Cyreenik Says
This comment is inspired by a 26 Mar 10 WSJ editorial of the same name.
People, media and otherwise, have been railing on about the greed of bankers during this economic crisis. But there is, slipping under the emotional radar, a greed of even greater magnitude. It's the 45% premium in pay and benefits that government workers receive over the the workers who create wealth in the private economy. This is a pay disparity and an even bigger benefit disparity, and they are a prime culprit in the current financial dysfunction of city and state governments. This is big!
This disparity has been growing for a decade. Why? Why have public workers moved from a 20th century traditional position of having jobs with low pay but high security to their current position of having both high pay and high security? And why are there so many more of them now?
The answer is the public has not been watching carefully. Customers and taxpayers tend to watch whom they pay money to at transaction time. Customers tend to deal with their businesses many times a year; taxpayers pay their government only once a year. In addition, most customers like to be very clear about what they are purchasing. Taxpayers, on the other hand, accept a lot of murk in public doings.
The result of these differences is that city and state government employees tend to be like foxes guarding the hen house -- there is a constant temptation to game the system, and taxpayers are not vigilant about stopping the gaming practices.
The spearhead for growing the gaming practices is the government employee special interest group: public employee unions. When people and media think of special interest groups influencing government they tend to think of special interest groups representing big businesses and banks, but the government employee unions are just as dedicated to supporting their interests, and they have organized a lot of people-and-money backing, so politicians pay lots of attention to them.
In retrospect, it should come as no surprise that public employee unions should shape themselves into high performance lobby machines. Their members are paid by the government, and they are chartered to bring home benefits for their members. The result is organizations that pay attention to all aspects of the political process, and have membership and monetary clout to constantly influence that process. Lobbying is not a distraction for a government employee union, it's a core activity.
A more extensive article on this subject by Steven Greenhut in the February 2010 issue of Reason, Class War, goes into more detail about the growth trend of government employees in general. At the end of the article he points out:
"Michael Hodges’ invaluable Grandfather Economic Report uses the Bureau of Labor Statistics to chart the growth in state and local government employees since 1946. Their number has increased from 3.3 million then to 19.8 million today -- a 492 percent increase as the country’s population increased by 115 percent. Since 1999 the number of state and local government employees has increased by 13 percent, compared to a 9 percent increase in the population.
The United States had 2.3 state and local government employees per 100 citizens in 1946 and has 6.5 state and local government employees per 100 citizens now. In 1947, Hodges writes, 78 percent of the national income went to the private sector, 16 percent to the federal sector, and 6 percent to the state and local government sector. Now 54 percent of the economy is private, 28 percent goes to the feds, and 18 percent goes to state and local governments. The trend lines are ominous.
Bigger government means more government employees. Those employees then become a permanent lobby for continual government growth. The nation may have reached critical mass; the number of government employees at every level may have gotten so high that it is politically impossible to roll back the bureaucracy, rein in the costs, and restore lost freedoms."
It may be even more ominous than Greenhut envisions. Stable regimes lose their Mandate from Heaven, as Chinese historians call it, when their government becomes bloated, ineffectual and high taxing. When this happens there is unrest, growing chaos, and finally replacement by a new, leaner and meaner, government... if the existing government doesn't wake up to what's happening and become leaner, meaner, lower taxing and more responsive itself.
If the US is not going to become a secondary player in the competition of nations, we need to see this government growth as a blind spot that needs fixing. We need to work out new incentives for the private economy to boom so it can become an attractive alternative to government employment, and become diligent and determined about avoiding this bloat happening again in the future. We need to set up checks and balances in hiring and paying, and even more transparency in government functions so that tax payers stay quite aware of what they are paying for.
This may not sound like it, but it is a "Think of the Children"-issue. It is something very important for us to do for our children and grandchildren.
The Democrat's Pyrrhic Victory moves ahead.
Sadly, I don't see this as a victory for anyone. The Republicans lost the vote, the Democrats lost some credibility, and all our Washington politicians lost even more credibility. Obama was supposed to be about bringing more transparency to the governing process. And... I guess that has happened... we have seen the process... but Wow! What we are all seeing!
This continues to smack of Blunder. Time will tell, but the Obama/Pelosi team seems to have cobbled together a win that strongly resembles FDR's New Deal programs of 1935/36. One of those, the WPA, was something so controversial that it was dismantled three years later for being unconstitutional, another, Social Security, remains with us today. Which path Obamacare will follow remains to be seen.
But the real cost is not whatever the government health care costs turn out to be. The real cost is losing the feeling of consensus -- enfranchisement -- the feeling that we are all on the same team and all working to make America a better place.
This is not just consensus between Republicans and Democrats, it is even more consensus between Washington and Main Street -- between our representatives and our people. That is where the blunder is happening, and this is what the rise of the Tea Party movement is symptomatic of -- its rise is staying that neither Republicans or Democrats, nor the other Beltway players, are paying enough attention to Main Street.
Update: Here is a 27 Mar 10 WSJ editorial by Peggy Noonan expressing a similiar point of view: The Heat Is On. We May Get Burned., and this 26 Mar 10 NY Times editorial by Charles M. Blow Whose Country Is It? is a good example of missing this point.
My first personal awareness of an economic bubble came in 2002. My then recently married daughter was house hunting and asked me for advice. My advice was, "Wait a year. The economy has tanked, and housing will follow. You'll do a lot better next year."
My daughter chose not to follow my advice, and she was right! ...which left me with a mystery: Why was she right? Why hadn't housing tanked as part of that recession? The housing market is closely linked to economic well-being and demographics. Economic well-being could not explain the robustness in 2002, and neither could demographics: What population bulge was just coming into house buying age in 2002? I looked around and I couldn't see one!
It was not until the 2007/8 bust that my mystery was answered: Housing had not tanked because it was being sustained by a surprisingly robust mortgage market, what is now called the Subprime Mortgage Boom. It was mortgage buyers, not house buyers, who were keeping things lively.
Fast forward to 2010. Who has beaten expectations in this bust? China is the market darling. So my question now is: Is this good fortune due to good fundamentals, or the start of a bubble? Is the Chinese government keeping things unnaturally lively?
In this 16 Mar 10 Christian Science Monitor story China: the coming costs of a superbubble, Vitaliy N. Katsenelson argues that unless China is real careful, this is the start of another big bubble -- a superbubble as he calls it. He outlines some things happening there that are distressingly familiar: great confidence, tall buildings being built, and bad planning being ignored.
This will be something to watch carefully. If the 2000's experience is a lesson, the crisis will come to a head in the 2015-18 timeframe, and it will be a doozy when it does. It could bring a government upheaval in China, and perhaps disintigrate the nation the way the Soviet Union did in the 1980's.
The Chinese leadership is sensitive to this threat. For decades they have watched carefully as China grew in prosperity. They are well-trained in watching for political threat coming from economic circumstance.
But, the growth and bursting of every bubble always comes as a surprise to those who are witnessing it. The next one, where ever it happens, will be no exception.
One of the innovations to human thinking that came with the Agricultural Age was the goodness of saving and investing. Before that, when all of mankind lived in semi-nomadic hunter-gather societies, saving and investing didn't make much sense because the group moved around so much and everything the group owned had to be carried to the next place to live.
Other thinking that was common in hunter-gatherer times, and long, long before that, was stealing from strangers was OK.
Inflation is a mix of these two ways of thinking. Money, credit and other forms of finance are inventions that help people and communities save and make our lives better. The lifestyle changes that came with the Agricultural Age made this kind of thinking good. But the older hunter-gatherer stealing-from-strangers thinking is always available too in finance situations, which means there is constant temptation to game financial systems. Government regulation is meant to discourage the stealing thinking. The prohbition against usery in many religions is another example of the community trying to control the stealing temptation that is part of finance.
The tempation is there, and one way of stealing from people who save is with inflation.
Inflation is a tool: it can be used and abused. When it is used well the community grows more rapidly than it would otherwise and everyone benefits. When it is abused wealth is transfered from those who save to those who run the money system. In addition to being very bad for the savers, it is also very disenfranchising to the whole community because savers are usually among the most enthusiastic supporters of an orderly community. When you mess with the money, you are shouting for social violence to follow.
So the saving members of the community must be ever vigilent in watching the plans of those who run the money system.
This subject comes up now because one proposal for getting us through this financial and employment crisis is to inflate our way out, as is talked about in this WSJ 17 Mar 10 article The Lure of Inflation's Siren Song.
I think we will be OK this time -- it won't get too wacky -- because The Boomers personally experienced the wild and wacky wage and price controls and inflation of the Nixon/Ford era, and the pain of the Carter era trying to set things right again, and Reagen becoming a hero president when things finally did get better.
But the tempation is there, and as this unemployment crisis becomes panicky it will grow strong.
In story telling, one of the common panic responses to bad and scary news is to shoot the messenger who brought it. This happens in real life, too, and may be about to happen in the current European financial crisis swirling around Greek sovereign debt.
Financial panics always seem to leave the streets full of murdered financial innovations that are blamed for the bad times that follow the good times. In this case, the crosshairs seem to be pointed at credit-default-swaps. This is written about in Stripping the Naked Could Backfire by Richard Barley 12 Mar 10 WSJ.
Fannie Mae and Freddy Mac are dead center in the housing bubble vortex. Yet I find it rare to see an article such as this one in 8 Mar 10 Reason magazine Bulldozing the American Dream by Anthony Randazzo which recommends that we wind them down and get the government out of the housing market.
Why this rarity? I don't have a good reason, which suggests that it's not being thought through well, and there's a lot more big trouble in the making. Their presence is huge, and in spite of the fact that both failed, their presence is getting even bigger!
This lack of conversation about their future suggests a blunder in the making.
Update: A 12 Mar 10 WSJ article that offers a good common sense step that should accompany any major bailout Lehman Shows the Benefit of Scrutiny by Peter Eavis. It suggests that any government bailout be treated similarly to a bankruptcy in that there be an examination and disclosure of what happened that caused the need for a government bailout. He suggests that this examination should be done to AIG, Freddie, Fannie, Citigroup, Bear Sterns and Merrill Lynch.
Sounds like a good plan to me. If you're going to come to the trough, at least be willing to say why.
Update: A 4 May 10 article in the WSJ, What about Fan and Fred Reform by Robert G. Wilmers, suggesting there's a problem with congress not addressing Frannie/Freddie reform, and suggesting their strong lobby is the source for this inaction.
A lot of people, including Barak Obama, have been bellyaching about how little this administration has accomplished in its first year.
These people have overlooked one tremendous accomplishment: Moving America beyond the War on Terror.
While I facepalm the replacement worries -- healthcare and climate -- I'm overjoyed that the American people and the current administration have decisively found new things to worry about. Back in 2001 when this era started, I predicted that whatever reaction followed the 9-11 Disaster panic, it would last about ten years. I'm happy to report it's ending a little sooner. Yay! Even with the Christmas Day Bomber restoking the threat, America's concious is still moving on to other issues.
So for that, I congratulate you, President Obama, and all of you, the American people. It's a good choice and I'm really glad it has come as soon as it has.
As for Obamacare and climate change... some worry had to replace the War on Terror, so I'm not surprised, but I sure wish we were a little more analytic about our worries.
Ah well... welcome to the human condition.
Obama now seems positioned to follow in the footsteps of Andrew Johnson, Warren Harding, Harry Truman and Gerald Ford. These are all presidents who served in the "hangover period" following the excitement of a major conflict.
It is a thankless task, and when they are finished, no one thanks them.
Update: I'm also very happy to see that our blood, sweat and tears spent in Iraq seem to be producing a wonderous result: a functioning democracy in the Middle East. I've always hoped for this. Here's a 2 Mar 10 WSJ editorial Another Step Forward for Iraq by Fouad Ajami commenting on this success.
Bringing democracy to Iraq has been a huge task, much bigger than just kicking out a tyrant and searching for WMD's. And it has never been clear that the Bush administration, or the American people, would have the resolve to see this goal through.
It is also not clear, yet, that this change will endure.
I fought in Vietnam in 68-69, and when I left we were winning. In 1972 most American forces were withdrawn as the conflict was Vietnamized... and it still sounded like winning to me. Then in 1975 came one of the quickest collapses of a military force in history. Whoops!
-- The End --