Joel Bowman

“Is the world finally cracking up?” we wondered aloud in these pages earlier this week. From the look of events unfolding across the volatile Middle East and North Africa region, it certainly seemed so. Governments are toppling, buildings are ablaze and protesters are “speak-to-tweeting” their way to freedom…of a sort.

But what about closer to home, back in the belly of the empire? It’s one thing for far-flung outposts to collapse, for the “uncivilized,” “unwashed” masses beyond the gates to storm their capital buildings and raise hell. But surely that couldn’t happen here, could it?

Of course it could. The existence of the state virtually guarantees it!

With this in mind, we issued the following words of caution to our Fellow Reckoners on Wednesday:

“Warning: Riots may be closer than they appear.”

We didn’t know it at the time, but tens of thousands of public sector workers and disgruntled union activists were at that very moment on the verge of storming the Capitol building in Madison, Wisconsin, to protest proposed cuts to their retirement and health benefits. At one point there were as many as 40,000 aggrieved banner-wavers in and around the building, stomping up and down and chanting, “Kill the bill! Kill the bill!”

As far as we can tell, the whole thing is really a kind of sideshow. There’s a much bigger circus in town. For one thing, people in Madison are fighting over money that doesn’t exist. It’s already been spent, in other words. The bill to which they were referring was one introduced by Wisconsin Gov. Scott Walker and his fellow state republicans. At best, according to their own calculations, it would scrape $300 million from the state’s budget deficit. Most of that will come out of state workers’ pockets. That may sound like a lot…until you look at the numbers.

Walker proposes they pay $3,300 more for their health care and pensions, a move that would reduce the average public sector salary from $48,000 to $44,700. But Wisconsin faces a $3.6 billion budget deficit. Walker and his ilk would have to increase the size of their cuts eleven-fold in order to balance the budget. That means lowering the average wages of public servants to about $12,000 per year. Good luck! One report we saw puts the average yearly compensation for a Milwaukee public school teacher – including salary and “fringe benefits,” at $100,005 in 2011. It ain’t gonna happen, in other words.

As events in the Middle East have recently demonstrated, revolution is a catchy tune. One state starts whistling it and, pretty soon, next-door neighbors start getting all sorts of funny ideas in their heads.

“Hey, maybe we should overthrow our own government,” says one man.

“Maybe we’ll storm our Capitol building too,” says another.

From the Mid East to the Mid West, rebellion is catching on. We don’t have any problem with a little old-fashioned uprising. It’s what keeps things entertaining. As far as we can tell, one side is just as bad as the other. Politicians are well employed to beat each other over the heads. We just wish they’d do it harder, with more lasting effects.

In any case, we can expect a whole lot more of this kind of shenanigans. Republicans now hold five of seven governorships in Minnesota, Wisconsin, Iowa, Illinois, Indiana, Michigan, and Ohio. Last year, they held two. Look for more lip-service budget-“balancing” policies from the one side…and more stampedes from the other.

But again, as we said, this is just the sideshow. States from coast to coast are facing budget shortfalls of a magnitude heretofore unseen, unfathomable, even. More than 40 states are in the red for a combined budget shortfall of $125 billion for fiscal year 2012. California is the worst, with a $25.4 billion hole to fill, more than seven times Wisconsin’s gap. Illinois comes in next with a $15 billion shortfall, followed by Texas with $13.4 billion, New Jersey at $10.5 billion and New York at $9 billion.

How did it come to this? As it turns out, the state is almost as costly as it is unnecessary. Monopolizing entire sectors of the economy with increasingly expensive, terminally inferior products and services is an expensive hobby, one that drains billions from the productive, private sector in the process. Still, like any boozehound looking for his next drop, it’s never enough to slake the state’s thirst. Ever larger and ever more costly does it grow.

According to figures from the Bureau of Labor Statistics, 22.5 million Americans, comprising 17% of the entire workforce, now work for the government. The average government employee makes $47,000 per year, while private sector workers pull down an average of $45,000. The average public sector employee pays $3,600 for healthcare. Construction workers, for comparison, pay an average of $4,100. Those in the services and retail industry pay $4,200. Only 20% of workers in the private sector have what are known as “traditional” retirement plans, compared with 79% in the public sector. And, while most private employees don’t get health insured benefits in retirement, 87% of public workers do.

As it expands, the state consumes more and more of the economy’s productive capacity, adding more and more to its debt load as it eats. And the fatter it grows, the more voters there are who have a vested interest in feeding the beast. Of course, this can’t go on indefinitely. In the end, it comes down to a simple question: your money…or your state?

Cheers,

Joel Bowman
for The Daily Reckoning

Joel Bowman

Joel Bowman is a contributor to The Daily Reckoning. After completing his degree in media communications and journalism in his home country of Australia, Joel moved to Baltimore to join the Agora Financial team. His keen interest in travel and macroeconomics first took him to New York where he regularly reported from Wall Street, and he now writes from and lives all over the world.

  • http://ronaldgrey.wordpress.com Ronald Grey

    The irony is that government is responsible for planting the seeds of rebellion, by feeding a growing beast with fiat money.

    See “Dismal Science (Part 2)”: http://wp.me/pZiAD-Na

  • JollyD

    1. Wisconsin’s public workers have already “made sacrifices to help balance the budget, through 16 unpaid furlough days and no pay increases the past two years,” according to the Associated Press. The unions know their members are going to have to make concessions on benefits, but they rightly see the assault on their fundamental right to negotiate as an act of war.

    2. There are already 13 states that restrict public workers’ bargaining rights and it hasn’t helped their bottom lines. As Ed Kilgore notes, “eight non-collective-bargaining states face larger budget shortfalls than either Wisconsin or Ohio,” and ” three of the 13 non-collective bargaining states are among the eleven states facing budget shortfalls at or above 20%.”

    3. This isn’t just about public employees. What even a majority of the protesters don’t know is that Walker’s law would also place all of the state’s Medicaid funding in the hands of the governor. State senator Jon Erpenbach, D-Middleton — one of the Dem law-makers who fled the state to block a vote on the bill — told local media that this amounted to “substantial Medicaid changes” that put “the governor, all of a sudden… in charge of Medicaid, which is SeniorCare, which is BadgerCare …and he has never once said what he intends to do” with those programs. But the provision led journalist Suzie Madrak to conclude that “the end game for all this is to defund state Medicaid programs and make it impossible to serve as part of the new health care safety net.”

    4. Health-care costs, rather than workers’ greed, are what has driven up the price of employees’ benefits. But generally speaking, those public sector health-care costs have grown at a slower clip than in the private sector.

    5. Public employees’ pensions account for just 6 percent of state budgets.

    This has nothing to do with the state’s fiscal picture. Aside from potentially undermining Wisconsin’s public health-care system, it’s really about destroying the last bastion of unionism in the American economy: public employees. As Addie Stan wrote on AlterNet’s front page:

    Walker is carrying out the wishes of his corporate master, David Koch, who calls the tune these days for Wisconsin Republicans. Walker is just one among many Wisconsin Republicans supported by Koch Industries — run by David Koch and his brother, Charles — and Americans For Prosperity, the astroturf group founded and funded by David Koch. The Koch brothers are hell-bent on destroying the labor movement once and for all.

    Consider these facts:

    6. Last year, more working people belonged to a union in the public sector (7.9 million) than in the private (7.4 million), despite the fact that corporate America employs five times the number of wage-earners. 37 percent of government workers belong to a union, compared with just 7 percent of private-sector employees.

    7. Whether in the public or private sector, union workers earn, on average, 20 percent more than their non-unionized counterparts. They also have richer retirement and health benefits — the “union compensation premium” rises to almost 30 percent when you include those bennies.

    That workers can still negotiate from a position of strength somewhere in the US is simply unacceptable to the right, and that’s what this is about. As you might expect, the tool they’re using in their campaign is a pack full of lies and distortions about public employees. Here are some answers to those falsehoods:

    8. Public sector workers have, on average, more experience and higher levels of education than their counterparts in the private sector (they are twice as likely to have a college degree).

    9. When you adjust for those factors, they make, on average, 4 percent less than their private-sector counterparts.

    10. Like any group of workers with a high union density, they have better benefits, on average. But even including those benefits, state and local employees still make less in total compensation than they would doing the same work in the private sector.

    11. In 2007, the average pension for a public sector worker was $22,000. Not exactly caviar dreams.

    12. Many public employees are not eligible for Social Security — those pensions, and whatever they can put away on their own, is all that they’ll have in their golden years.

    (Unless otherwise indicated, you can find links to the data for all of the above in my piece, “Right-Wingers Using Public Employees as 21st-Century Welfare Queens.”)

  • GM

    This really isn’t a problem for us at the government – not going to prison for tax evasion has been in high demand since the beginning of civilization. It’s a can’t fail business plan, you people will pay almost anything for it.

    http://youareproperty.blogspot.com/2010_12_01_archive.html

    My salary and fat pension will be there, you people will make sure of that.

  • Woody DeBris

    Governemtn workers have no concept that the money to pay them has to come from taxing someone. Of course, maybe their right. The government is just creating it ex nihilo now…

  • http://cdritzel@comcast.net Dan

    Does anyone else find it funny that this site endorses illegal aliens, who get free health care, education and food stamps, yet thinks that goverment workers making 2K a year more than the private sector is ruing the country.

  • John Johnson

    The media has been down playing the number of protesters in Madison, Wis. The police estimated 70,000 one day last week. More are expected Monday because it is a “furlough day” (unpaid day off) for state employees. Protesters were out all over the place on Saturday, 2,000 in Green Bay alone.

    The governor may be crying about his budget now. But it didn’t stop the Teabaggin’ scumbag from giving his corporate sponsors $117 million in tax cuts in early January 2011.

    The Virginia based Teabaggers are sending in bus loads of people to support the governor. That could make for an explosive mix. We shall see. The MSM has done a very poor job of covering this story.

    The governor doesn’t seem to care about the financial numbers. He was handing out tax breaks to his corporate sponsors early in January. Now he is crying about a deficit. It is all about union busting. The unions mostly favor the Dems, and Karl Rove was bragging on TV recently how there are 600,000 fewer union jobs now than there were 2 years ago.

  • Wes

    Whoa Dan Hold your horses and get your facts straight. I can only guess that you watch a good bit of Fox news or MSNBC and talk radio, and therefore you might believe that anyone who wants TRUE limited government and freedom for all of mankind MUST also want “illegals” (why don’t you just say what you really mean Mexicans) to flood the USA, and then to give them all the free health care, education and food stamps they could ask for, right?

    I know that the insane logic of the MSM can be very confusing, it is much like Orwell’s Newspeak.

    (For any that don’t believe me just listen to ten mins of Beck, Hanity, Maddow, Mathews, or Lou dobbs nonsensical rants)

    How, you wonder, can they tell you one second how they want “more freedom” all the while encouraging the imprisoning people for smoking a plant, or screaming to build berlin wall style fences and force national ID cards, or allowing the TSA to fondle your wife and daughter, or stealing your hard earned money (taxes) and giving it to banks or unions or big corporations, and they insist that we bomb and invade foreign nations who have never harmed us, and so the word “freedom” seems to be a confusing concept.

    Well fear not! The fine folks here at the reckoning stand ready to assist you in un-muddying your thoughts, all through the power of logic and reason! Once you begin to see that WAR is not in fact PEACE, and LIES are not in fact TRUTH, you will be on your way to a full recovery.

    You see, most reckoners do NOT think governmnet should be proving ANY of these thngs to ANYONE, either regular union thug, OR those wiley “Mexicans”, oldsters, or youngsters. But the fact that we DO provide all these crazy things and MORE to ANYONE and EVERYONE who forms a voting block and demands it, IS in fact why our nation is ruining itself. And in fact is currently hopelessly bankrupt.

    Stop trying to pull the silly right left KABUKI theater stuff here, we aint biting.

    We have long ago turned of the boob tube, and we laugh at the idiots on the big talk radio programs.

    We support freedom, personal freedom AND economic freedom, for ALL humans, from the theft and violence of the state. We trust the people themselves to manage their OWN affairs, without someone threatening to tase them, shoot them or cage them.

    Keep on reading the reckoning and other sites like it and soon you too may come to love freedom AND understand how different real freedom is from the newspeak version.

    War is War, Lies are LIES, 2+2= 4, Double plus good!

  • Roland

    By the way, it’s worth mentioning that the countries with government-run healthcare pay LESS per head than those construction workers you mentioned.

    Government inefficiency ain’t nothin’ compared to the inefficiency of the enormous, all-devouring, private sector bureacracies in banking and insurance.

    The worst things done by the governments are actually caused by their incestuous relationship with the finance sector.

  • Louisiana Bob

    What has the cheese heads out in the street is the gov intends to strip them of their bargaining rights. He has threatened to call out the National Guard against them if they resist. The teachers have already agreed to the pay cuts but are refusing to give up their union.

    The corporate media here are as anti union as the Fascist government. There was much buzz over the week end but not a single union rep on the national telly.

    The real story here is the “Citizens United” ruling by the Roberts Court and the subsequent Koch brothers organized union busting nation wide. Class war has been raging here for many years but has been one sided. Labor has only now begun to resist.

  • jason

    Well, one thing about the protesters in Madison is that they are resigned to some pay cuts and/or paying more for insurance, pensions etc. They are mainly protesting the union busting tactics being employed by the new governor.

    I think that what is happening is that the whole economic way of life is coming to an end. Instead of stimulating the dead economic system, our leaders should be creatively proposing new ways forward…the idea that everyone needs to work 40 hours a week is over, but nobody knows it yet. Especially laughable is the idea that we need to raise the retirement age, because we can’t afford the retirees, yet where will all these people work when we don’t have enough jobs as it is?

  • chow

    John Johnson

    “The governor may be crying about his budget now. But it didn’t stop the Teabaggin’ scumbag from giving his corporate sponsors $117 million in tax cuts in early January 2011.”

    The corporations pays taxes and gives jobs that pays taxes as well. These are the taxes that pays the government workers.

    Roland said
    “Government inefficiency ain’t nothin’ compared to the inefficiency of the enormous, all-devouring, private sector bureacracies in banking and insurance.”

    The difference is private and public sector. The private sector pays taxes, the public sector receives the taxes. A private sector can be inefficient all they want, it’s their money they’re losing. Public sector if inefficient is spending other peoples money.

  • not_harry

    $117 million in corporate tax cuts, says activist J.J. Yawn.

    How large is the WI budget shortfall, and where does the state generate most of its taxes? Sales taxes, perhaps?

    Just shut down all those dirty, greedy WI corporations. Tax the bejeezus out of them. Y’all will end up working for the state anyway, or selling peanuts and beer at Lambeau.

  • Fubar

    re: “The worst things done by the
    governments are actually caused by their
    incestuous relationship with the finance
    sector.”

    That sounds like something President Andrew Jackson might have said.

    The problem is state-capitalism, and corporate welfare.

    more:

    “…the Koch brothers have made a fortune maximizing their subsidized business assets, seeking out business ventures that have directly benefited from the same big-government policies that they supposedly deplore. On top of the $100 million in government contracts Koch Industries has received since 2000, the company profits from $123 million a year in natural gas subsidized by socialist revolutionary Hugo Chavez through its stake in a state-run Venezuelan fertilizer plant; milks a New Deal-era program that rents out grazing land to ranchers basically without charge; uses public forests as if they were private tree farms for their paper and pulp operations; and, most damning of all, employs the “tyrannical” government power of eminent domain to seize private property from average American citizens to lay oil and gas pipelines for their own personal profit.”

Recent Articles

The Next Car You Buy Will Be an Electric Car

Stephen Petranek

Electric cars are proving to be far cheaper to operate than anyone could have guessed. In fact, many people are now just getting the equivalent of thousands of mpg to their electric cars. And that's presenting a unique profit opportunity. Stephen Petranek explains...


A Treasure Chest of “Secret” Buy Signals

Paul Mampilly

The world's most successful investors almost always think differently. That's nowhere more apparent than when you're trying to invest in health care. Today, Paul Mampilly - one of the world's top biotech analysts - reveals one "secret" for making money from a predictable cycle in the industry. Read on...


Natural Gas: How to Stay Warm (and Profit) This Winter Season

Greg Guenthner

Right now, the city of Buffalo, NY is covered in five feet of snow. And while that may be bad news for those poor folks, it could be good news for you. Because now that another harsh winter is upon us... you have a massive opportunity for quick double-digit gains. Greg Guenthner explains...


Tip of the Day
3 “Dirty” (and Sexy) Ways to Boost Your Health Tonight

Chris Campbell

Warning: The following article is not for the puritanical. Today, Chris Campbell shows you three "dirty" health boosters you can use tonight to raise your immune system... improve your outlook on life... and make your partner a happy camper. Read on...


The Shock Doctrine: When Order Trumps Personal Freedom

James Rickards

When some event - be it a terror attack, financial panic or natural disaster - upsets the status quo, people are more willing to relinquish their freedom in favor of a greater sense of security. And that's when ambitious political leaders make their move... And as Jim Rickards explains, another such event could be right around the corner. Read on...