Greetings from the Left Coast!
Another of the most annoying lies of this election season is the one about how poor President Obama can't get things fixed because of the evil, obstructionist Republicans. It's as though the first two years of his Presidency never took place - you know, those two years when the Democrats had a majority in the House, and a filibuster-proof supermajority in the Senate, and the Republicans were completely powerless to stop anything. We talked about that just yesterday. It's how we got the stimulus bill that didn't stimulate, because the shovel-ready jobs turned out not to be as shovel-ready as we'd thought, and the 2,700 page health care bill that we had to pass so we could find out what was in it.
Since the Republicans took back the House in the 2010 election, they've at least passed a budget bill. The Democrat-controlled Senate refuses to even debate the House budget bill while also refusing to pass one of it's own. We haven't had an actual federal budget since 2009. We've just been kicking the can down the road by passing a series of "continuing resolutions" that simply agree to keep funding everything at its current level for a few more months...hence the unending string of trillion-dollar deficits. The last two budget proposals President Obama sent up the Hill failed to get even a single vote from anyone in his own party.
The only good thing about that is that at least spending hasn't continued to grow astronomically as it would have if his budget proposals had been approved. So remember that when you hear the spin about how federal spending has been flat over the last three years under President Obama. It isn't for lack of trying on his part - it's because the Democrats in Congress are too irresponsible to actually pass a budget bill, and too afraid to go on record as supporting the level of spending that they'd really like to have. They'd rather blame the Republicans and hope that we're too stupid to figure out what's really going on.
If President Obama is looking for someone to blame, all he needs to do is invite Nancy Pelosi and Harry Reid over for breakfast, then pull up a fourth chair and prop up a mirror in it.
Wednesday, September 12, 2012
Tuesday, September 11, 2012
How Long Can You Get Away with Blaming Bush?
Greetings from the Left Coast!
My rant of the day is against those purveyors of revisionist history that are maintaining that four years simply aren't enough for poor President Obama to clean up the gigantic mess that George Bush left behind.
Please. That doesn't fly with those of us who lived through it and were paying attention. For the benefit of those of you who didn't, or perhaps did but weren't paying attention (maybe you were just too young), here are the facts.
The economy is cyclical. Recessions come around every now and then, regardless of which party holds the Oval Office, and nobody has figured out yet how to stop them from happening. But what government does in response to them certainly can effect their severity and how long it takes to recover from them.
The economy was already in decline when George Bush took office in January of 2001. Before the end of the year, he was dealing with the double-whammy of the dot-bomb bubble burst and the aftermath of 9/11. Instead of whining about the horrible situation he had inherited from the Clinton administration, he took decisive action: he cut taxes. In response, by the beginning of 2002, the economy was growing again, and continued to grow through most of the rest of his term. Between 2001 and 2005, annual GDP growth averaged 2.8%. The number of jobs grew by an average of 6.5%. Median income increased. Average salaries increased. According to a report released by the U.S. Congress Joint Economic Committee, the U.S. outperformed its "peer group of large developed economies" (Canada, the European Union, and Japan) over that period - it led in real GDP growth, investment, industrial production, employment, labor productivity, and price stability. All while we were fighting wars in Afghanistan and Iraq. The budget deficit peaked at $600 billion in 2004, and was on its way back down...until the Democrats took control of both Houses of Congress in the 2006 elections. They took office in 2007, passed the 2008 budget, and, for the first time in history (but, unfortunately, not the last) we ran a deficit in excess of $1 trillion. The fact is that most of Bush's years in the White House were pretty good years economically. When he left office, the average price for a gallon of regular gas was $1.79. I don't know about you, but I'd love to see that again.
I think that most of us understand that the late-2008/early-2009 recession was largely the result of the bursting of the housing bubble - and specifically, the collapse of the sub-prime mortgage market, which took a lot of financial institutions down with it. Many will argue that this was Bush's fault, since it happened "on his watch." But I believe that the historians of the future will spread the blame more widely...and there is plenty to go around. Democrats had a very large role in fueling the growth of sub-prime mortgages by strong-arming lending institutions to make loans to low-income borrowers in the name of fairness and economic justice - low-income borrowers who, it turned out, were not capable of making their payments. The Congressional record is clear that the Republicans wanted more oversight of Fannie Mae and Freddie Mac. The hearings were filmed by C-SPAN, and are out there on YouTube for the world to see...as Democrat after Democrat expressed shock and outrage that anyone would imply that there was anything wrong with those fine institutions, particularly Fannie Mae under the direction of that outstanding leader Franklin Raines. That would be the Franklin Raines who ultimately took "early retirement" because the SEC was investigating accounting irregularities, which ultimately led to the filing of charges against him for cooking the books and overstating earnings by roughly $3 billion, helping him collect $20 million in compensation the last year he served as CEO. I'm still amazed that he and his two co-defendents aren't wearing orange jumpsuits.
But, be that as it may, the housing bubble burst, and the economy went off the cliff. That part certainly wasn't Obama's fault. But the cold truth is that pretty much nothing he has done since then has made things better. For the first two years of his Presidency, he could have done nearly anything. His party had a majority in the House, and a filibuster-proof "supermajority" in the Senate, rendering the Republicans completely powerless. But let us not forget the words of Rahm Emanuel: "You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things you think you could not do before." So we got a stimulus bill that was primarily a giveaway to the Democrats' union supporters - particularly public employees' unions - and large contributors (see "Solyndra") and that, as a result, didn't stimulate; and we got ObamaCare, which 2/3 of the country does not want, and which is suppressing job creation because employers don't know what the heck is coming at them next. We got more regulations, more government intrusion into our lives, and a virtual shutdown of the oil industry along the Gulf Coast. Yes, I know that the spinmeisters will point out that oil production is up these days, but that's because of increased production on private land, not public land. Production is up in spite of Obama's policies, not because of them, although he's still trying to take credit for it.
Unemployment is still above 8%, more than three years after the statistical "end" of the recession. And, if we had the same labor force participation rate today that we had when Obama took office, the unemployment rate would be over 11%. The only thing that's keeping it this low is the number of people who have given up looking for work and dropped out of the labor force (the labor force participation rate for men is now the lowest ever recorded). In August, the U6 unemployment rate, which includes people who would like to work but have given up looking, and those who are only working part time, but would like to work full time, was 14.7%. Median income has fallen during Obama's Presidency. Prices have soared. Businesses are afraid to invest. He will be, in all probability, the only President since the Great Depression to see fewer total Americans working at the end of his first term than were working when he took office.
Reagan arguably inherited a worse mess than Obama. Unemployment was higher when he took office, and inflation was running at over 10% per year. Yet by the third quarter of 1983, GDP was growing at an annualized rate of over 8%, and twice as many jobs were being created as are being created today - which had an even greater impact back then because the labor force was smaller. The average GDP growth during Reagan's 4th year in office was 7.75%. Where are we now? Oh, yeah, still struggling to break 2%.
The biggest problem is that Obama is an idealogue. He is philosophically incapable of changing course, which is why, in every speech he gives, he keeps trying to double down on the same policies that aren't working. Which, if I recall, is pretty close to Einstein's definition of insanity: continuing to do the same thing and expecting different results. If he somehow wins re-election, you can look forward to four more years of the same kind of economic stagnation, ballooning national debt, and growth in both the size of government and its intrusion in our lives as we've seen in the last four years. And I will get absolutely no pleasure out of saying I told you so.
My rant of the day is against those purveyors of revisionist history that are maintaining that four years simply aren't enough for poor President Obama to clean up the gigantic mess that George Bush left behind.
Please. That doesn't fly with those of us who lived through it and were paying attention. For the benefit of those of you who didn't, or perhaps did but weren't paying attention (maybe you were just too young), here are the facts.
The economy is cyclical. Recessions come around every now and then, regardless of which party holds the Oval Office, and nobody has figured out yet how to stop them from happening. But what government does in response to them certainly can effect their severity and how long it takes to recover from them.
The economy was already in decline when George Bush took office in January of 2001. Before the end of the year, he was dealing with the double-whammy of the dot-bomb bubble burst and the aftermath of 9/11. Instead of whining about the horrible situation he had inherited from the Clinton administration, he took decisive action: he cut taxes. In response, by the beginning of 2002, the economy was growing again, and continued to grow through most of the rest of his term. Between 2001 and 2005, annual GDP growth averaged 2.8%. The number of jobs grew by an average of 6.5%. Median income increased. Average salaries increased. According to a report released by the U.S. Congress Joint Economic Committee, the U.S. outperformed its "peer group of large developed economies" (Canada, the European Union, and Japan) over that period - it led in real GDP growth, investment, industrial production, employment, labor productivity, and price stability. All while we were fighting wars in Afghanistan and Iraq. The budget deficit peaked at $600 billion in 2004, and was on its way back down...until the Democrats took control of both Houses of Congress in the 2006 elections. They took office in 2007, passed the 2008 budget, and, for the first time in history (but, unfortunately, not the last) we ran a deficit in excess of $1 trillion. The fact is that most of Bush's years in the White House were pretty good years economically. When he left office, the average price for a gallon of regular gas was $1.79. I don't know about you, but I'd love to see that again.
I think that most of us understand that the late-2008/early-2009 recession was largely the result of the bursting of the housing bubble - and specifically, the collapse of the sub-prime mortgage market, which took a lot of financial institutions down with it. Many will argue that this was Bush's fault, since it happened "on his watch." But I believe that the historians of the future will spread the blame more widely...and there is plenty to go around. Democrats had a very large role in fueling the growth of sub-prime mortgages by strong-arming lending institutions to make loans to low-income borrowers in the name of fairness and economic justice - low-income borrowers who, it turned out, were not capable of making their payments. The Congressional record is clear that the Republicans wanted more oversight of Fannie Mae and Freddie Mac. The hearings were filmed by C-SPAN, and are out there on YouTube for the world to see...as Democrat after Democrat expressed shock and outrage that anyone would imply that there was anything wrong with those fine institutions, particularly Fannie Mae under the direction of that outstanding leader Franklin Raines. That would be the Franklin Raines who ultimately took "early retirement" because the SEC was investigating accounting irregularities, which ultimately led to the filing of charges against him for cooking the books and overstating earnings by roughly $3 billion, helping him collect $20 million in compensation the last year he served as CEO. I'm still amazed that he and his two co-defendents aren't wearing orange jumpsuits.
But, be that as it may, the housing bubble burst, and the economy went off the cliff. That part certainly wasn't Obama's fault. But the cold truth is that pretty much nothing he has done since then has made things better. For the first two years of his Presidency, he could have done nearly anything. His party had a majority in the House, and a filibuster-proof "supermajority" in the Senate, rendering the Republicans completely powerless. But let us not forget the words of Rahm Emanuel: "You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things you think you could not do before." So we got a stimulus bill that was primarily a giveaway to the Democrats' union supporters - particularly public employees' unions - and large contributors (see "Solyndra") and that, as a result, didn't stimulate; and we got ObamaCare, which 2/3 of the country does not want, and which is suppressing job creation because employers don't know what the heck is coming at them next. We got more regulations, more government intrusion into our lives, and a virtual shutdown of the oil industry along the Gulf Coast. Yes, I know that the spinmeisters will point out that oil production is up these days, but that's because of increased production on private land, not public land. Production is up in spite of Obama's policies, not because of them, although he's still trying to take credit for it.
Unemployment is still above 8%, more than three years after the statistical "end" of the recession. And, if we had the same labor force participation rate today that we had when Obama took office, the unemployment rate would be over 11%. The only thing that's keeping it this low is the number of people who have given up looking for work and dropped out of the labor force (the labor force participation rate for men is now the lowest ever recorded). In August, the U6 unemployment rate, which includes people who would like to work but have given up looking, and those who are only working part time, but would like to work full time, was 14.7%. Median income has fallen during Obama's Presidency. Prices have soared. Businesses are afraid to invest. He will be, in all probability, the only President since the Great Depression to see fewer total Americans working at the end of his first term than were working when he took office.
Reagan arguably inherited a worse mess than Obama. Unemployment was higher when he took office, and inflation was running at over 10% per year. Yet by the third quarter of 1983, GDP was growing at an annualized rate of over 8%, and twice as many jobs were being created as are being created today - which had an even greater impact back then because the labor force was smaller. The average GDP growth during Reagan's 4th year in office was 7.75%. Where are we now? Oh, yeah, still struggling to break 2%.
The biggest problem is that Obama is an idealogue. He is philosophically incapable of changing course, which is why, in every speech he gives, he keeps trying to double down on the same policies that aren't working. Which, if I recall, is pretty close to Einstein's definition of insanity: continuing to do the same thing and expecting different results. If he somehow wins re-election, you can look forward to four more years of the same kind of economic stagnation, ballooning national debt, and growth in both the size of government and its intrusion in our lives as we've seen in the last four years. And I will get absolutely no pleasure out of saying I told you so.
Friday, September 7, 2012
August Jobs Numbers Are Out
The August jobs numbers are out, and it's not a pretty picture. Only 96,000 jobs were created, which was (surprise!) "lower than expected." Four times that many people gave up on finding a job and dropped out of the work force - which lowered the U3 unemployment number from 8.3% to 8.1%. (As we've discussed before, the U3 unemployment number, which is the one that's always reported, only counts people who are actively looking for work.) The labor force participation rate - that's the percentage of the working age population that is either working or looking for a job - is now 63.4%, the lowest it's been since 1981. For men, it's 69.8%, which is the lowest EVER on record.
According to the "Jobs Gap" calculator at http://www.hamiltonproject.org/jobs_gap - which calculates the amount of time it will take to return to pre-recession employment levels while also absorbing the people who enter the labor force each month, at that rate of job creation, the Jobs Gap won't be closed until sometime after 2025. To put that in perspective, five years after the start of the last three recessions ('82, '90, and '01), private sector employment levels were well above their pre-recession levels.
We need to be creating jobs at the average rate of about 325,000/month to close the gap in the next four years - but, over the last 30 months, we've only created an average of 157,000/month. (Feel free to click through to the calculator, and play with the numbers. You can enter any number greater than 88,000 and it will tell you how long it will take at that rate to close the jobs gap.)
But, hey, the good news for the President is that if enough additional people give up looking for work and drop out of the labor force, the reported U3 rate might actually be under 8% by election day!
According to the "Jobs Gap" calculator at http://www.hamiltonproject.org/jobs_gap - which calculates the amount of time it will take to return to pre-recession employment levels while also absorbing the people who enter the labor force each month, at that rate of job creation, the Jobs Gap won't be closed until sometime after 2025. To put that in perspective, five years after the start of the last three recessions ('82, '90, and '01), private sector employment levels were well above their pre-recession levels.
We need to be creating jobs at the average rate of about 325,000/month to close the gap in the next four years - but, over the last 30 months, we've only created an average of 157,000/month. (Feel free to click through to the calculator, and play with the numbers. You can enter any number greater than 88,000 and it will tell you how long it will take at that rate to close the jobs gap.)
But, hey, the good news for the President is that if enough additional people give up looking for work and drop out of the labor force, the reported U3 rate might actually be under 8% by election day!
Wednesday, June 13, 2012
Comment Reveals Obama's Priorities
Greetings from the Left Coast!
Much has already been written and said about President Obama’s recent remark that the private sector is “doing fine,” and that the real drag on the economy is the public sector. But I think the most important thing about this comment is that it reveals his priorities. He is a big government liberal. He truly believes that there is no problem that government can’t solve, provided government has enough resources at its disposal.
Heck, look at how the stimulus bill was crafted: The majority of the money went to state and local governments so they wouldn’t have to make the painful cuts in services that they would otherwise have needed to make because of the reduction in tax revenue. So what happened? State and local governments didn’t make the painful cuts they should have made, the economy didn’t recover, they still don’t have enough money, and, absent another stimulus bill, will have to make the cuts anyway. This is precisely why the stimulus didn’t have the lasting effect it was intended to have.
One of the first academic studies of the effects of the stimulus bill was published in October, 2010, by Timothy Conley of the Department of Economics of the University of Western Ontario, Canada, and Bill Dupor of the Department of Economics of Ohio State University. (The study was revised and updated in May of 2011.) They concluded that the bill created or saved about 450 thousand government sector jobs, and destroyed or forestalled about a million private sector jobs. For the math impaired, that’s a net loss of 550 thousand jobs.
But private sector jobs are not his priority – in some degree because he’s so closely tied to public employee’s labor unions, but also because he just doesn’t get that, ultimately, it’s the tax revenue derived from the private sector jobs that fund the public sector.
I've shared the following three points before, but I think it's appropriate to share them again:
The bottom line is that President Obama values government jobs more than he values private sector jobs, and that came through loud and clear in his recent comment.
Thanks for listening.
Much has already been written and said about President Obama’s recent remark that the private sector is “doing fine,” and that the real drag on the economy is the public sector. But I think the most important thing about this comment is that it reveals his priorities. He is a big government liberal. He truly believes that there is no problem that government can’t solve, provided government has enough resources at its disposal.
Heck, look at how the stimulus bill was crafted: The majority of the money went to state and local governments so they wouldn’t have to make the painful cuts in services that they would otherwise have needed to make because of the reduction in tax revenue. So what happened? State and local governments didn’t make the painful cuts they should have made, the economy didn’t recover, they still don’t have enough money, and, absent another stimulus bill, will have to make the cuts anyway. This is precisely why the stimulus didn’t have the lasting effect it was intended to have.
One of the first academic studies of the effects of the stimulus bill was published in October, 2010, by Timothy Conley of the Department of Economics of the University of Western Ontario, Canada, and Bill Dupor of the Department of Economics of Ohio State University. (The study was revised and updated in May of 2011.) They concluded that the bill created or saved about 450 thousand government sector jobs, and destroyed or forestalled about a million private sector jobs. For the math impaired, that’s a net loss of 550 thousand jobs.
But private sector jobs are not his priority – in some degree because he’s so closely tied to public employee’s labor unions, but also because he just doesn’t get that, ultimately, it’s the tax revenue derived from the private sector jobs that fund the public sector.
I've shared the following three points before, but I think it's appropriate to share them again:
- The government cannot give anything to anybody without first taking it from somebody else.
- When someone receives from the government that which they did not work for, it means that someone else worked for it, but didn't receive it.
- The government cannot create wealth - it can only redistribute it.
The bottom line is that President Obama values government jobs more than he values private sector jobs, and that came through loud and clear in his recent comment.
Thanks for listening.
Thursday, June 7, 2012
What Really Happened In Wisconsin
Greetings from the Left Coast!
To really understand the implications of the failed attempt to recall Gov. Scott Walker, you must first understand the scope and severity of a huge financial time bomb that’s looming on the horizon: unfunded public pension liabilities. By “unfunded public pension liabilities,” I mean retirement benefits, health insurance benefits, etc., that state and local governments have an obligation to pay to current and former workers, but which have no identified source of funding. When the bills come due, it will be a scramble to figure out how to pay for them.
How big is the problem? The Pew Research Center estimated that it was at least $1 trillion at the end of fiscal 2008. Orin Kramer – a Democrat, and the former chairman of New Jersey’s pension fund – said it was $2 trillion at the end of 2009, and $2.5 trillion at the end of 2010.
How did we get into this mess? Because public sector unions contribute huge sums of money to help elect politicians who will be sympathetic to their contract demands. These politicians then give the unions what they want, thus insuring that the unions will continue to contribute huge sums of money to their next re-election campaign.
In the private sector, there is a built-in limit to what a union can extract from a business, because there is a limit to what the business can afford to pay. Beyond that limit, the business fails, and everybody loses, including the union workers, who no longer have jobs. But in the public sector, “management” is not negotiating with its own money – it is negotiating with other people’s money: specifically, the taxpayers’ money. There is no down side to giving the unions what they want, because, by the time the bills come due, either those politicians will be long gone, or enough time will have passed that they can avoid being associated with the fiscal train wreck that will ensue. So politicians have continued to kick this can down the road, and we’re now looking at as much as $2.5 trillion in unfunded public sector pension liabilities with no idea of how we’re going to pay for them.
For years, even the champions of the labor movement were opposed to the idea of collective bargaining by public sector unions. In August, 1937, FDR wrote the following to Luther Steward, the president of the National Federation of Federal Employees:
In 1955, George Meany, the former president of the A.F.L.-C.I.O., stated, “It is impossible to bargain collectively with the government.”
In 1959, the Executive Council of the A.F.L.-C.I.O. stated, “In terms of accepted collective bargaining procedures, government workers have no right beyond the authority to petition Congress – a right available to every citizen.”
But, over time, greed overcame common sense, as it often does in the political arena, and the vicious circle of union dues -> campaign contributions -> recipients of the contributions give concessions to the unions -> unions collect more dues (often from workers who have no choice about whether they want to be union members, and who have the dues automatically withheld from their paychecks) -> more campaign contributions -> repeat ad infinitum has become commonplace. Both parties are guilty, but it is, in fact, more of an issue with Democrats, because the Democrats have chosen to align themselves closely with the unions, and, in return, 80% - 90% of union's political contributions go to Democrat candidates. In the case of the National Education Association and the American Federation of Teachers, that number is closer to 95%.
As a result, public employees in general often have higher compensation than their private sector counterparts. According to the Bureau of Labor Statistics, as reported in USA Today in March, 2010, federal workers in 2008 earned an average salary of $67,691 for jobs that existed both in government and in the private sector – the average pay for the same jobs in the private sector was $60,046. According to other BLS reports, government entities spend 1.7 times as much on health care per employee-hour worked, and nearly twice as much on retirement costs. Public sector workers are far more likely to have “defined-benefit” pensions that are guaranteed to pay out for the remainder of a retiree’s life.
What is happening is that, across the country, voters are realizing that this is simply unsustainable, and something must be done to defuse that huge, ticking fiscal time bomb. And, in Wisconsin, that time bomb was about to explode. When Scott Walker took office, the state was looking at a $3.6 billion deficit between 2011 and 2013.
According to another USA Today article in February, 2011, Wisconsin was one of 41 states where public employees earned higher average pay and benefits than private workers in the same state. The average Wisconsin public school teacher may have only made $50,000 in wages, but s/he also received $45,000 in benefits. The school districts paid the entire cost of their pension plans, the entire premium for their medical and vision benefits, and half of the cost of dental coverage. Family health care coverage for a public school teacher was costing the state an average of $26,844 per year.
What Gov. Walker did, that earned him the eternal hatred of labor unions everywhere, was to restrict – not eliminate entirely – collective bargaining rights. Public sector unions could no longer bargain for benefits, and wage increases were limited to the rate of inflation. He also eliminated the automatic deduction of union dues from workers’ paychecks and required public unions to re-certify annually. He also asked public school teachers to pay 5.8% of their pension costs and 12.6% of their health care costs. That’s still substantially less than the national average for government workers, as well as substantially less than what private sector workers pay on average – if they have pensions at all.
While all of that made the public sector unions go ballistic, it struck the citizens of Wisconsin as being eminently reasonable. And despite the best efforts of his union opponents, Walker retained his governorship…and it wasn’t even close.
Meanwhile, out in the People’s Republic of California, both San Diego and San Jose passed ballot measures that cut public-sector pensions. San Diego’s passed with roughly two-thirds of the vote, and San Jose’s passed with 70% of the vote – proving that even here on the Left Coast, in the bluest of the blue states, the folks are starting to understand the magnitude of this problem and show their willingness to do something about it. I find that quite encouraging.
Thanks for listening.
UPDATE 6/8/2012: In his syndicated column this morning, Charles Krauthammer addressed this same issue - arguing that this is nothing less than the beginning of the end of public sector unions. As evidence, he reports that, since the Wisconsin government stopped forcibly collecting union dues from employees' paychecks, making membership truly voluntary, membership in the state's largest public-sector union has dropped by more than 50%. And, in neighboring Indiana, where a similar reform was enacted by Gov. Mitch Daniels via executive order seven years ago, government-worker union membership has fallen by 91%! Clearly, even their members don't like what the unions are doing.
To really understand the implications of the failed attempt to recall Gov. Scott Walker, you must first understand the scope and severity of a huge financial time bomb that’s looming on the horizon: unfunded public pension liabilities. By “unfunded public pension liabilities,” I mean retirement benefits, health insurance benefits, etc., that state and local governments have an obligation to pay to current and former workers, but which have no identified source of funding. When the bills come due, it will be a scramble to figure out how to pay for them.
How big is the problem? The Pew Research Center estimated that it was at least $1 trillion at the end of fiscal 2008. Orin Kramer – a Democrat, and the former chairman of New Jersey’s pension fund – said it was $2 trillion at the end of 2009, and $2.5 trillion at the end of 2010.
How did we get into this mess? Because public sector unions contribute huge sums of money to help elect politicians who will be sympathetic to their contract demands. These politicians then give the unions what they want, thus insuring that the unions will continue to contribute huge sums of money to their next re-election campaign.
In the private sector, there is a built-in limit to what a union can extract from a business, because there is a limit to what the business can afford to pay. Beyond that limit, the business fails, and everybody loses, including the union workers, who no longer have jobs. But in the public sector, “management” is not negotiating with its own money – it is negotiating with other people’s money: specifically, the taxpayers’ money. There is no down side to giving the unions what they want, because, by the time the bills come due, either those politicians will be long gone, or enough time will have passed that they can avoid being associated with the fiscal train wreck that will ensue. So politicians have continued to kick this can down the road, and we’re now looking at as much as $2.5 trillion in unfunded public sector pension liabilities with no idea of how we’re going to pay for them.
For years, even the champions of the labor movement were opposed to the idea of collective bargaining by public sector unions. In August, 1937, FDR wrote the following to Luther Steward, the president of the National Federation of Federal Employees:
“…meticulous attention should be paid to the special relationships and obligations of public servants to the public itself and to the Government.
“All Government employees should realize that the process of collective bargaining, as usually understood, cannot be transplanted into the public service. It has its distinct and insurmountable limitations when applied to public personnel management. The very nature and purposes of Government make it impossible for administrative officials to represent fully or to bind the employer in mutual discussions with Government employee organizations. The employer is the whole people, who speak by means of laws enacted by their representatives in Congress. Accordingly, administrative officials and employees alike are governed and guided, and in many instances restricted, by laws which establish policies, procedures, or rules in personnel matters.
“Particularly, I want to emphasize my conviction that militant tactics have no place in the functions of any organization of Government employees. Upon employees in the Federal service rests the obligation to serve the whole people, whose interests and welfare require orderliness and continuity in the conduct of Government activities. This obligation is paramount. Since their own services have to do with the functioning of the Government, a strike of public employees manifests nothing less than an intent on their part to prevent or obstruct the operations of Government until their demands are satisfied. Such action, looking toward the paralysis of Government by those who have sworn to support it, is unthinkable and intolerable. It is, therefore, with a feeling of gratification that I have noted in the constitution of the National Federation of Federal Employees the provision that ‘under no circumstances shall this Federation engage in or support strikes against the United States Government.’”
In 1955, George Meany, the former president of the A.F.L.-C.I.O., stated, “It is impossible to bargain collectively with the government.”
In 1959, the Executive Council of the A.F.L.-C.I.O. stated, “In terms of accepted collective bargaining procedures, government workers have no right beyond the authority to petition Congress – a right available to every citizen.”
But, over time, greed overcame common sense, as it often does in the political arena, and the vicious circle of union dues -> campaign contributions -> recipients of the contributions give concessions to the unions -> unions collect more dues (often from workers who have no choice about whether they want to be union members, and who have the dues automatically withheld from their paychecks) -> more campaign contributions -> repeat ad infinitum has become commonplace. Both parties are guilty, but it is, in fact, more of an issue with Democrats, because the Democrats have chosen to align themselves closely with the unions, and, in return, 80% - 90% of union's political contributions go to Democrat candidates. In the case of the National Education Association and the American Federation of Teachers, that number is closer to 95%.
As a result, public employees in general often have higher compensation than their private sector counterparts. According to the Bureau of Labor Statistics, as reported in USA Today in March, 2010, federal workers in 2008 earned an average salary of $67,691 for jobs that existed both in government and in the private sector – the average pay for the same jobs in the private sector was $60,046. According to other BLS reports, government entities spend 1.7 times as much on health care per employee-hour worked, and nearly twice as much on retirement costs. Public sector workers are far more likely to have “defined-benefit” pensions that are guaranteed to pay out for the remainder of a retiree’s life.
What is happening is that, across the country, voters are realizing that this is simply unsustainable, and something must be done to defuse that huge, ticking fiscal time bomb. And, in Wisconsin, that time bomb was about to explode. When Scott Walker took office, the state was looking at a $3.6 billion deficit between 2011 and 2013.
According to another USA Today article in February, 2011, Wisconsin was one of 41 states where public employees earned higher average pay and benefits than private workers in the same state. The average Wisconsin public school teacher may have only made $50,000 in wages, but s/he also received $45,000 in benefits. The school districts paid the entire cost of their pension plans, the entire premium for their medical and vision benefits, and half of the cost of dental coverage. Family health care coverage for a public school teacher was costing the state an average of $26,844 per year.
What Gov. Walker did, that earned him the eternal hatred of labor unions everywhere, was to restrict – not eliminate entirely – collective bargaining rights. Public sector unions could no longer bargain for benefits, and wage increases were limited to the rate of inflation. He also eliminated the automatic deduction of union dues from workers’ paychecks and required public unions to re-certify annually. He also asked public school teachers to pay 5.8% of their pension costs and 12.6% of their health care costs. That’s still substantially less than the national average for government workers, as well as substantially less than what private sector workers pay on average – if they have pensions at all.
While all of that made the public sector unions go ballistic, it struck the citizens of Wisconsin as being eminently reasonable. And despite the best efforts of his union opponents, Walker retained his governorship…and it wasn’t even close.
Meanwhile, out in the People’s Republic of California, both San Diego and San Jose passed ballot measures that cut public-sector pensions. San Diego’s passed with roughly two-thirds of the vote, and San Jose’s passed with 70% of the vote – proving that even here on the Left Coast, in the bluest of the blue states, the folks are starting to understand the magnitude of this problem and show their willingness to do something about it. I find that quite encouraging.
Thanks for listening.
UPDATE 6/8/2012: In his syndicated column this morning, Charles Krauthammer addressed this same issue - arguing that this is nothing less than the beginning of the end of public sector unions. As evidence, he reports that, since the Wisconsin government stopped forcibly collecting union dues from employees' paychecks, making membership truly voluntary, membership in the state's largest public-sector union has dropped by more than 50%. And, in neighboring Indiana, where a similar reform was enacted by Gov. Mitch Daniels via executive order seven years ago, government-worker union membership has fallen by 91%! Clearly, even their members don't like what the unions are doing.
Tuesday, May 8, 2012
Stick a Fork In France - It's Done
You can stick a fork in France - it's done. A majority of French voters are not willing to give up their entitlements, have taken an abrupt left turn back toward socialism, and elected as president someone who is promising a 75% tax on millionaires.
Bear in mind that France's public debt currently stands at 80% of its GDP (we're at 67% and rising fast). Their government spending equals 55% of their GDP, and their total tax burden is roughly 42% of total domestic income. They haven't had a balanced budget since 1974. But none of that matters - the citizens want more government spending.
But the thing about millionaires is that they're much more mobile than lower-income people. There are already indications that the wealthy are making plans to leave France rather than pay a 75% tax rate. This isn't a new thing for France - even back in 2006, it was estimated that, on average, one millionaire per day left the country. When Sarkozy was elected, he made a public plea for them to return and help rebuild the country. So much for that idea.
M. Hollande's election has also emboldened the Greek left, which is not at all happy about the austerity measures that had been put in place to control their own sovereign debt problem - which stood at 143% of their GDP back in 2010.
Odds are that our own next President will have to deal with the worldwide financial crisis that will result when Greece defaults on its debt, and is followed over the cliff, lemming-like, by Italy (public debt of 119% of GDP in 2010), and then France. It ain't gonna be pretty, folks, but that's what happens when a majority of voters feel that they are entitled to more than their government can afford to give them. And we're not far from that point ourselves.
Bear in mind that France's public debt currently stands at 80% of its GDP (we're at 67% and rising fast). Their government spending equals 55% of their GDP, and their total tax burden is roughly 42% of total domestic income. They haven't had a balanced budget since 1974. But none of that matters - the citizens want more government spending.
But the thing about millionaires is that they're much more mobile than lower-income people. There are already indications that the wealthy are making plans to leave France rather than pay a 75% tax rate. This isn't a new thing for France - even back in 2006, it was estimated that, on average, one millionaire per day left the country. When Sarkozy was elected, he made a public plea for them to return and help rebuild the country. So much for that idea.
M. Hollande's election has also emboldened the Greek left, which is not at all happy about the austerity measures that had been put in place to control their own sovereign debt problem - which stood at 143% of their GDP back in 2010.
Odds are that our own next President will have to deal with the worldwide financial crisis that will result when Greece defaults on its debt, and is followed over the cliff, lemming-like, by Italy (public debt of 119% of GDP in 2010), and then France. It ain't gonna be pretty, folks, but that's what happens when a majority of voters feel that they are entitled to more than their government can afford to give them. And we're not far from that point ourselves.
Friday, May 4, 2012
Some Inconvenient Facts (About Unemployment)
I was fascinated by an article in this morning's local paper about how the economy was in a "virtuous cycle," and that 32 economists who were polled by the AP expect unemployment to drop below 8% by election day. This is, no doubt, cause for rejoicing at the White House, where the fondest dream is to have the reported rate below 8% by election day. But here are some inconvenient facts:
As CNBC recently reported, although 115,000 jobs were added in April, the total employment level actually dropped by 169,000. In other words, more jobs were lost than were created. How, then, did the unemployment level fall from 8.2% to 8.1%? Because another 342,000 people gave up and stopped looking for jobs, which means they are no longer counted as part of the "U-3" unemployment rate, which is the one that is always reported. The labor force participation rate fell to 63.6%, which is a 30-year low. The "Persons Not in Labor Force" number has risen to over 88 million. That's up roughly 8 million people since President Obama took office, and the trend shows no sign of leveling off.
The U-3 unemployment rate has now been above 8% for the longest continuous period of time since the Great Depression. But it would be even worse if we still counted those people who have given up and stopped looking for work. As zerohedge.com points out, government forecasting agencies, including the CBO, assume that the labor force grows by about 90,000 people every month as the US population continues to increase. Yet the U-3 number that is constantly being reported is based on an ever-shrinking labor force. The "U-6" unemployment rate, which includes people who are neither working nor looking for work - but would like to work and have looked for work sometime in the last 12 months, and also people who would like a full-time job but have had to settle for part-time work, is at about 14.5%.
Personally, I think those 32 economists were correct, and that the reported U-3 unemployment rate will be below 8% by election day...but it will not be because of economic growth and job creation - it will be because the Obama Administration will continue to lower the labor force participation number until they can report the number they want. As the old saying goes, "Figures don't lie, but liars figure."
As CNBC recently reported, although 115,000 jobs were added in April, the total employment level actually dropped by 169,000. In other words, more jobs were lost than were created. How, then, did the unemployment level fall from 8.2% to 8.1%? Because another 342,000 people gave up and stopped looking for jobs, which means they are no longer counted as part of the "U-3" unemployment rate, which is the one that is always reported. The labor force participation rate fell to 63.6%, which is a 30-year low. The "Persons Not in Labor Force" number has risen to over 88 million. That's up roughly 8 million people since President Obama took office, and the trend shows no sign of leveling off.
The U-3 unemployment rate has now been above 8% for the longest continuous period of time since the Great Depression. But it would be even worse if we still counted those people who have given up and stopped looking for work. As zerohedge.com points out, government forecasting agencies, including the CBO, assume that the labor force grows by about 90,000 people every month as the US population continues to increase. Yet the U-3 number that is constantly being reported is based on an ever-shrinking labor force. The "U-6" unemployment rate, which includes people who are neither working nor looking for work - but would like to work and have looked for work sometime in the last 12 months, and also people who would like a full-time job but have had to settle for part-time work, is at about 14.5%.
Personally, I think those 32 economists were correct, and that the reported U-3 unemployment rate will be below 8% by election day...but it will not be because of economic growth and job creation - it will be because the Obama Administration will continue to lower the labor force participation number until they can report the number they want. As the old saying goes, "Figures don't lie, but liars figure."
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