Mark Thoma, Economist's View, EPI: STate and Local Public Employees Undercompensated, Sept. 15, 2010
Part of the rhetoric that has been circulating these days about the need to "starve the beast", even at local and state government levels, is a view that we are wasting money on overpaid public employees, especially their pension plans and health benefits. Spewed hatefully on the Washington Post's comment site I've seen statements that every problem can be solved by cutting taxes to 15% for everybody (or taxing only "uses") and then cutting public employees' benefit to nothing since they are overpaid. The anti-government venom is clearly irrational and not based on any understanding of how government works, what life would be like without those state employees, or how hard most public employees work for their lower pay. [Disclosure--I am a state employee with a decent pension plan and decent health benefits.]
Of course, it is true that many states have underfunded their pension plans for their public employees. But this does not mean that the employees are overpaid or the goals for the pension plan funding were too high. It merely means that states have done what many imprudent individuals do--spent the money on something else rather than set it aside to meet the obligations that the state committed to with respect to its employees.
The Economic Policy INstitute finds that public employees at the state and local level are undercompensated compared to their peers in private employment, including the promised benefits (which, of course, some may not receive because of the push by the right to cut public pensions).
To quote the post: "The report, Debunking the Myth of the Overcompensated Public Employee: The Evidence by Labor and Employment Relations Professor Jeffrey Keefe of Rutgers University, finds that, on average, state and local government workers are compensated 3.75% less than workers in the private sector. "
James Maule, The Consequences of Tax Education Deficiency, Mauled Again, Sept. 15, 2010.
My fellow tax professor Jim Maule hits on a topic that is dear to my heart--the staggering amount of misinformation about tax that is circulated in the blogosphere, newspapers, radio shows, and television "news" commentary. He suggests much of it is intentional misinformation that is disseminated in an atempt to fool people in supporting positions that they would not support if they were fully--and accurately--informed. Here's his final paragraphs:--I think the answer to the question of "who benefits" must be the people whose policies are furthered by the misinformation, and no one else.
It is easy to figure out why the purveyors of tax nonsense do so. Political gain means more than does truth, honesty, or integrity. It’s not stupidity or laziness on their part. They know the facts, and they consciously twist the information because the twisted material has positive value for their agenda whereas accurate information will wipe out any realistic chance for political success. It also is easy, for me, to determine why the dissemination of tax nonsense works. As I pointed out in Tax Education Is Not Just for Tax Professionals:It’s obvious that too few Americans understand enough about tax law or finances. It’s also obvious that one of the reasons is that insufficient funds are provided to educate the nation’s children about these things as they move through its school systems. . . . . If the nation continues to resist paying for quality education of its children, it will soon become a nation of the ignorant.
Who benefits when the country is a nation of the ignorant? The answer to that question explains much more than what fits in a four-paragraph blog post.
Yves Smith, Why do we keep indulging the fiction that banks are private enterprises, Naked Capitalism, Sept. 15, 2010.
Yves notes the problem that the Dodd-Frank bill doesn't do enough to head off another financial crisis (as I've said here before, banks remain too big to fail, banks are still permitted to own hedge funds and private equity funds, with some restrictions that don't amount to enough, and banks continue proprietary trading under the guise of customer preparation and derivatives transactions--well, naked credit default swaps are still possible). So we are hoping for an assist from Basel III, the revision of the internationally agreed regime for regulating banks.
But Basel III doesn't go far enough either. It's a weakling when a giant was needed, though the banks as usual will pile on with whining about how these new rules will cripple their profitability and hence restrict lending and hence doom the global economy. As Wolf (the criticizer of the Basel rules linked by Yves) notes, tripling the size of required capital reserves "sounds tough, but only if one fails to realise that tripling almost nothing does not give one very much." Besides the delays in our own bank reforms (years for the banks to speculate themselves into another crisis, the Basel III reforms won't be fully implemented for another decade, plenty of time for "another crisis or two."
Here's a great paragraph from Wulf (with highlighting by Yves).
We cannot assess the costs of regulation without recognising a few facts: first, both the economy and the financial system have just survived a near death experience; second, the costs of the crisis include millions of unemployed and tens of trillions of dollars in lost output, as the Bank of England’s Andy Haldane has argued; third, governments rescued the financial system by socialising its risks; finally, the financial industry is the only one with limitless access to the public purse and is, as a result, by far the most subsidised in the world.
You should read the full post to see what Yves does with the highlighted phrase, but here's a sample.
The usual narrative, “privatized gains and socialized losses” is insufficient to describe the dynamic at work. The banking industry falsely depicts markets, and by extension, its incumbents as a bastion of capitalism. The blatant manipulations of the equity markets shows that financial activity, which used to be recognized as valuable because it supported commercial activity, is whenever possible being subverted to industry rent-seeking. And worse, these activities are state supported.
So, the reality is that banks can no longer meaningfully be called private enterprises, yet no one in the media will challenge this fiction. And pointing out in a more direct manner that banks should not be considered capitalist ventures would also penetrate the dubious defenses of their need for lavish pay. Why should government-backed businesses run hedge funds or engage in high risk trading, or for that matter, be permitted to offer lucrative products that are valuable because they allow customers to engage in questionable activities, like regulatory arbitrage? The sort of markets that serve a public purpose should be reasonably efficient and transparent, which implies low margins for intermediaries.