Government Sponsored Bankruptcy

In the news tonight (on TV) are pictures from Greece, where the police are trying to keep an upper hand against demonstrators. What are the protestors so irritated about?

They’re protesting against ‘austerity’ measures. They say it’s unfair to cut a pensioner’s monthly check while paying the bankers 100% of what they were due. They’ve got a point. The government should cut them both.

This is a drama worth watching. Partly because it is fascinating. Partly because it is a coming attraction. It won’t be too long before the US is in the same position. So let’s watch carefully.

The Greek government committed itself to cut one of every 5 euros out of its budget. That means it has to cut back on ‘services.’

‘Government services’? Practically oxymoronic… You’re suspicious from the get-go.

Generally, the more services you get from the feds, the worse off you are. Prisoners in federal penitentiary, for example, can thank the government for everything, from the roof over their heads to their daily bread. Being a guest of the state is something you want to avoid.

Even when the government is providing services you actually want – such as delivering the mail – it usually does so with such clumsiness that they end up costing far more than they should.

“You know,” said Judge Andrew Napolitano on Saturday, “the government foreclosed on a brothel, here in the state of Nevada. Apparently, the owners didn’t pay their taxes. The Mustang Ranch, it was called. It had been a profitable business. Then, after the government took it over, it started losing money. It’s almost unbelievable. Only the government could lose money offering hookers and booze to truckers.”

To this story, Chris Hunter, our family office financial analyst, replied:

“This is a good story…but it’s an apocryphal one…

“The feds never ran The Mustang Ranch… The IRS just auctioned it off…

“The story comes from an email rumor that started circulating in 2008.”

Well, if the story isn’t true, it ought to be. We watched some public employees at work in Baltimore the other day. Four guys sat in a truck, with the motor running, while one guy walked lazily over to shovel something off the sidewalk. The city could probably fire 4 out of 5 of its employees and the city would work better. But the employees would pitch a fit.

“They’d complain that the poor would freeze and starve,” said a colleague. “They’d say that children wouldn’t learn to read, that the library shelves would be empty, and the traffic lights wouldn’t work and that murderers would walk the streets with impunity.”

“How’s that any different from it is now?” we wondered.

“Well, they wouldn’t say ‘impunity.’ Public employees tend to stick to shorter words. Besides, no one walks in Baltimore. Even with impunity. It’s too dangerous. You’d need to have a cop at your side. And I guess that’s the problem. If they fired the policemen there wouldn’t be a policeman to tell your wife and kids after you got shot and killed. Maybe they could send an email. If they knew how to use the Internet…”

Baltimore…Athens…Rome – almost all over the world, the story is the same. Public employees earn too much money. They get the best pensions. They get the best health care. They work little and get paid a lot.

In America, as in the rest of the world, they tend to earn about 30% to 50% more than workers in the private sector. And come a recession they don’t lose their jobs. They have powerful lobbies…and direct access to legislators. That’s part of the reason the Washington, DC area suffered much less in the downturn than other metropolitan areas in the US. The roads are still packed with shiny new cars. The restaurants seem to be as full as ever. Our area has million-dollar houses…with 2-bit politicians, lawyers and lobbyists in them.

Yes, they came to Washington to do good…and they have done very well.

Greece will default anyway.


Bill Bonner
for The Daily Reckoning

The Daily Reckoning