Political Time Preference: A Case Study

Jerry Brown was governor of California in the late 70's and early 80's.  During that time he had an opportunity to try and push government towards defined contribution plans rather then defined benefit plans, but the topic never came up because he was a big supporter of unions*. Defined contribution plans contain the potential for economic volatility, something unions try to avoid at all costs.  

When Jerry Brown was mayor of Oakland some unions received generous pension increases, presumably in lieu of large pay increases. Defined benefit pension promises are currently a major cause behind California's budget problems, some have estimate that California has about $500 billion in unfunded pension liabilities. So 25 years after his governorship when the pension problem is coming home to roost the people of California decide to elect... Jerry Brown**.

And if we wonder why politicians seem to think too short term, it is because voters don't have very good memories. This short sighted point of view is also why the economic environment of election year is much more influential than other years.

*Maybe it is unfair to blame him for not fixing a problem that no one else in the public sector fixed, but 401(k)'s were written into the law around 1980. His first governorship's term coincided with a large shift among private companies towards defined contribution and away from defined benefit plans. 

**The budget was balanced when he was governor, and the stupider pension mistakes have occurred in the last few decades such as SB400 passed in 1999.  If not for Brown's support of union pensions from his position in Oakland and his support of unions more generally things might be looking up.

About

I studied Bioengineering at the University of California at San Diego. While there I served as a trustee on the investment committee of the UCSD Student Foundation, a group that manages an endowment to fund scholarships. While in college I applied my interest in finance and economics by working as a summer associate at Clarium Capital Management, working part time my senior year, and joining full time when I graduated in 2006, staying there through August 2010. I am currently working as a portfolio manager at another global macro hedge-fund in the Presidio (And blogging about more directly market related ideas at their restricted blog). I’ve been focusing on quantitative finance, currencies, commodities, the interplay between finance and politics, demography and other long term trends.

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