Unions, Rich People, Civil Discourse and the Budget

How’s THAT for a totally boring title? Here’s the deal:

A couple of years ago, I subscribed to The Economist, a weekly newspaper. They have an admittedly free market slant – that is – they are strong advocates for letting private enterprise function with as little regulation required. At the same time – they like data and they also cover most of the world. So –even though I don’t always agree – I learn a lot.

The first few times they wrote about public sector workers getting getting an unfair or too big slice of the pie – I was annoyed – I didn’t want it to be true. But their data is good – so – it’s hard to argue against that – the cost of public sector wages, benefits and retirement plans have grown at an astonishing rate.

Note: This doesn’t mean that public sector workers aren’t hard workers. And maybe they deserve all of those things – but the question that The Economist poses is “can we afford it?” And the answer is no, we can’t.

I’ve been having an interesting conversation on Facebook – pretty civil, too. I wondered if thinking that the public sector workers in the Wisconsin hoopla should start negotiating (and if wondering if they were getting too good a deal made me a bad human).

Friends who are teachers wrote to talk about how hard they work (and I agree that they work hard). Folks who are in unions wrote to tell me that we have the 40 hour week and other good things because of strong unions (and I agree with that, too).

And other folks wrote about budgets, corporations, taxes and the like. Pretty interesting.

I think (but can’t prove) that there are 4 things that have contributed to the problem – and no one wants to talk about all of them as a piece. Far easier to talk about just one, but not the rest – and I think that leads us to polarization.

1. Huge tax shifts and cuts. I know it seems like we’re paying more in taxes, but we aren’t, at least not to the Federal Government. Tax rates are at an all time low for both individuals and corporations. On top of that – corporations are paying far less than ever. They used to contribute close to 70% of the federal budget, while individuals contributed the rest. That number has been inverted – individuals now supply most of the income to the federal government.

2. Huge wealth transfer. The Economist wrote about this lately – and pretty measured, although I think they also missed the boat. Although they noted that the very wealthiest 1% have far more wealth – they opine that they earned it by being smart and hard working. I agree – but I also know that most of the people they mention had a huge head start. I’m not one of those 1% – but – I went to great public schools, my parents found a way to afford great private high schools and colleges, and I grew up in a place with great roads, transportation, and public services. Those sorts of head starts matter. (I could go on here, too, about executive compensation. There isn’t ANY data to support a correlation between paying a CEO more money and the company performing better. But you can look to those CEO’s when exploring that huge wealth transfer. (Learn more about wealth transfer)

3. Corporations no longer fund pension programs. Oh –there might be a match of 2 or 3 percent. But buy and large –the private sector has shed their pension plans over the last 20 years, because they are expensive. (My gut check says that the funds went to already rich shareholders and those CEO’s – but I don’t have any data to support that. But a look at the gap between the lowest and highest paid worker, over time, tells some of the story. Up until 1960 or so – that gap was generally a factor of 40%. Today, it is well over 500%.

4. We misunderstand Social Security, Medicare, Discretionary and Defense Spending. Social Security (unlike Medicare) is largely solvent. It does need adjusting (up the retirement age a bit and so on) but it is working as intended. Medicare (which I support in theory) is not. It’s an enormous burden on our budget. And defense spending (we spend more in total that the other top 20 spending countries). So when you look at our federal budget – we can only afford 2 or 3 of those large  buckets with the amount of money we have. So – pick your favorite two – we don’t have the cash for the rest.

So – now what? Are teachers, cops, fire fighters, prison guards and City employees overpaid? Getting too much or too little of the pie? Are the top 1% to blame? Military spending? Medicare? Turns out – I think the answer is that ALL of those things are part of the equation. And it would be great if we could all work until we were 55 or so and then retire with a full salary from somewhere. But – doesn’t look like that is possible without adjusting, well – all of these things!


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