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Cities, counties, and even the state, have to balance their budgets. Anyone who's completed Macroecon 101 should remember only the Federal Government can run a deficit and in effect inject money into the economy. When government budgets are balanced, they don't add any money to the economy.
Let’s start from the premise that Economics is an inexact science. If it were an exact science, we would never have long-term recessions. With that said, there are several debatable or outright facetious points in this article.
First, any job cut detracts from the economy and as Mr. Schafer admits, public sector jobs are being cut. He makes the unsubstantiated contention that holding local job levels at or close to current levels would require increased property taxes, fees, and assessments. That is not correct. Most or many of these jobs could be kept through a zero increase budget and contract adjustments.
Second, these job losses DO NOT have a dollar for dollar offset in savings. The most obvious evidence of this is the loss of services that correspond to these lost positions. There is a public “cost” to having fewer public workers. In addition, there is a real economic cost of severance, unemployment benefits, and when the economy improves, re-training of new employees. Frankly, I’m not sure any supposed short-term savings warrant these cuts. I’m even less convinced there are any savings in the long term. One only has to study last years state shutdown to understand this.
Third, “Classical Theory” does not fully apply in this case. You would not simply be transferring money from one person to another as is suggested. Rather, you’d be maintaining the income level of a person who spends close to 100% of their income while spreading the costs over many people who would not spend, but rather leave economically inactive the money in question. In addition, the money multiplier affect would also stimulate the economy further through the continued employment.
Fourth, a balanced budget, while commendable and necessary for local governments, can be achieved through various means other than cuts in employees.
Everyone wants efficient and responsive government. However, as the old saying goes, “you get what you pay for”. General cuts in public sector workers seems like a quick fix that improves the immediate and long term situation. However, as almost always, the simple solution is not necessarily the most desirable. Be careful what you wish for!
I feel for those who've lost their jobs - nobody likes to see someone lose their income. On the other hand, it's time for all areas of government to spend realistically. When a private business hits a low period, it doesn't have the option to simply raise taxes and spread the pain across the land. It shouldn't be any different for government. When you raise taxes, you're taking money from those who can least afford it. The decline of middle class America is on the rise, because we're the ones hit hardest. You can raise taxes only so much before everyone ends up in bankruptcy court, since wages aren't increasing, and disposable income is diverted to the government to support its unchecked spending. Job security is all but history for the private sector, and simply because someone works for the government shouldn't mean their job is solid regardless of the economy. Everyone in private employment is doing more with less and employers have to face hard choices, but that's life. Either government lives within its means without breaking the backs of its citizens, or it has to spend realistically. Yes, some public employees will lose their jobs. However, there are no guarantees in life. That many sound cold, but it's just the way it is.
The public sector union effort begins when union headquarters sends Don to a city to organize the city workers. Don promises higher wages, shorter hours, better healthcare, higher pensions and lower chance of getting fired. City workers vote yes and agree to have union dues deducted from their paychecks by the city and paid directly to the union. The city commissioner appointed to deal with the new union, Joe, is a Democrat and the majority of city council members are Democrats. The union makes political contributions to the city council members to aid in their next election and the council members are appreciative for the cash. A year later, Don contacts Joe to "negotiate" the union contract going forward. Don wants higher wages and less hours. Joe is a bit concerned and says the city does not have the money. Don says "don't act like it is your money, it is not, just raise taxes, no one will notice and everybody will just pay a few dollars more". Joe says "fine". Don also insists that going forward the health care coverage for the workers will be purchased from the Union Health Plan, owned by the union, and the premiums have increased 40% this year due to the higher prices in the union health care plan. Furthermore, Don says they will not use the city pension plan anymore, all contributions to the pensions will go directly to the Union Pension Plan owned and administered by the union. Joe says "fine". Don meets with the city council to get final approval for the new union contract and the accompanying new arrangements. The city council gives Joe a healthy raise in pay and does the same for themselves. Prior to the meeting, Don had contacted each of the council members and let them know that the union will be making much higher cash contributions to their next election. The new contract and arrangements are approved and taxes are raised to cover the costs and union dues are raised, however, union members are agreeable because they are much better off under the new contract. After ten years - union workers are earning about 40% more than their counterparts in private industry; union dues are much higher; taxes are much higher and taxpayers are beginning to make noises asking why they are so high; the Union Health Plan has millions in profits as it continued to raise rates well above the competition and it now funds political campaigns of statewide politicians; the Union Pension plan has millions in assets and allocates huge amounts to political candidates and purposes; about 40% of union workers are not Democrats, however, 100% of union political cash goes to Democrats; major political candidates appear at union meetings and declare they are "one with the union". The public sector union cycle is complete.
So a couple hundred temporary construction jobs building Wilf Arena are worth spending millions of dollars of public money, but permanent jobs plowing streets, maintaining parks, and inspecting housing are not? I don't get it.
I also don't buy the notion that properly funding this work chips away more at the middle class. The people being hired ARE middle class and will pay taxes on their wages just as the private sector does. It's not like state and county and city employees are paid tax-free as a perk.
Very insightful and spot on. Local government entities are the least efficient arm of government. If we eliminate through consolidation half the small cities in the state, the savings to taxpayers would be immense.
Thanks again for this honest perspective on waste in small city government.
Next time you see a study on the hundreds of millions of dollars of positive economic impact from the provision of public pensions, remember this article.
It is pretty well agreed among economists the economy won't recover until there is consumer demand for products. But there won't be consumer demand until and unless consumer employment rises. So it is a vicous circle. Henry Ford had it figured out - he paid his employees a good wage so they could buy his products. He didn't hoard cash. Duh!
What's wrong with our economy? Not enough good-paying jobs. Is that because businesses aren't hiring because taxes are too high and regulations too expensive? Or is it because there is too little demand for their products and services because consumers cannot afford to spend more? Corporations are sitting on huge amounts of cash, and see no profit in investing in more productive capacity. The middle class is tapped out, deeply in debt with net worth drastically reduced. Productivity gains over the past 3 decades have gone to the richest one percent, not to middle class wages. The solution to this is to increase the purchasing power of the middle class. How? Expanding collective bargaining rights to more middle class workers. Raising taxes on the rich. Investing in public education, including higher ed. Public financing of political campaigns, and term limits on Supreme Court justices.
The federal governement can, as it did in the 09 stimulus, inject cash into the system which is ear marked for and reachs state and local levels. The author should know this.
When Obama is asking for funding for more, police, fireman and teachers is doing so at the federal level with the plan to direct to states and local communities, and yes put the money in the hands of those who spend it.
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