The Daily Reckoning Weekend Edition
Sunday, February 20, 2011
Buenos Aires, Argentina |
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- Protesters take to the streets, from the Mid East to the Mid West,
- Government gone wild: Your money or your state,
- Plus, all this past week's reckonings, for your riotous reading...
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Joel Bowman, reporting from Buenos Aires, Argentina...
"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
P.S. Last week we began soliciting nominations for this year's Daily Reckoning Financial Darwin Awards: The State Edition.
We asked readers to tell us what idiotic, anti-business schemes their state and/or local government had concocted during the past year to ensure its inevitable demise.
"Stories of waste, ineptitude, incompetence and hairy-knuckled political escapades are all welcome," we wrote at the time.
We'll announce the winner in the next Weekend Edition, so please keep the emails coming: joel@dailyreckoning.com
Here are a couple to get started:
From Reckoner Jim in the Great Northwest...
"A couple of years ago, well into the State's fiscal emergency, Washington State decided to go ahead with plans to build a $250,000,000 building in the capital of Olympia.
"An independent study that was commissioned by the state just determined that the 2 departments moving into the building will only need less than 20% of the space.
"The state says don't worry because we will just rent the rest of the space out at $44 per square foot. Of course, there is a glut of commercial space and the most expensive space in the area goes for $33.
"The State says the space is worth the money because the building is very special and very green!
"Of course, struggling businesses will be glad to pay big premiums to be in a state palace.
"This is just one more example of this state saying we will do whatever we damn well please with the money we take from the taxpayers."
And from a little further South, here's Reckoner GJA...
"Louisiana is now considering selling off prisons and state office buildings to save money, then renting the facilities back from the purchasers. Keep in mind, this is happening after several years ago the State came up with the plan to build its own prisons and state buildings, instead of renting private facilities, as a means of saving money. Seems like one of the two plans must be wrong, huh?"
Reckon your state can do worse? Have a story of governmental waste from your neck of the woods? Please send your own nominations to us here: joel@dailyreckoning.com, or leave a comment on the Daily Reckoning Financial Darwin Awards: The State Edition homepage. We'll feature a handful of submissions in the days leading up to next weekend's announcement.
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| ALSO THIS WEEK in The Daily Reckoning...
Profiting from Rising Interest Rates
By Terry Coxon
In the fall of 2008, the Federal Reserve responded to the Lehman bankruptcy by igniting a rapid expansion in the US money supply. It did so because, by its lights, the immediate and obvious menace to the economy was a deflationary collapse – with one giant bankruptcy begetting another. The Fed went about the task without compromise; the monetary base more than doubled in less than a year, and the public's M1 money supply (checkable deposits plus hand-to-hand currency) jumped by 20%.
Lessons From Egypt For The American People
By Charles Kadlec
As I reflected on the demonstrations in Egypt and followed the news of the events that followed, it occurred to me there were two vital lessons for the American people that have been overlooked.
Two Investment Conclusions Regarding the Food Crisis
By Chris Mayer
Gaithersburg, Maryland
Last August, I was a guest on Russian TV, warning of another food crisis. Asked by the host which countries were most at risk, I gave him two: Egypt and Pakistan. Getting Egypt right was easy. It was and remains the world's largest buyer of wheat. Pakistan has a big import bill, too. Over the summer, massive floods destroyed many crops, quadrupling prices for staples like potatoes, onions, squash and tomatoes. There are two investment conclusions I draw.
Today's Best Investment...Rhymes With Pickles
By Gary Gibson
Baltimore, Maryland
A huge opportunity to hedge against both inflation and deflation is lying out there in the open. There are no transaction costs and right now there's even a built-in discount. But most people will never realize any of this. In 1933 President Franklin Delano Roosevelt signed Executive Order 6102, which made it illegal for US citizens to hold gold bullion.
The Food Crisis is a Dollar Crisis
By Dan Amoss
Jacobus, Pennsylvania
At this week's hearing on Capitol Hill, Fed Chairman Ben Bernanke demonstrated a lack of understanding about what causes inflation. His comments reflected a belief that GDP growth causes inflation. But true economic growth is production-driven, and adds to the supply of goods and services in the economy. True economic growth is not inflationary. Rather, inflation is driven by runaway government deficits and bloated central bank balance sheets. And right now, we have plenty of both.
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The Weekly Endnote: A special Daily Reckoning Financial Darwin Awards request goes out to residents of the state of California. C'mon, folks. Your state is $25 billion in the hole! Surely you've got a tale or two of governmental waste to share with the rest of us. Don't be shy, drop us a line here: joel@dailyreckoning.com
Oh yeah, and enjoy your weekend...
Cheers,
Joel Bowman
Managing Editor
The Daily Reckoning
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Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com
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