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Economic Nonsense From the Washington Post

Economics / Economic Theory Oct 09, 2010 - 10:49 AM GMT

By: Mike_Shedlock

Economics

Best Financial Markets Analysis ArticleThe only genuinely good news in Friday's jobs report was the much needed shedding of 159,000 government workers of which only 77,000 were temporary census workers.

Shed another million government workers and you have a small start as to what needs to happen. Some don't see it that way, including Erza Klein at the Washington Post.


Assuming you are able to stomach still more Keynesian claptrap please consider Welcome to the anti-stimulus

The good news: The private sector gained 64,000 jobs in September. The bad news? The public sector lost 159,000.

The government is now impeding an economic recovery. But it's not for the reasons you often hear. It's not because of debt or because of taxes. Nor has it scared the private sector into timidity. It's because, at the state and local level, it's firing people. There are more than 14 million Americans looking for work right now -- to say nothing of the 9.5 million who have been forced into part-time jobs when they want, and need, full-time work -- and the government just added 159,000 more to the pool. Consider this: If we only counted private-sector jobs, we'd have had positive jobs reports for the last nine months. As it is, public-sector losses have wiped out private-sector gains for the past four months.

Because the federal government has decided against backing up state and local governments, the bleeding continues, and that scares businesses away from investing in recovery. We create the stimulus that helped the economy survive 2008 and 2009, and we've created the anti-stimulus that's keeping it from recovering in 2010.

Keynesian Claptrap At Its Finest

Gee, if only the government would hire everyone, there would be no unemployment.

Then again, countless cities, counties, municipalities and states are bankrupt because of absurd levels of spending.

Isn't that what wrecked Greece?

Non-Solution #1- Raising taxes

Raising taxes burdens ordinary taxpayers for the sole benefit of government bureaucrats who like most of the rest of the population ought to be thankful they have a job at all.

Non-Solution #2 - Printing money and giving it away

Ezra is clearly a fan of printing money and giving it away to government bureaucrats so the unemployment rate does not drop.

However, printing money and giving it away cheapens the US dollar, making goods and services more expensive, especially commodity prices. Rising commodity prices in the face of weak demand for nonessential goods is hardly an inducement for small businesses to go on a hiring spree.

Moreover, salary and benefit levels of government employees compared to the private sector are massive, unjustified, and extremely damaging economically speaking.

No Better Time than the Present to Kill Government Jobs and Benefits

Giving states free money just to keep public workers employed delays a much needed realignment of government wages and benefits with that of the private sector. Some might argue this is not the time for it. However, such thinking is foolish.

States are in this mess because of unsustainable spending, and pension promises. Pensions alone are a $3 trillion problem. Please see Interactive Map of Public Pension Plans; How Badly Underfunded are the Plans in Your State? for details.

It is axiomatic that the cure and the disease cannot possibly be the same, so throwing money at the problem cannot possibly be the solution.

There is no better time than the present to get rid of government workers and lower pension benefits. Kicking the can down the road solves nothing.

Greece and Spain put off tackling the issue of public sector wages and benefits, and look what happened to them. Ultimately the bond market imposed its own (badly needed) solution. We can either take care of this mess now, or suffer a similar fate later.

Deficit Spending Unsustainable

Deficit spending is unsustainable. Unfortunately it is rising because of Keynesian clowns who have learned nothing about the lessons of Japan or Greece, insist it is not a problem. Yes, Japan has not blown up yet, but it will. We just do not know when.

Japan has squandered all of its surplus building bridges to nowhere and other nonsensical things. It now has a debt to GDP of 200%, highest in the G-20.

All it takes for this to be a major, major problem is for interest rates in Japan to rise a few percent. When that happens, (and it will), it will take all of Japan's tax revenue, just to pay interest on the national debt.

I believe 7th graders can easily understand the problem of deficit spending even if Noble Prize willing economists and other clowns can't.

Scrap Davis-Bacon, It's a Real Porker

Without a doubt states need to get a grip on finances. The correct solution is to reduce pay and benefit levels of government workers, privatize anything and everything that can be privatized, and scrap the Davis-Bacon Act along with all prevailing wage laws.

Davis-Bacon ensures that taxpayers pay the most for the least amount of work. The goal should be to get projects completed at the least cost to taxpayers.

For more on prevailing wage laws and the enormous inefficiencies they create, please see Thoughts on the Davis Bacon Act

Tunnel of Idiocy

Krugman calls the possible cancellation of a second tunnel connecting New Jersey and New York by governor Chris Christie a Tunnel of Idiocy.

The merits of the project can be debated all day, but what is not debatable is large cost overruns on every such project on top of huge initial cost estimates in the first place.

The reason for these high cost estimates and the inevitable overruns has everything to do with union salaries and prevailing wages.

Want that tunnel? It's simple. Scrap Davis-Bacon. There would be a line 20 miles long for those construction jobs if you did, and the job would come in on-time and under-budget.

Firing Public Union Workers Creates Jobs

This might sound strange until you think it through, but Firing Public Union Workers Creates Jobs.

Public unions in New Haven, Connecticut have not yet gotten the message that business-as-usual no longer flies. I am quite happy with that because the city responded by dumping public workers and privatizing services, and that is exactly what needs to happen.

Rebuttal to Union Complaints

Public union custodians argue that privatization would lead to lower wages, lost jobs, and wasted taxpayer money on costly management contracts.

Lower Wages: Let's hope so. The union workers are overpaid even if they cleaned the schools like they are supposed to do.

Wasted Taxpayer Money: No, that is a blatant self-serving union lie given the district saves at least two-thirds of the cost of using union-only labor, “and the work gets done.”

Lost Jobs: Not a chance. There will actually be more jobs as a result of getting rid of the unions.

How so? For starters, there will be an equivalent number of private jobs to replace the union jobs. Moreover, given the district saves 67% on cleaning costs, some of the saved money will be used on other school district needs, creating more jobs. Finally, some of the savings can be used to cut back on tax increases putting more money in the pockets of taxpayers who will spend it. That too creates jobs.

Every fired public union worker creates more jobs elsewhere, faster than most can imagine possible, quite possibly immediately.

Thus, a good way to deal with rising unemployment is to fire public union workers.

The one point I want to emphasize is getting work done for lower prices puts more money in the pockets of taxpayers who will make far better use of it than politicians who use taxpayer money to buy union votes. It also makes projects more affordable so more of them can be done for the same amount of money.

If pay scales are cut to match the private sector, the jobs can actually stay (or be privatized), AND taxes lowered at the same time.

Thus getting rid of government jobs is a win-win for everyone but the overpaid, ungrateful public union workers who always want tax increases to support their undeserved pay and benefit scales.

Who's Responsible for the Loss of Government Jobs?


The ultimate irony in Erza's post is that public unions are responsible for all the government job losses he is whining about.

In every state worker cutback instance that I have read about (dozens if not hundreds), public unions have resisted modest cuts in pay and benefits and instead have voted to cut jobs.

Thus, public unions themselves are responsible for that modest loss in jobs.

Intuitively Obvious Printing Money Is the Wrong Solution

Even without the rock-solid case presented above, it should be intuitively obvious that printing money to retain overpaid government workers at the expense of everyone else is blatantly foolish.

However, for some inexplicable reason, it's obviously not obvious or we would not see such absurd recommendations from writers at the Washington Post and numerous other places, notably Paul Krugman at the New York Times.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2010 Mike Shedlock, All Rights Reserved.


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