Archive for the ‘Economics’ Category
Since it’s Friday, a little levity is in order to prepare us for the weekend. So here, then, we present an Ode to the Candidates:
Little Ricky he don’t make no sense
Rotten grammar misplaced tense
Ran up the budget eighty percent
He’s part of Texas establishment
“Vote for Gore!” old Ricky said
Gotta wonder about that boy’s head!
“Illegals need to go to school!”
That Ricky’s such a tax and spend fool!
Little Mitt’s got a health care plan
For every woman child and man
But he don’t want you to have a choice
All slicked back hair and radio voice
Mitt says he’s a business man
But he’s just following daddy’s plan
From a family of politicians
Pampered lives oh so patrician
Mr Cain’s a fun pizza guy
He’s got a plan but it won’t fly
Put the tax in every store
Better load your wallet heading out the door!
Cause 9-9-9′s a catchy rhyme
But it’s 12-12-12 in no short time
Gotta love his delivery
But this ain’t pizza, can’t you see?
Dr Paul’s a Texan man
With a three year balanced budget plan
“The Constitution’s coming back!
End the Fed’s monetary attack!”
Cut a trillion in year one
But hold on folks, Mr Paul ain’t done
Ditch the Ed, Interior and HUD
Energy, Commerce and all the other crud.
Ms Bachmann’s got some solid points
Despite her time in all those tax lawyer joints
But her hero Reagan didn’t drink that tea
Raised taxes every year of his presidency
Think TEFRA was a good idea?
And massive spending every year?
Grow tax receipts by 8.2
Is that what Michele wants us to do?
Newt is full of bluster and bluff
And all the wonky policy stuff
Give him credit – he’s got good lines
But Newt my man you’ve had your time
“Personal mandate!” big Newt used to say
Until the tide went a different way
Now he’s peeking at Ron Paul’s lines
And damning the Fed – it New Newt times!
Thank you Sarah for sitting it out
Your spending in Alaska left us all in doubt
TV shows seem more your style
To stretch your fifteen minutes a mile
You really don’t belong in this ode
With “bridges to nowhere” and a dead end road
You’ve had your fun now keep on walking
There’s business at hand and the adults are talking
Rick Santorum gets just one verse
’cause “war war war” just makes things worse
Little Rick’s running out of cash
And that odd expression – I think he’s got a rash!
Huntsman – are you kidding me?
Stilted jokes ain’t comedy
Working for Obama has made you nuts
And where the heck are the budget cuts?
So which one’s going to take on Barrack
And put the country on a different track?
And send that man from whence he came
“Community organizing” seems more his game
’cause leadership ain’t his song to sing
Takes more than that “hopey changey” thing
One term it seems is more than enough
For “tax the rich!” and class warfare stuff
Guess we’ll see on that day in November
How many of his sins the people remember
“Spend! Spend! Spend!” is his rally cry
“Congress won’t do it – I can’t understand why!”
Should prove to be an interesting race
Keep making a mess or clean up the place?
Will forty-five get his four
And point forty-four to the exit door?
Dr. Ron Paul, one of the Republican Presidential nominee hopefuls, and currently averaging third place in recent polls (trailing Herman Cain and Mitt Romney), has released his economic plan, the “Plan to Restore America“.
The plan outlines significant changes to the United States federal government, and promises a balanced budget by Mr Paul’s third year in office, primarily by way of the elimination of the Department of Energy, the Department of Commerce, the Department of the Interior, the Department of Education and the Department of Housing and Urban Development, as well as significant cuts to the Department of Defense and Medicaid. No additional tax sources are proposed.
What is, perhaps, most striking about Ron Paul’s plan isn’t the reduced role of the federal government, but rather the significant reductions in spending required to balance the budget. The US federal government’s deficit, which President George W. Bush gave birth to, and which President Obama nurtured into an accelerated adulthood, is truly astonishing, in both its size and the rapidity with which it grew during the Obama administration.
Here’s a look US federal revenues and expenditures over the past two administrations, as well as the impact of Dr. Paul’s plan:
In the absence of significant budgetary changes, the United States federal government is on a dire path indeed: over 40% of all federal government spending is done with borrowed money; over one in seven US workers works for government of one level or another (by comparison, in bankrupt Greece, that ratio is one in five), which is more than the number of people working in manufacturing and construction combined; at the time Social Security was founded, there were thirty workers paying for each one retiree, while today that ratio is three to one (and nearing two to one); medical costs continue to rise more quickly than inflation (this is significant, because close to 70% of all medical spending in the US is by government).
Ron Paul’s plan begins to make some of those difficult choices which are increasingly becoming unavoidable, and further has one big advantage over most other plans presented by the GOP Presidential hopefuls: an even-handed approach which doesn’t single out special interests or seek to carve out exceptions for favored groups (by contrast, the floundering Rick Santorum started his attack on Herman Cain’s “9-9-9” tax plan at the GOP debate in Las Vegas Tuesday by suggesting that the federal government is obligated to subsidize certain groups of people in order to produce children – one of his pet causes which he feels the government should change the rules for. Most of the candidate (with the notable exception of Herman Cain) favor continuing the type of patchwork the current 72,000 page tax code employs: an extraordinary number of special exceptions for certain favored groups).
It will be interesting to see how the media reacts to Mr Paul’s proposal, which makes choices which return government spending to a level supported by government revenues, without increasing the source or scope of those revenues.
Tonight’s GOP debate in Las Vegas, Nevada, between hopefuls for the GOP Presidential nomination featured lots of fireworks, stumbles by some candidates (most notably Governor Rick Perry, but Newt Gingrich too) and some significant differences on policy positions. Here’s an overview of how the candidates fared:
Texas Governor Rick Perry has had a rough time in prior debates, and has seen his standing in the polls plummet rather dramatically, from an early, substantial lead, to currently out of the top three. Mr Perry needed a strong performance in this debate.
He didn’t produce it. In fact, his performance was so poor, the Las Vegas crowd booed him on several occasions. Mr Perry, it seems, has decided to focus on two things: answer as many questions as possible by working in the term “energy independence” (regardless of whether energy in any way relates to the question at hand), and attempt to attack former Massachusetts Governor Mitt Romney.
On this second point, Mr Perry adopted a strange strategy: clearly weakened by revelations in prior debates that, as Governor of Texas, he instituted a program whereby illegal aliens are subsidized by the state for post-secondary education (an illegal alien studying in Texas pays less than a visiting student from, for example, California or Illinois, with up to $100,000 less being the figure commonly quoted by Mr Perry’s adversaries), Governor Perry decided to level an allegation against Mr Romney that Mr Romney had previously knowingly hired illegal aliens and continued to employ them after learning of their status. This was not only effectively swatted aside by Mr Romney (as he explained it, a company he hired to tend to his lawn maintenance happened to employ an illegal alien, and fired that individual after Mr Romney objected, but subsequently hired another illegal alien), it allowed Mr Romney to make a point about his own plan for an electronic system which would permit employers to identify the legal employability status of employees.
On multiple occasions, Governor Perry repeatedly interrupted Mr Romney during Mr Romney’s answers, so much so that the crowd began to boo. Mr Romney effectively put Mr Perry in his place by suggesting that, as President of the United States, he would have to occasionally listen to other people without interrupting. And jarringly, Rick Perry repeatedly referred to Herman Cain as “brother”, which he did not do to any of the white candidates.
Mr Perry also suggested withdrawing United States support for the United Nations in its entirety. And Rick Santorum accused Governor Perry of writing a letter to Congress on the day of the TARP vote urging Congress to act (Mr Perry’s rebuttal was that his letter urged them to do “something”, but not what they did).
Governor Perry had a very poor outing, and it’s hard to imagine a scenrio whereby he recaptures the lead in the polls, or comes anywhere close to the Republican nomination. In each debate, Mr Perry has seemed vastly out of his depth, and increasingly relies upon repeating that his state has created the most jobs (notably absent from his claims, and not mentioned by the other candidates, is the fact that an awful lot of those jobs were in the state government: Governor Perry has increased spending 81.94% since he took office, as we previously reported in our article, “Perry vs Romney: Both Big Spenders, History Shows…“). It will be interesting to see how long Mr Perry remains in the race, given how poorly he has been performing, both on stage and in the polls, and it’s further hard to envision Governor Perry beating even the weakened President Obama. Mr Perry’s confidence and charisma have vanished; unfortunately it does not appear that leaves him with much to trade on in this race.
Former Massachusetts Governor Mitt Romney had a generally steady night. Attacked early for his Massachusetts health care plan, and for prior suggestions that he considered such a program suitable for the entire country, Mr Romney fired back by proclaiming that the Massachusetts plan is right for the state but not right for the nation, and backed it up, as he has in the past, by pointing out that the citizens of Massachusetts favor his health care plan by a three to one margin. It’s an odd and difficult argument to make, because Mr Romney is essentially arguing that the merit of such a plan is a function of its scale: it’s okay at the state level but not okay (and, he claims, unconstitutional) at the federal level.
Governor Romney managed to very effectively silence Newt Gingrich by claiming Mr Romney’s plan took the idea for an individual mandate directly from Mr Gingrich. Mr Gingrich vehemently denied the charge, before admitting on a direct question from Mr Romney that he had indeed spoken out in favor of an individual mandate.
When Mr Perry attempted to cast Mr Romney as a “flip flopper”, Mr Romney responded by pointing out that Mr Perry previously chaired Al Gore’s Presidential bid against George W Bush.
Mr Romney’s strategy of avoiding specifics and masterfully directing many of his answers into, essentially, “This country needs jobs and I’ll give them to you!” played well: his style is so smooth that, unless listening closely, it’s easy to miss that he doesn’t actually say very much on any topic.
Texas Representative Ron Paul had another strong showing: here is a candidate who doesn’t need to pause and calibrate his message into what a candidate is “supposed to say” – his positions are logically consistent (Governor Perry, on the other hand, appears as though he has had too many aides providing too many “positions” on too many topics, to the point at which they have overcome his ability to memorize his supposed positions).
Ron Paul scored with the audience when moderator Anderson Cooper listed off the federal departments Mr Paul would shut down: Housing and Urban Development, Education, Energy, etc. On the question of foreign aid, Dr Paul simply stated he would cut all foreign aid, and at one point had both Mitt Romney and Rick Perry telling the audience they agreed with Mr Paul. His message that foreign aid amounts to taking money from poor Americans and giving that money to rich people in poor countries resonated with the crowd, as did his message about bailouts, the economic bubbles and the inability of the federal government to “manage much of anything”.
On the issue of whether he is in favor of the federal government storing spent nuclear contamination in Nevada, Ron Paul suggested it is inappropriate for the federal government to forcibly dump the garbage of forty-nine states on one of the states, said he considers it a state issue, and mentioned that, at one point, he was one of three members of the House to vote against the measure, the other two being representatives of Nevada.
Perhaps the most striking contrast of the evening came between Rick Santorum and Ron Paul on the issue of cutting defense spending: Mr Santorum (clearly a hawk, who previously stated he would like to “go to war with China” but probably meant he would welcome a trade war with the Chinese) said he would not cut one penny of defense spending. Ron Paul, on the other hand, pointed out that the United States maintains bases in 150 foreign countries and that it was time to bring the troops home.
Former Godfathers Pizza CEO, and Chairman of the Kentucky Federal Reserve, Herman Cain has seen his fortunes shoot skyward after strong prior debate performances. His “9-9-9” tax plan was a focus of much of the early part of the debate, as Mr Cain’s new found status as front runner in some polls served to increase the scrutiny of his proposals.
Criticism of his tax proposal centred on the sales tax portion of his 9-9-9 plan: a 9% sales tax on all retail sales. Michele Backmann, a former tax attorney, repeatedly referred to it as a value added tax (the difference between a sales tax and a value added tax is that, with a value added tax, each step a product goes through on its way to market is taxed on the difference between the input cost and the sale price – the “value added” is taxed), while Mr Cain explained it was not a value added tax. Mr Romney asked if this sales tax would apply in addition to state sales taxes, which Mr Cain attempted to deflect as comparing “apples to oranges”. Mitt Romney replied, “And I’ll have to get a bushel to hold all the apples and oranges”.
As a former central banker, Mr Cain argues that he was in favor of the bank (and other) bailouts, but not how they were applied. That’s a message that is unlikely to resonate with many Republicans (or independents, or Democrats, or anyone who isn’t a current or former banker or other of the “bailed out”).
Other candidates argued that it would never pass (Newt Gingrich), that the people will not accept a sales tax (Rick Santorum) and that it will inevitably rise (Ron Paul; Michele Backmann). Herman Cain, meanwhile, argued that it would eliminate all the invisible taxes while simplifying the tax code.
Moderator Coooper quoted a statement Mr Cain had previously made in which he suggested that if people weren’t employed and weren’t rich, they should blame themselves, which caused much of the audience to applaud. Mr Cain said he stood by the statement. On the question of the current “Occupy Wall Street” protests, Herman Cain suggested the protesters’ anger was misplaced, as the government was to blame for the financial downturn and not Wall Street. Ron Paul suggested Mr Cain was blaming the “victims”, in reference to the unemployed, while the government people in charge of Fannie Mae and Freddie Mac, as well as Wall Street participants, had yet to be held accountable.
On issues not related to his tax plan, Mr Cain seemed less confident and more as though he had been coached, and his answers to issues such as defense and immigration were far less compelling than his answers on matters economic.
Senator Michele Backmann had a generally strong performance, leveling several effective attacks on other candidates. Her positions on foreign policy were particularly strongly articulated, attacking Iran for their nuclear program as well as the purported assassination plot against a Saudi dipomat on United States soil. Mrs Backmann also came out heavily in favor of continued financial aid to Israel, “our closest ally” (the question of foreign aid to Israel drew strong contrasts between Michele Backmann and Ron Paul: Mr Paul argued in favor of withdrawing all aid to Israel).
Towards the end of the debate, on a question about the federal government’s role in housing, in light of the high number of foreclosures, Mrs Backmann made what seemed like an odd appeal to the “mothers out there”, and seemed near tears. It came across as a blatant appeal to female voters, and further, did not seem to resonate with the audience in the way Mrs Backmann no doubt intended it to.
However, Michele Backmann is a strong debater, and continued to find ways to insert herself into the conversation.
Essentially out of money and consistently polling in the single digits, former Pennsylvania Governor Rick Santorum started the night with an appeal to family values, and carried that theme on later in the debate, suggesting that “liberty” is founded upon families (at which point Ron Paul interjected, stating “I don’t think liberty comes in bunches”).
Mr Santorum, who often seems visibly pained by anything less than full militaristic support from the other candidates, attempted to insert himself into the debate with a spirited attack on former Governor Romney, attacking Mr Romney’s Massachusetts health care plan. He also successfully attacked Rick Perry’s support of the TARP bailout (see above).
Toward the end, Mr Santorum pointed to his record of having won as Governor of Pennsylvania, a swing state, stating that, “If we win Pennsylvania, we win the election!”
Given his lacklustre financial support and poor showing in the polls, expect Mr Santorum to drop out of the race after Iowa, at the latest.
Former Governor of Utah and Obama Chinese Ambassador Rick Huntsman did not participate in the debate, ostensibly in order to boycott Nevada (which has changed the date of its primary to January 14th, in violation of GOP rules), but more probably because his campaign is in severe financial difficulty. Expect Mr Huntsman to withdraw from the race soon – after New Hampshire at the latest.
As the media, and the Republican Party establishment, continue their attempt to make the contest for the 2012 GOP Presidential nominee a two person race between Mitt Romney and Rick Perry, it is interesting to look at the fiscal records of these two candidates while they held office as Governors of Massachusetts and Texas, respectively. We’ll here look at a topic of great interest to the Tea Party set particularly, and Americans generally, in light of the current state of the United States federal government: given the US government now spends substantially more than it takes in (north of 40% of expenditures are made with borrowed money), how did these candidates fare on the issue of state spending while they were in charge?
The picture isn’t pretty:
- While Governor of Massachusetts, Mitt Romney increased spending substantially: when Mr Romney took office in 2003, state spending for that year totaled $26.27 billion. During his final year in office in 2007, state spending had ballooned to $34.69 billion. This represents more than a 32% increase in spending over a four year period;
- Meanwhile, during his time in office as Texas Governor since 2000, Rick Perry increased state spending from $44.19 billion in 2000 to $80.40 billion in 2010, an astonishing 81.94% increase;
- Keeping the time periods consistent, while Governor Romney was increasing Massachusetts’ spending by 32% between 2003 and 2007, Governor Perry increased Texas’ spending by 16.36% during that same period (from $59.05 billion in 2003 to $68.71 billion 2007).
Both of these candidates are running to be the Presidential candidate of the Republican Party, a party which ostensibly favors reduced government spending. That’s particularly the case for Tea Party supporters and libertarians, who favor a substantially reduced government role. Judging by their history, it is difficult to consider either of these candidates disciples of a “small government” philosophy: while in office they took a combined $85.32 billion in taxpayer-supported spending and turned it into $103.40 billion in spending.
Here’s a chart of Mr Perry’s and Mr Romney’s work:
What if we look at state spending as a function of state GDP? Here, Mr Perry fares significantly better than Mr Romney: Texas, under Mr Perry’s leadership, was unable to grow spending of taxpayer dollars as fast as their GDP was growing, whereas in Massachusetts, under Mr Romney, state GDP was unable to keep pace with Mr Romney’s spending of taypayer money. The share of state spending as a portion of GDP in Texas reduced from 7.14% to 6.03%, while Mr Romney increased state spending from 8.84% to 9.81% of all economic activity in the state (nearly one in ten dollars produced by economic activity is redistributed by the state government):
How does all this compare to the federal government during the same period? Federal expenditures as a percentage of GDP under George W. Bush decreased 4.58% between 2003 and 2007, from 8.77% to 8.37% (but by 2010 had risen 8.38% under President Obama, to 9.07%) :
UPDATE: supplementary data from Mrs Palin’s time as Alaska’s Governor:
Mrs Palin never once cut spending during her tenure as Governor. During Mrs Palin’s first year as Governor, the Alaska state budget remained identical to the prior year, at $17.67bn. During that same year, federal transfer payments to Alaska increased 2.56% to $10.68bn. The next year, the Governor increased spending by 0.57%, while federal transfer payment increased by 2.56%. The following year, Mrs Palin increased the state’s spending by over ten percent; 10.57% to be exact (to $19.57bn). That same year federal transfer payments increased yet again, and massively: this time transfer payments from the federal government went up an astonishing 32.4%, to $14.65bn (see below – it seems Mrs Palin’s gift for extracting federal money translated very well from her time as mayor of Wasilla). All state statistics can be found at usgovernmentspending.com; federal payments to Alaska can be found at census.gov.
All told, with Mrs Palin at the helm, the state spent 10.75% more by the end of her tenure than it did when she took office. During that same period, federal payments to Alaska by the federal government rose an incredible 40.74%.
All those extra dollars, of course, come from the taxpayers.
We’ll leave it to you to decide whether increasing state spending by over 10% and enjoying over 40% more federal largesse is the mark of a fiscal conservative…
CNN today published a press release on behalf of Sarah Palin. What we mean by “press release” is that the “story” is simply about a speech Mrs Palin is planning to give in Iowa tomorrow, Saturday September 3, 2011. As such, it is a story advising readers that there is a story forthcoming at some future date. The article does, however, speculate (as these articles always do) about Mrs Palin’s ambitions to stage a run to become the President of the United States. The article goes on to state that Sarah Palin will potray herself as an “outsider” to the Washington establishment in the forthcoming speech.
The problem Mrs Palin faces, however, is that she is a qualified “tax and spender”. Sarah Palin is the former Governor of a state, Alaska, where an enormous percentage of the population is anything but “outside” government. In fact, 31% of all workers in Alaska are directly employed by government of one level or another (Gallup). Additionally, as the New York Times correctly reports, Alaska received the greatest per-capita amount of the so-called “stimulus”: the equivalent of $3,145 for each man, woman and child. Further, Mrs Palin, as Mayor of Wasilla, hired a lobbying firm which in turn extracted $25,000,000 from the Federal Government. Wasilla is a town of less than 7,000 people, which works out to another $3,571 for every man, woman and child. Sarah Palin’s political background in Alaska (and in fact the entire background of the state she hails from) is almost entirely predicated upon extracting money from the federal government. Here’s a quote from Carl Gatto, Republican, 13th District, Alaska House of Representatives: “I’ll give the federal government credit: they sure give us a ton of money. For every $1 we give them in taxes for highways, they give us back $5.76.” Of course, the extra $4.76 Mr Gatto’s state receives comes out of the pockets of workers in every other state, by way of taxes.
At root, Mrs Palin, for all her constitutionalist, small-government rhetoric, is “tax and spend”, provided, of course, it is non-Alaskans paying the bill.
Yet somehow Sarah Palin appeals to a not-insignificant subset of the Tea Party movement. And she is largely perceived as anti-tax, anti-spending. Which is consistent with her actions, provided one doesn’t look beyond her home state, where her actions have demonstrably shown the real message: “I’m not in favor of taxes except for taxes on other people, and I’m not in favor of government spending, except when it is spent in Alaska and paid for by non-Alaskans.”
A very curious and mixed message indeed. And a difficult position to translate into national policy, where there isn’t a pool consisting of 99.77% of “others” to tax.
The US’ Federal Emergency Management Agency, commonly known as FEMA, may seem like both a fundamentally necessary government agency and an example of a benevolent federal government institution: among other things, FEMA provides disaster relief and a flood insurance pool. Upon analysis, however, it becomes apparent FEMA contributes directly and materially to substantial property damage, increasing the magnitude of catastrophes while, much more importantly, leading directly to lost lives.
Areas routinely hit by floods and hurricanes are typically completely unable to purchase from private carriers insurance against property damage from these perils. That makes sense: would you put up your money against exceptionally poor odds not only of seeing a return but of costing you many orders of magitude more? This is the consideration made by insurance companies: the amount of premiums generated will be dwarfed by resulting claims, therefore we refuse to risk our shareholders capital in these areas. This is a good thing, and an example of the market working properly: when insurance is flat out unavailalbe, the market is signalling that there is such great risk that no investor, at any price, is willing to take on that risk. This is an important signal to the market, including consumers, lenders and others: live in these areas at your own peril. The natural consequence of this would be few or no homes built or occupied in severely high risk areas.
With presumably noble intentions, the agency underwrites flood insurance in the most catastrophically high risk parts of the United States. In so doing, FEMA makes it possible for people to place themselves directly in harm’s way – after all, without insurance, lenders wouldn’t lend to home owners or business owners or construction companies, builders wouldn’t build and no one would live in these places (which, not coincidentally, tend to house some of the poorest and least fortunate people), and we wouldn’t have catastrophes like Katrina (Katrina would, of course, still occur, but the resultant damage would at least be an order or two of magnitude less harmful).
It may seem like compassionate policy for the federal government to backstop insurance for people unable to obtain same from the private insurance market. However the actual unintended consequences are lots and lots of dead bodies, destruction and property damage, lives turned upside down and massive economic loss which flat out could not happen without FEMA’s intervention. The availability of flood insurance from FEMA actively encourages people to reside in the worst possible locations, from the perspective of routine disasters.
One important purpose of insurance is to affix a price to risk, and in the case of places like Florida and New Orleans, the market has determined that price to be infinity (or, more precisely, the price is greater than the value of the items insured). FEMA’s position is that the price of the risk is actually very reasonable (as expressed by the premiums they charge). FEMA is demonstrably incorrect, and the existence of its flood insurance program, in actively ignoring the signals from private insurers, leads directly to death and catastrophe.
Interesting article on the CNN web site regarding the troubling spot the Greek economy finds itself in. In the article, the author, William Antholis, managing director of the Brookings Institution and a senior fellow in Governance Studies, points out the difficulty the Greeks will have in implementing austerity measures, given that one in five workers is employed by the government – a full 20% of all employment is in the government!
But will the US suffer a similar fate? Let’s look at the numbers:
There are around 2 million people directly employed by the federal government, not including postal workers or military personnel. There are roughly 600,000 postal workers and about 1.4 million uniformed military personnel. There are about 146 million people in the workforce of the US. So that makes for 1.37% of all workers directly employed by the federal government. That rises to 2.74% if you include postal workers and the military (source: Bureau of Labor Statistics: http://www.bls.gov/oco/cg/cgs041.htm).
Employment by government at all levels is about 14% in the US (comparison: Russia: 0.59%; France: 3.5%; Greece: 20%), but varies substantially by state (top states are Alaska and Wyoming at over 20% of all workers). So about 1 in 7 workers in the US works for government (and have their salaries paid by the other 6 in 7). As of 2002, more people work for the government than manufacturing and construction combined (https://fabiusmaximus.wordpress.com/2009/01/20/milestone/).
This means that the US will likely face a similar level of protest, discontent and economic pain in enacting any meaningful cuts to government spending. For example, if the US governments at all levels chose to cut 10% of their workforces, roughly 2,044,000 workers would be out of a job. At current unemployment levels (about 9.5%), this would mean an increase in the unemployment rate of about 1.08 points (or an 11.4% increase in the unemployment rate).
The question isn’t whether governments at all levels in the US need to make serious, significant cuts. The real question is whether any politicians are willing to accept such a dramatic increase in the unemployment rate. And a 10% cut to government employment at all levels really isn’t enough to make a significant dent in America’s government payrolls, deficits, debt and pension obligations. Add in the crisis in Social Security (when it was founded, for every retiree, there were 30 workers paying that retiree’s pension; currently that ratio is three employees paying for each retiree and it’s closing in on two) and the outlook doesn’t look very rosy for the US returning to fiscal health.
How long will six in seven workers remain content paying for the salaries of the one in seven government employees? That remains to be seen. However history seems to indicate the status quo will remain until changes are inevitable, and then those changes will be difficult, painful and dramatic, rather than measured, pro-active and responsible.