things from the largesse of the federal government. Republicans could do that, too – spending could actually increase. Plus, Republicans could be double Santa Clauses by cutting people’s taxes! For working people it would only be a small token – a few hundred dollars a year on average – but would be heavily marketed. And for the rich it would amount to hundreds of billions of dollars in tax cuts. The rich, in turn, would use that money to import or build more stuff to market, thus increasing supply and stimulating the economy. And that growth in the economy would mean that the people still paying taxes would pay more because they were earning more.

There was no way, Wanniski said, that the Democrats could ever win again. They’d have to be anti-Santas by raising taxes, or anti-Santas by cutting spending. Either one would lose them elections.

Adapted to San Diego, how does this apply to our wrestling match with pensions? As Scott Lewis has pointed out in frustration several times, city employee unions have been explicitly protective of current benefits at the expense of future employees, and negotiated pension plans that should have been easily recognized as untenable over the long term. But it isn’t the responsibility of people negotiating for better wages to stop if they think the other side is giving too much. There was, and remains, room for leadership by unions to provide a counter-proposal that would position or might have positioned them in the leadership vacuum that has long existed on this issue, but they haven’t because they don’t have to, it isn’t their job. And as long as the city’s elected officials were content to turn a blind eye (publicly at least) to the systemic funding problems, workers complaining about being too well compensated were going to be received warily by the public and with contempt by rank and file union members.

Meanwhile, local elected officials of both parties were faced with the same essential challenges that have driven California’s failed budgeting process since the passage of Proposition 13 more than three decades ago. Voters were convinced that there was always more value to be had from their tax dollars – no matter how much those tax dollars ebbed or flowed. The economy was strong, real estate was booming, and there was no easy argument to take an austere line on pensions. When the economy is humming, the natural reaction is to help streamline still more investment, so Wanniski’s pitch carried particular appeal. And politicians all had – or hoped to have – elections to win. And everybody loves something for nothing.

Expectations were limitless, nobody was interested in discussing the shared responsibilities and sacrifices, and the underlying conservative message that spending should happen without taxes swept everyone up. Without strong progressive or Democratic leadership to disprove it, the Two Santa Claus Theory had San Diego in its grips.

At the state level in California, Wanniski has been proved right for decades. As David Dayen explained, it’s managed to set the underlying tone of our political discourse ever since:

In the intervening 35 years, we have had no progressive leader in California, no Democratic leader, challenge that ridiculous theory in any meaningful way. Instead, over and over again, Democrats must lead the charge killing off the two Santa Clauses, filling budget deficits by raising taxes or cutting spending, frequently the latter. And while other factors have contributed to Democratic dominance in recent years, the ideological theories of Santa Claus conservatism remain. And Democrats and Republicans alike have ingrained them into their lizard brains, either by believing in them, or believing that everyone else believes in them and there’s no way to change that.

Ultimately, we have a serious problem. Our citizens get almost no public policy information from media, our state capitol is too often run by corporate interests, our Democratic leadership cowers from advocacy to disabuse citizens of false notions, and our Yacht Party is completely crazy. This is not insurmountable but requires leadership. We elected a President by 61% of the vote in California who was derided as a socialist. Attitudes can be changed. But someone has to stand up and speak.

We’re seeing now what happens when we buy into the Two Santa Claus Theory. Nobody is ever happy with what they get from government because they’ve been trained to expect the impossible. Politicians bend over backwards to provide something for nothing and either duck or proudly refuse a meaningful debate on the realities of managing and paying for a functional community.

This is the fundamental divide in the budget debate facing San Diego, and one that few have begun to seriously consider. The conservative approach perpetuates and embraces the Two Santa Claus perspective: that government can continue to get cheaper into perpetuity, we just need to keep redefining what services are necessary and what standards we demand. No matter how convenient it is to their electoral ends, there are unfortunately not two Santa Clauses serving San Diego. The sacrifices being sold on this premise are neither temporary nor inevitable. Rather, they are the natural outgrowth of consciously choosing to deal in bad faith.

This is, however, the field of play in the current debate, and it’s why the only glimmer of optimism from its supporters comes from the faith that business will eventually bail us out again for a while. The conversation San Diego must eventually have is an honest appraisal of basic economic realities and what value comes from the prices we pay. We only face an existential challenge if we choose to make it one. Instead of a battle for survival, this should be a battle for greatness. The sooner we begin that process, the better off we’ll all be.

by Lucas O’Connor

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One Response to San Diego’s Two Santa Claus Problem

  1. Jeffrey Davis says:

    Great, and looking forward to the rest. You may have in mind already, but I’ll add. The “government can continue to get cheaper into perpetuity” absurdity has always required a little bit of intellectual cover. ‘Efficiency’ has carried most of that burden. But I’ve been interested to see that trotted out very little over the past year here. Pensions are single-handedly providing the Two Santas rationalization now. As in, “the only reason we’re so deeply and clearly underwater is ‘pensions’.” But I do wonder if ‘efficiency’ has worn out its effectiveness? And if pensions get resolved, what takes their place?

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