Philip Greenspun thinks it might be a good idea to send all of America’s economists away for a few years:
In reading opinions regarding the U.S. and state economies from professional economists and in talking to these folks face-to-face I’ve never heard any of them say anything clear enough for a voter to act upon. For example, suppose that the U.S. owed 800 percent of GDP, like Greece (see this NY Times article (the U.S. figure is around 500 percent, though we’re not as centralized as European countries and there is almost surely a lot of state-to-state variation)). An accountant would say “You’re spending more than you earn. You have to stop or you will run out of money.” After hearing that, voters and politicians might be able to get together and agree on some spending cuts (not the trivial ones that they’ve managed so far). Perhaps even Californians would be able to agree that their cities could be run into bankruptcy just as competently by managers who earned no more than the President of the United States earns, that a qualified fire chief could be hired for only the same salary as the U.S. Secretary of Defense, and that a police lieutenant need not receive 3X as much as a U.S. Army infantry lieutenant in combat in Afghanistan.
Instead of accountants in public discourse, however, we have economists. So our problems are not recognized as arithmetic challenges, e.g., “How can a society with a median wage of about $16 per hour afford to pay local and state government workers $100-200 per hour (and then pay them for another 50 years after they retire)?” or “How can teenagers who score lower than their Chinese counterparts on every measure of educational attainment be relied upon to pay for 130 million poor and older Americans to receive unlimited medical services in the world’s most expensive health care system?”
June 9th, 2011 | 1:36 pm
“How can a society with a median wage of about $16 per hour afford to pay local and state government workers $100-200 per hour (and then pay them for another 50 years after they retire)?”
Um, we don’t generally pay state and government workers $100-200 per hour. That translates to $200K-400K per year, give or take.
In any event, the relationship between average private sector wages and average public sector wages is meaningless. The work that gets done in the private sector is not the same as the work that gets done in the public sector, and so we shouldn;t expect the labor markets for the two to be comparable. True, if a janitor in a government building makes $15 an hour while a janitor in a private building makes $10 an hour we might conclude that the public sector is “overpaid.” But how do you draw comparisons between a private sector factory worker and a public sector firefighter? Between a private sector HR clerk and a public sector health department inspector.
June 9th, 2011 | 1:40 pm
Maybe as a start we could nail this Dickens quote up in a prominent place in the Capitol Building:
“Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”
June 9th, 2011 | 1:40 pm
I’d settle for having the politicians go away for a few years…
June 9th, 2011 | 3:54 pm
Mr. Hillsman,
I have but one improvement on your comment, namely, change “years” to “decades.” Of course, even then, we are left with the adopted legislative residue of the past century, which includes:
• the replacement of commoditized money with fiat currency;
• the replacement of equality before the law with a variety of legalized discriminations (both for and against);
• the egregiously and unconstitutionally bloated Federal bureaucracy which drains our national productivity at least as much as any outsourcing.
So, perhaps my improvement is not such an improvement after all.
Keith Töpfer
June 9th, 2011 | 6:32 pm
I wish we had all these Republican deficit hawks around when Reagan, Bush 1, and Bush 2 were in office.
June 9th, 2011 | 8:21 pm
As long as they’re not Wall Street accountants. Those guys are a little too ‘creative’ and will get us to the same place as the economists.
June 9th, 2011 | 8:37 pm
I’d argue that if it weren’t for the state workers, we’d be seeing a much worse economic situation. State jobs are one of the last areas where an unskilled worker can make a salary enough to live on. If they were at the level of comparable private sector jobs we’d be a nation of $10 an hour people.
June 10th, 2011 | 12:26 am
Dblade: I confess that I’m completely stumped as to whether you’re joking or entirely serious. I mean, your words are so absurd and crazy that surely you must be joking, but your delivery is such that it appears you’re completely sincere. Please please please tell me you’re kidding and just have a very dry wit, and reassure me that the world is still somewhat sane.
June 10th, 2011 | 9:30 am
We don’t *generally* pay local and state government workers $100-$200 per hour, but we *do* pay some of them that. That’s the point.
Dblade — no economy can afford to pay unskilled workers a comfortable living wage, because their lack of skills insures that they’re not producing the value of a comfortable living wage. That fits right in with the point of the article — economic theories are nice, but when it comes down to it, if you’re paying more than you can afford for something, no matter how nice that something is, you go broke.
June 10th, 2011 | 1:02 pm
Jeremy, I don’t disagree with you, but I think you’re being a bit unfair to Reagan. His military buildup was necessitated by nearly a decade of neglect after Viet Nam (even Carter, at the end of his term, recognized that reality), and he did what he could to cut domestic spending in the face of a Democratic congress, a liberal media that spun every attempt at cutting as throwing widows and orphans out in the snow, and the collective drooling, mouth-breathing moron that is the American public, who love spending cuts as long as no one touches _their_ gubmint goodies.
June 10th, 2011 | 10:37 pm
I had a comment but have completely lost it after reading Fred’s final words about “gubmint goodies.”
June 11th, 2011 | 10:35 pm
Great quote, Brian. Wilkins Macawber, I believe? Of course he ended up with a great ‘state job’ as a mayor in Australia where he did what he was best at, make toasts!
Two things:
Economics, social science or real science?
Secondly, one of the most sobering and freeing lessons of adulthood: If you can’t afford it, you can’t have it. Simple.
June 14th, 2011 | 2:18 pm
pentamom
We don’t *generally* pay local and state government workers $100-$200 per hour, but we *do* pay some of them that. That’s the point.
Then its a stupid point, akin to saying some people who buy lottery tickets for $1 walk way with a $10M prize….how could the lottery system ever make money? Well yes but the cost of the lottery prizes has to be compared not just to what the few winners paid but what the millions of losing players paid.
Likewise stories about 20-year pensioners retiring on full pay for life have to be offset with the true average cost of the workforce.
I don’t mind having a little bit more accounting in economic discussions, but let’s get real accounting. For example, the figure that the US owes ’500% of GDP’ isn’t comparing our current actual debt to our actual GDP but our future projected obligations to our 2004 GDP. That’s roughly akin to taking a 24 yr old who makes $40,000 a year with a debt of $20,000 and telling him his current debt is 50% of income. So far so good. But then telling him when he’s 34 he’s going to borrow $200,000 to buy a house and by 54 he’s going to borrow another $100,000 to send his kids to college therefore his ‘future obligations’ are $300,000 which is 7500% his current income! Heavens! If you really think this is useful at the very least you should be comparing debt incurred over several decades to cumulative income earned over several decades.
June 15th, 2011 | 6:54 pm
It’s not a stupid point if the it’s being used to say merely that we can’t afford to pay *any number of people at all* salaries like that, because we. are. simply. broke. It’s just a reasonable point in that case.
It’s only a stupid point if someone’s trying to give the impression that such salaries are somehow typical. But I’ve no reason to believe anyone was doing that.
June 15th, 2011 | 6:58 pm
I’m not sure your 24 year old analogy works. The 24 year old is in no way guaranteed to earn a higher wage when he’s 35, 40, and 50 (though it’s not an unreasonable assumption if he is appropriately educated and competent), but then neither is he obligated to buy a $200,000 house or borrow money to send his kids to college. Many people do neither.
However, unless specific actions are taken, the U.S. government *is* obligated to incur certain debts in the future. Those are decisions that have already been made, so it is not unreasonable to treat them as projected obligations. And unless you have some way of guaranteeing that the national “salary” will rise commensurate with our future obligations, I don’t see why it’s unreasonable to compare current GDP with future obligations.
June 15th, 2011 | 10:44 pm
It’s not a stupid point if the it’s being used to say merely that we can’t afford to pay *any number of people at all* salaries like that, because we. are. simply. broke. It’s just a reasonable point in that case.
But we can pay some number of people like that. Consider an example Gary Manikow wrote about some time ago, lifeguards in his community can retire after ‘only’ 20 years on full salary. Well granted CA has year round beaches open so professional lifeguards, that seems pretty good….too good to maintain. But how many lifeguards make it the full 20 years? If only one out of three hundred do so, then no we aren’t ‘broke’ and even if we are it’s not being caused by retiring lifeguards.
It’s only a stupid point if someone’s trying to give the impression that such salaries are somehow typical. But I’ve no reason to believe anyone was doing that.
But they are, if you’re spending too much you have to cut where the *spending* is. A teacher with 25 yrs experience may be very expensive both in pay and pension, but if 50% of your teachers never clear 10 years then most of your salary budget won’t be going to such teachers hence the purpose of harping about them is to give an impression that the salaries are typical and to stroke a type of class warfare.
However, unless specific actions are taken, the U.S. government *is* obligated to incur certain debts in the future. Those are decisions that have already been made, so it is not unreasonable to treat them as projected obligations.
Look behind these projections. For example CBO projections assume that current spending in the Afghanistan war will simply continue as is *foreever*. In fact many deficit reduction proposals start out with an ‘easy’ half trillion to trillion in savings by just assuming that Afghanistan will wind down in 5 yrs or less. Social Securities projections are pretty reliable….we know pretty well how many 70 yr olds there will be in 2030 so just multiply that by the monthly SSI check to get spending on SSI for 70′s yr olds. Medicare projections, though, are hogwash. They look at how medical costs have grown over the last so many years (faster than most everything else) and assume that rate of growth will remain constant into the future.
But funny things happen when you insist on straight lining curves. Look at Medicare D. It was projected to cost a lot. Why? Because drug costs went up quickly in the 90′s. But it didn’t cost as much. Why? Because fewer new blockbuster drugs were discovered in the 2000′s and the expensive premium drugs of the 90′s started going generic. If someone told you in 1975 that in 25-35 years the average person would spend nearly $100 a month on TV (“how can that be? its free over the air!”) but be totally uninterested in long distance telephone service because almost everyone would have some type of ‘unlimited minutes’ plan and almost never have to buy printed checks from the bank because bill pay would make it typical to go through maybe two checks per year at most…..well they’d tell you you’re silly.
I’m not saying the projections don’t have a use….they do just as the 24 yr old puts money in his 401K because he ‘projects’ retirement at 65 (but he may die of cancer at 29!). But its important to understand at a very fundamental level the reality of those projections are less real than they appear
And unless you have some way of guaranteeing that the national “salary” will rise commensurate with our future obligations, I don’t see why it’s unreasonable to compare current GDP with future obligations.
The 500% figure isn’t assuming the national salary won’t rise, it’s looking at a single year (2004)! It’s like asking the 24 yr old to consider the $300,000 he will borrow in the next 20 years while at the same time assuming he will work only in his 24th year and then loose his job and never earn another dollar again!
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