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Posts Tagged ‘economy

Will the US Follow Greece’s Path?

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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.

Written by westcoastsuccess

June 29, 2011 at 12:57 pm

Obama Elected; Stocks Tank…

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The Dow Jones Industrial Average closed at 9,625 on Tuesday, November 4, 2008, the day Americans headed to the polls to select their next President, capping a six day rally that had traders thinking the slow path to recovery (or at least relative stability) had begun.

obama-elected-stocks-tank

By late Tuesday, it was obvious Senator Barack Obama had won the US Presidential election. Additionally, Democrats took several House and Senate seats, making for a strong (but not quite fillibuster-proof) majority.

The Dow Jones Industrial Average has reacted swiftly and strongly: as of this writing, the DJIA is down to 8,766. That’s a decline of nearly 9% since Mr Obama won the election, and reverses all the gains made during the previous six day rally. That represents over a trillion dollars in capital which has left the market since Mr Obama’s election.

President-elect Obama’s victory is certainly troubling for an economy already on the ropes: he came out in favor of increased protectionism, easier labor union organizing, tax increases on the most productive tax payers, big spending plans on health care, a special tax for successful oil producers and more and bigger government at a time when there isn’t much money to go around and the government has already put taxpayers in the hole for an additional $7,546 each by way of the “bailout” of the financial sector. Additionally, capital is more likely to sit on the sidelines in light of Mr Obama’s proposed 33% increase in the Capital Gains tax (he’s proposed ultimately raising the rate by 87%).

What’s more, Obama and his fellow Democrats will meet very little resistance in imposing their agenda: with the House, the Senate and the Presidency all in Democratic hands (and by wide margins), there’s very little opponents can do to stop wrong-headed policies.

For all the talk of an historic election, recovery for the US economy just got set back considerably: we expect less than 1% growth through 2011, and a contracting economy through all of 2009.

Written by westcoastsuccess

November 6, 2008 at 11:08 am