Enough with the demonizing of teachers. Apart from roaming hordes of Mexicans and lurking Arab terrorists, or spine-twisting apologies for everything Trump says, there is a constant drumbeat about how greedy, wealth-showered teachers are crashing the economy and fomenting future generations of Obama voters. Recently when a local talk show host continued his regularly scheduled assault on teachers and teachers unions I had to respond.
My parents paid slightly below the median home price in the spring of 1975. My father, a blue collar union worker at Reynolds’s Metals and Aluminum in McCook, Illinois. He was the family’s sole bread winner. He worked part-time as a volunteer firefighter. In 1983, the first year the US Bureau of labor Statistics kept records on Union membership, unions accounted for 20.1% of the workforce. In 1978, at the age of 16 I began my first job bagging groceries at Jewel Foods in Romeoville, Illinois. Given a tour of the market, I was introduced to the produce manager, a job that no longer exists as it did back then. He was able to support, as a department manager, a house, car and family.
The following year my parents purchased a new Ford station wagon for around $11,000. Property taxes were an issue then, and they are now. But one thing my parents understood was that the bills always had to be paid. They appreciated the need for viable and properly funded public schools. Teachers lived in our neighborhood, as did others working to maintain roads, sewers, clean water, safety oversight on construction projects, fire and police, and all that enables a community to remain a resource and base for all its citizens, not an ATM for a few. My parents were politically aware and very active in the community. They expected, and fought regularly for quality and accountability for their hard-earned tax responsibility.
So what changed? From 20% of the workforce, Union membership now stands at an all time low at just 10.7% of the total workforce. Union participation in government peaked in the late 1970s. That number has declined annually and represents now only about 36% of 12.5 million state, local and federal workers. Those workers are police officers, firemen and firewomen, toll way and road maintenance workers, prison guards and teachers. Overall, no matter which way the pie is sliced, there are only half the number of union workers now despite a much larger economy. If the nation wasn’t brought to its knees by a 20% union workforce, just under 11% today hardly seems so ominous.
According to salary.com Illinois teachers make an average of $53 thousand annually, or about $35k after taxes. That’s just getting by for most folks. Yet teachers have been demonized aggressively, and school investment used as a weapon to convince Illinois taxpayers that the state is collapsing, robbing taxpayers of their wealth, and precipitating a crisis in housing prices. It is a cynical attempt to trick rather than convince voters through viable, factual argument by one political party.
Rightwing propagandist and talk host Dan Proft recently attempted on his radio show to connect percentage rises in school spending, much of that growth driven by inflation, with a precipitous drop in housing prices and home sales in affluent Chicago suburbs. it was a slight of hand, a shell game with numbers. It might at least be arguable to some degree if Proft didn’t also demand cancelling or rolling back police and fire pensions and salaries, but he doesn’t. Police and fire department employees received pension increases averaging 16% in November 2016. Proft and the IPI were silent. Aurora, now the state’s second largest city, with a population of more than 200,000 has a $220 million short fall in its police and fire pension funds. Proft and IPI are…you know. That is called pandering, but let’s look at some of the numbers. http://www.chicagotribune.com/suburbs/lake-zurich/news/ct-lzc-pension-obligations-tl-1124-20161118-story.html http://www.sj-r.com/article/20140406/News/140409562
Recall, my parents paid $35k for their three-bedroom ranch-style house in 1975. Real estate has always been an investment, but the bubble that the housing market experienced several years ago was, by every estimation, artificial. It led to cascading calamities in the US economy. Also recall the derivative market in which investors bundled mortgages and sold risk on those mortgage bundles, which sold risk on the risk, and which sold risk against that risk. It was almost completely unregulated, to the tune of an estimate $1.4 quadrillion. To put that in perspective, the entire planet’s GDP is about $72 trillion annually.
Americans speculated wildly in real estate from the late 1990s until about 2009 when the market collapsed. For the better part of a decade the buying and selling of property was orgiastic with vast wealth created not only on the buying and selling, and the increase in property values but also on foreclosures. The spike is illustrated below, but like all bubbles the correction turned out to be a real pain in the, well, you know. Looking at the organic growth of housing prices from the start of the 20th Century, had that trend continued it would have taken roughly until 3030 for housing prices to reach what we saw at the top of the bubble. But it was a lie and it couldn’t be sustained for long.
Beginning from about the late 1960s we see housing values appreciate at a much faster rate. Where a median home sold for around $25K and change, housing prices began doubling every decade, far outpacing consumer items, and absolutely outpacing middle class wages. That is a critical point. During the real estate bubble, middle class wage earners joined in virtually unconstrained speculation, enticed by interest only loans, for example. The pressure on homeowners by unscrupulous brokers, supported by lenders, to purchase homes far beyond their budget was immense. My wife and I purchased our condo for $132k in 2004. We knew our budget, but found ourselves fending off many aggressive brokers acting solely for commissions who assured us we could afford far more.
The price of everything increases over time, but most perennial consumer products have more or less kept pace with overall inflation, while home prices skyrocketed. While wages for the middle class dropped as the economy continued to expand wages for the top 1% wage earners nearly double. In 2013 The New York Times reported that wages “have fallen to a record low as a share of America’s gross domestic product. Until 1975, wages nearly always accounted for more than 50 percent of the nation’s G.D.P., but last year wages fell to a record low of 43.5 percent. Since 2001, when the wage share was 49 percent, there has been a steep slide.” While the “share of wages going to the top 1 percent climbed to 12.9 percent in 2010, from 7.3 percent in 1979.” http://www.nytimes.com/2013/01/13/sunday-review/americas-productivity-climbs-but-wages-stagnate.html
A 2014 Pew Research study found that “after adjusting for inflation, today’s average hourly wage has just about the same purchasing power as it did in 1979, following a long slide in the 1980s and early 1990s and bumpy, inconsistent growth since then. In fact, in real terms the average wage peaked more than 40 years ago: The $4.03-an-hour rate recorded in January 1973 has the same purchasing power as $22.41 would today.” http://www.pewresearch.org/fact-tank/2014/10/09/for-most-workers-real-wages-have-barely-budged-for-decades/
To be sure, Cook County democratic leadership, as well as the state budget debacle owned by Governor Bruce Rauner has hardly proved friendly to homeowners and taxpayers. Both dems and republican politicians at state and local levels are locked into a paradigm that forgives corporate tax dodgers and places the burden squarely on the individual property owner. Both sides of the aisle are keen on pushing through massive subsidies to companies like Exelon, which is set to secure $1.6 billion from taxpayers for Nuclear power upgrades, despite massive quarterly profits. http://amigobulls.com/stocks/EXC/income-statement/quarterly Nationally Exelon sees billions in Federal subsidies, begging any conceivable question regarding so-called free market principles. Seems the “Free Market” is more akin to Free Money courtesy of the Illinois taxpayer.
Many things affect home values. Massive cost overruns on publically subsidized construction projects are but one. The O’Hare expansion, for example was slated to cost $7.3 billion, but instead ballooned to more than $14 billion. Road and infrastructure projects habitually see massive overruns. Proft and The Illinois Policy “Institute” are silent on that. The not so aptly named People’s Gas estimated $4.5 billion for a project which nearly doubled-double-doubled to more than $8 billion. Again Proft and IPI were silent, but for continuing attacks on teacher salaries and pensions.
The assessed value of a home and the property tax rate determine property taxes, but that can likewise be affected by a great many things, such as state and local budget cuts. Under Bruce Rauner Illinois has not had a budget forcing many municipalities to fend for themselves in scrounging cash to pay bills previously handled by Springfield. The pension crisis isn’t the fault of teachers, or police or tollway workers, but of politicians borrowing money from places they shouldn’t have, and now having no workable ideas in paying it back. Ideas such as the Financial Transaction Tax, which would skim pennies from investment trades, which could generate $10-12 billion in revenue have largely foundered thanks to special interest groups.
Something else happened recently to further burden the housing market, which had nothing to do with Rahm Emmanuel’s taxpayer-as-ATM style of governance, or Bruce Rauners effort to force tax reductions for himself and his donor friends under the veil of populisms. In December the Fed raised interest rates for only the second time since 2008. Investopedia noted that “as interest rates rise, the cost to obtain a mortgage increases, thus lowering demand and prices of real estate.”
Looking at our graph, it is simple to follow the trend should the bubble never have happened. Those trends are shown by red and green lines. What becomes shockingly obvious this that current drops in housing prices has little or nothing to do with teachers getting nominal wages, when measured against cuts, hits to their pension contributions and COL adjusted salary increases. The drop in home prices is a correction to exactly where those prices would have been had the bubble not occurred.
As for education spending, the US is in line with the rest of the world, allotting about 5.4% of GDP. Indeed, the problem with education in this country is the decades long interference by special interests, particularly on the Right whose ultimate strategy is to steer public monies to private hands and to cripple the government from its oversight and enforcement responsibilities of companies who would, as history reminds time and again, place workers and the public at risk merely for higher profits. But going after teachers is simply a bully’s tactic and I really can’t stand bullies.
NEXT: Looking at real-world fixes to state and local budgets.