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| ‘Banos’ |
The world’s economy is like the Longfellow’s Girl With the Curl:
Who had a little curl,
Right in the middle of her forehead.
When she was good,
She was very good indeed,
But when she was bad she was horrid.
When the good times were rolling, everyone wanted a piece of the action … the same action that the finance lairds were enjoying. Those with leverage used it – firefighters, teachers, civic administrators and other state and municipal employees who unionized and used their clout to elect political ‘types’ amenable to union blandishments.
Unlike the Wall Streeters and the other finance, insurance and real estate apex predators, these locals actually provided a service. Somebody has to teach ‘your’ kids how to add and subtract. (They can learn how to steal cars and smoke pot from their friends.)
Somebody has to put out fires and scrape bloody carcasses off the highways after the numbingly repetitive SUV and giant pickup truck crashes. Somebody has to change streetlight bulbs and go to ‘staff’ meetings. Someone has to put up Christmas decorations.
During the bubble heyday, there was no question that the good times were going to follow perpetual real estate expansion outward and that those responsible for civic gruntwork would be well compensated.
Now that the bubble is deflating, the deals cut with state and city workers are rebounding against the same states and cities. Like loans, union wages are sticky and for the same reason. Parties are held to terms by contracts. Only a laborious ‘resolution’ process – or default – can undo these terms.
Agencies hold desperate hopes that economic conditions will improve enough to avoid both the processes and defaults. Stimulus funds flowing from Washington bailed out public employees and bought some time. Bail tomorrow, bail next year, bail endlessly. Benefits have become another rathole down which funds can be shoveled to no great effect. As deflation tightens the agencies default and beneficiaries go bankrupt. The amount of funds needed is unsupportable. Worker benefits represent another unserviceable claim against an economy that has no real product other than waste.
There is much heat but little light shed elsewhere but the massive expansion of sprawl and the accompanying expansion of costs are at the center of the issue, leaving less maneuvering room as the costs increase. How little maneuvering room?
Over the past two years, 17 states have cut benefits for employees or increased the amount that individuals must contribute to their pension plans. Three of those states—Kentucky, Texas and Vermont—did both, according to the Pew Center on the States, a public-policy think tank.
Los Angeles Mayor Antonio Villaraigosa announces the elimination of the Environmental Affairs and Human Services Departments in February, cutting 46 jobs.
At the heart of this fight is an unbalanced equation: The economy is shrinking cities’ and states’ tax income as their pension and health-care costs have soared. As a result, some governments are diverting money from services to cover benefits, or raising taxes and fees. That doesn’t sit well with some taxpayers—many frustrated at seeing their own benefits being cut by private-sector employers.
So governments are seeking cuts in union benefits long considered sacrosanct. This has risks. Public-employee unions are among the biggest political spenders, and their members vote in droves. Also, cutting benefits could make it tougher to keep the best employees.
Politics as usual poison the dialog, It is not necessary to go far to find establishment apologists lining up to fix blame, such as David Brooks:
The Paralysis of the State
By DAVID BROOKS
Sometimes a local issue perfectly illuminates a larger national problem. Such is the case with the opposition of the New Jersey governor, Chris Christie, to construction of a new tunnel between his state and New York.Christie argues that a state that is currently facing multibillion-dollar annual deficits cannot afford a huge new spending project that is already looking to be $5 billion overbudget. His critics argue that this tunnel is exactly the sort of infrastructure project that New Jersey needs if it’s to prosper in the decades ahead.
Both sides are right. But what nobody seems to be asking is: Why are important projects now unaffordable?
Decades ago, when the federal and state governments were much smaller, they had the means to undertake gigantic new projects, like the Interstate Highway System and the space program. But now, when governments are bigger, they don’t.
The answer is what Jonathan Rauch of the National Journal once called demosclerosis. Over the past few decades, governments have become entwined in a series of arrangements that drain money from productive uses and direct it toward unproductive ones.
New Jersey can’t afford to build its tunnel, but benefits packages for the state’s employees are 41 percent more expensive than those offered by the average Fortune 500 company. These benefits costs are rising by 16 percent a year.
New York City has to strain to finance its schools but must support 10,000 former cops who have retired before age 50.
California can’t afford new water projects, but state cops often receive 90 percent of their salaries when they retire at 50. The average corrections officer there makes $70,000 a year in base salary and $100,000 with overtime (California spends more on its prison system than on its schools).
States across the nation will be paralyzed for the rest of our lives because they face unfunded pension obligations that, if counted accurately, amount to $2 trillion — or $87,000 per plan participant.
More finger pointing and blaming the victim. Costs have spiraled because the sprawl/growth/whatever you want to call it paradigm was and is flawed. Sprawl is an excess or surplus of the most costly form of development. Increasing sprawl means outlays for new schools, roads, lampposts, fire houses, government offices, sewers, utilities and other infrastructure. Along with these fixed costs are those of the workers needed to make it all function.
Sprawl cannot be efficient; in fact it is designed NOT to be efficient! It is spread too thinly over an unsustainably large area. The expense of labor represents energy waste. Since most states and municipalities embraced sprawl as a ‘revenue growth tactic’ they find themselves shackled to a legacy structure that is becoming increasingly unaffordable as real energy costs increase.
Along with the cost of public worker pay and benefits is the cost of private worker pay and benefits! Economists have a real blind spot about aggregate costs. Many private workers were cut long ago. Laid off workers amplify a perverse feedback spiral as they shift from being taxpayers to benefit recipients.. Laid- off workers make claims against the benefactor of last resort that they do not make as workers. At the same time the revenue they represent as hires is lost meaning a large net swing from revenue to expenditure per laid- off worker. Even as the benefits run out, there are still costs as the unemployed make ‘other’ claims against their communities by joining the ‘underground’ economy.
Meth labs don’t pay taxes: funds are diverted starving the ‘overground’ variety. Revenues fall further pressing employment downward and amplifying the cycle. Falling wages and worker hours reduce aggregate demand, lowering prices and diminishing margins. Businesses fail and more debt is rendered unserviceable leading to more still failures. This is the cycle of debt deflation, amplified further by the effects of blight.
As wages decline the value of property that is taxed also declines even as tax rates increase. The more workers laid off the faster tax revenues decline while the faster benefit claims rise. The balloon is squeezed at one end and it expands at the other end. At some point the balloon pops, when there is insufficient revenue for governments to function. All benefits cease and default becomes general. Except for some sovereigns who can print their own currencies and forestall the inevitable for awhile, the public entities are on the same path as Greece and Ireland.
Everywhere you look is the Gurl with the Curl!
Old fashioned political thinking has public employees as drains on treasuries, rather than resources to tap. Deflation is general and the wages/benefits/costs relationship will change. Prices will decline. Benefits are sticky; instead of demanding benefit cuts and demonizing an important public segment it would be best for public entities to require retirees to donate time and expertise back to their communities. This is a requirement few public service retirees would refuse. Police and firefighters giving back a day or two per week of service would benefit communities facing intractable revenue and manpower conflicts. Many retirees are young @ 50 years or so. These ‘elders’ would work at their old positions and help with the training of newer workers – who will not have the same level of benefits.
All of this is within a larger picture. The finance oligarchs make the first claims against the public. They demand that ‘rent’ payments on money lent be made at the expense of wages. Since finance is in its ‘Recapture and Hoard’ mode, none of the funds find their way back into the real or physical economy, but flow instead into gold or to offshore tax havens. The real economy continues to decline, but who cares?
The financialists don’t seem to realize that final demand can only come from labor, not from the Man in the Moon. Then again, finance acknowledges by its actions that the economy of production and demand is finished, it’s time for the New Feudalism. Here’s the brilliant Michael Hudson to describe the process (speaking about European austerity:
At issue are proposals to drastically change the laws and structure of how European society will function for the next generation. If the anti-labor forces succeed, they will break up Europe, destroy the internal market, and render that continent a backwater. This is how serious the financial coup d’etat has become. And it is going to get much worse – quickly. As John Monks, head of the European Trade Union Confederation, put it: “This is the start of the fight, not the end.”
Spain has received most of the attention, thanks to its ten-million strong turnout – reportedly half the entire labor force. Holding its first general strike since 2002, Spanish labor protested against its socialist government using the bank crisis (stemming from bad real estate loans and negative mortgage equity, not high labor costs) as an opportunity to change the laws to enable companies and government bodies to fire workers at will, and to scale back their pensions and public social spending in order to pay the banks more. Portugal is doing the same, and it looks like Ireland will follow suit – all this in the countries whose banks have been the most irresponsible lenders. The bankers are demanding that they rebuild their loan reserves at labor’s expense, just as in President Obama’s program here in the United States but without the sanctimonious pretenses.
The problem is Europe-wide and indeed centered in the European Union capital in Brussels, where fifty to a hundred thousand workers gathered to protest the proposed transformation of social rules. Yet on the same day, the European Commission (EC) outlined a full-fledged war against labor. It is the most anti-labor campaign since the 1930s – even more extreme than the Third World austerity plans imposed by the IMF and World Bank in times past.
The EC is using the mortgage banking crisis – and the needless prohibition against central banks monetizing public budget deficits – as an opportunity to fine governments and even drive them bankrupt if they do not agree roll back salaries. Governments are told to borrow at interest from the banks, rather than raising revenue by taxing them as they did for half a century following the end of World War II. Governments unable to raise the money to pay the interest must close down their social programs. And if this shrinks the economy – and hence, government tax revenues – even more, the government must reduce social spending yet further.
From Brussels to Latvia, neoliberal planners have expressed the hope that lower public-sector salaries will spread to the private sector. The aim is to roll back wage levels by 30 percent or more, to depression levels, on the pretense that this will “leave more surplus” available to pay in debt service. It will do no such thing, of course. It is a purely vicious attempt to reverse Europe’s Progressive Era social democratic reforms achieved over the past century. Europe is to be turned into a banana republic by taxing labor – not finance, insurance or real estate (FIRE). Governments are to impose heavier employment and sales taxes while cutting back pensions and other public spending.
What a novel idea! Taxing finance and its trillions in ‘wages’ as well as its derivatives which produce nothing of any value, whatsoever. Since the finance players tax the public, turnaround is fair play.
At the same time, deflation insures that wages – as well as prices and profits – will decline. The issue is earning inequality. Reducing worker wages while increasing financiers’ is not only unfair, it is self- defeating. Eventually even the rich spend all their money. This is the outcome of depression: class warfare by money means ending with the demise of capital.
Another neat idea is nationalizing politics in the US. The public needs to finance all political campaigns down to the school board level. “Yikes! That will cost billion$!”
The current system is too self- referential and costs the country Trillion$. See labor union influence on elected officials, above.
Energy depletion is in the process of rendering the issue horrid. Automobiles making the first claims have cost millions of American workers’ jobs. We jettison parts of the social fabric to afford to drive. To work or to drive, to eat or to drive, what’s left to jettison … in order to drive? Democracy itself?