Skip to comments.Salad Days of the Public Sector Are Over
Posted on 07/13/2012 6:30:34 AM PDT by Kaslin
San Bernardino, Calif., has now followed Stockton into bankruptcy.
Harrisburg and Scranton, Pa., and Jefferson County, Ala., home to Birmingham, are already there to welcome them.
Detroit has been taken into receivership by Michigan. A plan under discussion is to level a fourth of the city and reconvert it into the pasture and farmland it used to be a century ago.
On the Web, one may find a pictorial tale of two cities: Hiroshima, a smoking flattened ruin in 1945, now a beautiful gleaming metropolis. And Detroit, forge and furnace of democracy in 1945, today resembling Dresden after Bomber Command paid its visit.
Other American cities are exploring bankruptcy to escape from under the mountain of debt they have amassed or to get out of contracts that an earlier generation of politicians negotiated.
No longer shameful, bankruptcy is now seen as an option for U.S. cities. The crisis of the public sector has come to River City.
What happened to us?
In the Reagan-Clinton prosperity, officials earned popularity by making commitments that could be met only if the good times lasted forever. They added new beneficiaries to old programs and launched new ones. They hired more bureaucrats, aides, teachers, firemen, cops.
Government's share of the labor force soared to 22.5 million. This is almost three times the number in the public sector when JFK took the oath of office. These employees were guaranteed job security and high salaries, given subsidized health care, and promised early retirement and pensions that the private sector could not match.
The balance between the private and public sectors shifted. As a share of the U.S. population, the number of taxpayers fell, as tax consumers -- the beneficiaries of government programs and government employees who run those programs -- rose.
The top 1 percent now pays 40 percent of the income tax. The top 10 percent pays 70 percent. The bottom half, scores of millions of workers, pay nothing. They ride free.
This could not go on forever. And when something cannot go on forever it will, by Stein's Law, stop. The Great Recession brought it to a stop. We have come to the end of the line.
U.S. cities depend on property and sales taxes. But property tax revenue has fallen with the collapse of the housing market. Sales tax revenue has fallen as a result of the recession that has kept the consumers out of the malls.
Revenues down, cities and counties face a choice. Raise taxes, or cut payrolls and services. But if taxes rise or workers are laid off and services decline, Americans in our mobile society move across city and state lines, as they are moving from California to Colorado, Nevada and Arizona.
This does not end the crisis, it exacerbates it.
Bankruptcy not only offers cities relief from paying interest to bondholders, it enables mayors to break contracts with public service unions. Since the recession began, 650,000 government workers, almost all city, county or state employees, have lost their jobs. Millions have seen pay and benefits cut.
The salad days of the public sector are over. From San Joaquin Valley to Spain, its numbers have begun to shrink and its benefits to be cut.
A declaration of bankruptcy by a few cities, however, has an impact upon all -- for it usually involves a default on debts. This terrifies investors, who then demand a higher rate of interest for the increased risk they take when they buy the new municipal bonds that fund the educational and infrastructure projects of the solvent cities.
Cities and counties have no way out of the vicious cycle. Rising deficits and debts force new tax hikes and new cuts in schools, cops and firemen. Residents see the town going down, and pack and leave.
This further reduces the tax base and further enlarges the deficit.
Then the process begins anew.
This is what is happening in Spain and Greece, which have reached the early 1930s stage of rioting and the rise of radical parties.
Since the New Deal, Keynesianism has been our answer to recession. As the private sector shrinks, the public sector expands to fill the void until the private sector returns to health. Only Keynesianism is not working.
Obama gave us an $800 billion stimulus and four deficits totaling $5 trillion. The Fed tripled the money supply and put interest rates at near zero. The banks are flush with cash. But the engine will not turn over.
What about supply-side tax cuts? But with the Bush tax cuts still in place, taxes are generating the smallest share of gross domestic product in decades.
How much bigger a deficit should we run?
Liberal economists are saying, deficits be damned, print money and spend. With Republicans blocking tax hikes and Democrats resisting cuts in Medicare, Medicaid and Social Security, all eyes turn to the Fed.
As Milton Friedman said, "Inflation is the one form of taxation that can be imposed without legislation."
>>Detroit has been taken into receivership by Michigan. A plan under discussion is to level a fourth of the city and reconvert it into the pasture and farmland it used to be a century ago<<
Asimov’s Trantor (after the fall) comes true thousands of years early.
Now is time for 'Just Desserts'................
From my perspective, the lower rung public sector employees actually do a good job, work hard and try to do the right thing.
That said, once we get into middle and upper management levels (layered bureauacrcy) or at the senior level of those considered “subject experts”, the law of inertia takes over, things at rest tend to stay at rest unless affected by some other force. Except for the military, there is no force multiplier effect in the civilian public sector, in fact, it is the one area where more is less.
Monty Python - Salad Days
I think it’s time for “claw backs”.
wow, that’s not my experience at all. lower rung public sector employees that I’ve dealt with are generally worthless quota hire/AA types, whose attitudes would not be tolerated in the private sector.
Speaking of claw backs, this is exactly what should be done and probably will be done in the areas of salaries and benefits. Most government agencies do the baffle them with BS approach when asked for any details of what it is they actually accomplish, just like JPM:
“When fraud has been exposed, one is best advised to baffle everyone with lots and lots of data, figures, numbers, and generally meaningless information overflow. Sure enough, as part of the Q2 earnings call, JPM has released a record 8 pdfs to go alongside Jamie Dimon sounding very confident, and pretending he knows what he is talking about. Remember: when in doubt, baffle them with bullshit.” excised from ZeroHedge website.
Back in 2007 people were accusing me of being a doom and gloomer. If I had back then, gotten in my delorian and travelled to today, grabbed this story and took it back to 2007, it would be proof that all the doom and gloom was right.
But things change slowly, and people adapt. It is just the new normal, now.
But the fact is, that we ARE in World Depression two (WDII). This article as well as the news about foreclosures, jobs, europe, China (Millions of tons of steel sitting in boats waiting to be sold), etc. is there for everybody to see.
The Great Depression was not called the Great Depression by the world culture until the 1950’s. What will this be called 30 years from now?
And this is only just beginning to unwind. That’s it! It can be called the Great Unwind of the civilized world.
—I’m not entirely sure this is true.—
I think it is sometimes true. To use an analogy, think of them as the proverbial family that pulls in $50,000 a year but during the housing boom got a 100% loan at a low rate with interest only payments for a house worth $3 million. Now, imaging the housing crisis makes that home worth only $800,000 and the interest only part of their loan period has expired. They are hopelessly under water and short of winning the lotto have absolutely no way out.
That is where a lot of cities and counties are right now - completely screwed.
Frankly, I think it is where the world is. And I think a lot of people know it, at least at the subconscious level.
And the article is right, the final hail mary in this thing will be inflation followed by hyperinflation. I think that will be followed by WWIII. In fact, I have little doubt, if any, that that will be our fate.
Look at history. It’s what we do. The only reason you don’t believe it is that it is so unthinkable. So was Auschwitz.
1. Build your own insular empire with many layers of staff and underlings
World War II started about ten years after the original Great Depression, and violent revolutionary upheaval has already started in much of the Middle East, and the seeds of it are being planted in parts of Europe.
Buckle up kids, the next few years are likely to be some kind of wild ride.
Ever seen 12 Monkeys, with Bruce Willis?
I see that future so clearly that when I look at the world around me I have an attitude similar to his perception of the world when he goes back in time to the time just before mankind was wiped off the face of the earth due to a pandemic.
It is one of those, “If A happens, then B will happen” sort of things. And A is happening before our very eyes. B is next, but A will get much worse first.
So this is the real question, what will the Fed do? The “Fed complex” of central bankers and money center financial institutions are not in favor of printing money. They own massive amounts of debt lent at very low rates and they have little desire to see this money eaten up by inflation.
The politicians are (or will be when the economy starts sliding) for the most part in favor of additional “stimulus”. The Repubs will do a better job spreading the money around than the Bamster, but it is free money however you look at it. Bamster’s stimulus was a handout to the public sector unions, hence it did not have a lot of positive effect on the economy.
Plus, we have reached the point of debt saturation.
So, will the politicians prevail and either garner the political support for cheap money or twist Bennie's arm to print more? Or will we continue down the political stalemate path and slip into deflationary depression?
Either way, we are facing a 1930s like economic calamity ... and we have yet to see the worst of it.
At a national level, I believe you’re right.
At a municipal level, the situation could be improved substantially. Look at what Indiana was able to do as a state.
Municipal bankruptcies are the easy solution, taken by bureaucrats who are too lazy to make the case for the reforms that would accomplish the same ends without the pain of leadership. The big reason for bankruptcies, as I see it, is to sever union contracts. Something true leadership could do without bankruptcy.
The same tools could be applied nationally, if we had leaders who actually wanted to fix our problems rather than enrich themselves as the ship of state sinks.
The “Reagan-Clinton prosperity”?
And the Gods of the Copybook Headings with terror and slaughter return.