Friday, April 15, 2011

Why all this deficit stuff actually matters

In my post, On extending unemployment, I noted the difficulty of working with unemployment numbers, and based my discussion on employment numbers instead; there's no debate over how many are working. I noted that the Bureau of Labor Statistics showed that there were fewer people working today than in 1999. Evidently things have gotten worse since I wrote that.

According to the USA Today article, More Americans leaving workforce, "Only 45.4% of Americans had jobs in 2010, the lowest rate since 1983 and down from a peak of 49.3% in 2000. Last year, just 66.8% of men had jobs, the lowest on record." But what kind of jobs are being held by those who do have jobs? According to a Wall Street Journal article, We've Become a Nation of Takers, Not Makers, it's government jobs. "If you want to understand better why so many states—from New York to Wisconsin to California—are teetering on the brink of bankruptcy, consider this depressing statistic: Today in America there are nearly twice as many people working for the government (22.5 million) than in all of manufacturing (11.5 million). This is an almost exact reversal of the situation in 1960, when there were 15 million workers in manufacturing and 8.7 million collecting a paycheck from the government. It gets worse. More Americans work for the government than work in construction, farming, fishing, forestry, manufacturing, mining and utilities combined. (emphasis mine) "Every state in America today except for two—Indiana and Wisconsin—has more government workers on the payroll than people manufacturing industrial goods... Now it is certainly true that many states have not typically been home to traditional manufacturing operations. Iowa and Nebraska are farm states, for example. But in those states, there are at least five times more government workers than farmers. West Virginia is the mining capital of the world, yet it has at least three times more government workers than miners. New York is the financial capital of the world—at least for now. That sector employs roughly 670,000 New Yorkers. That's less than half of the state's 1.48 million government employees."'

Why does this matter? Public employees, while they pay taxes as individuals, are net tax expenses. If you combine public employees (22.5 million) with Social Security recipients (59.6 million), that's 82.1 million living off the taxes 108 million are paying... not counting poverty assistance programs, of course. Then we have to look at the 76 million Baby Boomers. I don't know how many of them are currently employed, but starting this year, and running for the next twenty years, they're all going to shift to the Social Security side of the ledger. That's in addition to the current 59 million. Now, yes, I know some of the current 59 million recipients will die before the Baby Boomers finish swelling the ranks, so the total living off the government will be less than 82 + 76 million; but then, the numbers of public employees will also go up starting in 2014 as the healthcare legislation takes effect. No matter how you figure it, in just a few years, there's going to be more people taking money from the government than paying into it. A LOT more. And despite knowing this day was coming, we haven't saved a single penny to pay for it.*

This means we're going to have to borrow money to pay even essential services, let alone SSI, etc. Banks who loan to governments look at the same thing they would in extending credit to a business or an individual: the ability to pay it back. And the biggest single factor in that equation is current debt load. As of right now, that's $14 Trillion... or as so many pundits like to point out, $45,000 for every man, woman, and child in the country. The problem is that banks know that every man, woman, and child don't pay loans back; people with jobs do. Private Sector jobs. If you divide the current national debt by the people actually expected to pay it off- the 108 million employed- that's $129,629 per taxpayer!

That's today. At the current rate of increase in the national debt, in just four years that will be $20 Trillion- $185,185 per taxpayer. The average income is about $35,000. Would you loan more money to someone who earns $35K and owes $185K? Yes; if his children, and his children's children cosigned the note- which is what it means to be a citizen of a debtor nation. But that banker, knowing full well that that kind of debt cannot be paid off in a single lifetime, will charge enough interest to make his money back just on the interest rates... and municipal bonds will begin to look like credit card statements instead.

But wait! We have the new budget cutting agreement just passed by congress- $38 Billion cut! That's a good start, right? Okay... a Trillion is just a Thousand Billion; let's drop a dump truck load of zeros, and pretend this was a small town council meeting with the state comptroller. First meeting, September 30, 2010:
Comptroller: It says here that your town is $14,000 in debt. How much do you collect in taxes?
Council: $2,000 per year.
Comptroller: And how much are you planning on spending this year? Council: $3,700.
Comptroller: (sigh) Go make some cuts- and remember, the budget is due tomorrow!

April 14, 2011

Comptroller: You've been arguing for six months! Have you made the cuts?
Council: Big cuts. Women and children will die. We're going to become a Third World village, but we know how important this is, so we made the cuts!
Comptroller: I'm Impressed! How much have you cut?
Council: $38. (shout from the back) And 50 cents! Don't forget the 50 cents! Right! Make that $38.50!
Comptroller: Which takes your $1,700 deficit all the way down to... Council: $1,661.50!
Comptroller: I see. And if you continue to make huge cuts like that, spending $38.50 less than the year before, the budget will be balanced in the year...
Council: 2374. Provided, of course, that in the meantime we have no new economic downturns, no new wars, or serious hurricanes, or terrorist incidents, or anything else of a disruptive nature...

Now some people would prefer to tackle this from the revenue side instead. Now surely, if we repeal the Eee-Viiile Bush Tax Cuts For The Rich (tm), that would balance the budget, wouldn't it? Make the millionaires pay their fair share? Well, no, actually; it wouldn't...

Look, folks, it's no longer a matter of whether cuts will happen; we no longer have time to tax our way out or grow our way out. The choices are: severe, painful cuts today of our own choosing, or devastating, draconian cuts by force tomorrow. And "tomorrow" no longer means some far-flung future; city and state munis are being de-rated by bond companies right now, and we're hearing the first hints that it could start to happen to federal bonds, too. Within just a few years, we could be paying junk bond interest rates for T-bills, which would make everything I've outlined above far, far worse.

*Don't talk to me about "Trust Funds", or "Lockboxes". Do you know what's in those "Lockboxes"? T-Bills. Treasury bonds are not funds. They are not money. What they are is a promise from the government that they will keep taxing us until they scrape enough money together to pay it off. That's what all your taxes have bought you- a promise that they will keep taxing you. That's all.


Will Shetterly said...

I understand a difference between commies and conservatives now. Why does it matter who's working for the government? The government can make wealth, just as business can; look at the WPA's creations. I'd just as soon have a closed system in which everyone was working for the government, so long as the government was doing good work.

Joel Monka said...

The government does not make wealth. The government makes money, but money is only the bookkeeping for wealth. Wealth is real things, wealth is things you eat, wear, drive, sleep in, etc. The only way government can make these things is to confiscate the means of production of them, or to start its own businesses in competition with private businesses (WPA)... which is hardly cricket, to make people pay taxes to buy their own competition!

Government can create jobs, after a fashion... for example, if the government were to outlaw self-serve gasoline, millions of filling stations would have to hire workers to pump the gas. But that would not create new wealth, it would only raise the cost of gas enough to cover the unnecessary new workers. It would be a kind of second-tier WPA, in a manner of speaking. But that would not help the economy; indeed it would drain money that might have been invested productively.

Will Shetterly said...

Our public parks and highways and museums and military bases and schools and hospitals are worthless? Things invented with government funding don't exist? I think you're just afraid of a Star Trek future. :)

Joel Monka said...

Lol... I'd love me some Star Trek future! I never said those things were useless; far from it. I said they were done in unfair competition with the private sector. Had all those things been put out for bid, with rules encouraging small and entrepreneurial businesses, there would have been long-term jobs created, not ad-hoc jobs that go away when the federal grant is done. Governments should decide things, oversee things, pay for things- but not do things. To have the government do its own work is like the brain creating its own mouth and stomach... stick to thinking, and let the stomach, which knows how to handle food, do its job.

Will Shetterly said...

What do you think of Medicare For All proposals?

Joel Monka said...

That the devil is in the details, as usual. One massive problem is that all the different medical care programs address only the issue of who pays... the much bigger problem no one is talking about is the growth of the cost, which has been at multiples of inflation for decades. A heart pacemaker- not the operation to implant it, just the gadget itself- costs as much as a Ford Focus. I want to hear what we're going to do about that before I decide who gets the bill.

Eruonen said...

The damned piper is calling and everyone is looking at their neighbor expecting them to pay the bill. We did not get into this state of economic disaster by being too conservative with our spending. This continual growth of government at all levels is the consequence of progressive / liberal policies advanced by both it entitlements like SS, Medicare or Agricultural subsidies. Eventually, liberalism - socialism, runs out of other peoples money.