The New Financial Class War?

Earlier this week, I read an interesting comment by Damien Hoffman, Are Private and Public Employees Headed for War?:
American Enterprise Institute President Arthur C. Brooks might be an emerging leader of the intellectual side of the Tea Party movement (Cf. the emotional side). He raises an interesting point I have been hearing a lot lately by people in states with massive public pension liabilities: “The disparity [between public and private sector benefits] is so large and so unfair, a day of reckoning is coming.”

When I was recently visiting family in New Jersey, all they could discuss was their animosity toward police officers retiring in their 40′s with full pensions, teachers receiving 4% a year raises despite the economic recession, and politicians who keep signing contracts for more unsustainable and unfundable public sector compensation programs. Given the anger coupled with their very reasonable insights, I could easily see how this issue will reach an ugly head.

However, one thing Brooks and many private sector employees fail to also consider are the ~10 million private pensioned people lobbying hard for a government bailout. And I don’t think anyone has yet forgotten the Trillions in liabilities we are all sharing for the private finance sector bailout in 2008 and 2009.

Thus, I don’t think this is a public versus private sector issue as much as an issue of people incorrectly believing that 1) there are guarantees in capitalism, and 2) taxpayers can sustain irrational retirement benefits for public sector retirees.

There are NO Guarantees in Capitalism

I repeat: there are no guarantees in capitalism. If the US is to recreate one of the greatest economies in the world, we must end the practice of aiding businesses and programs which would otherwise go bankrupt without government subsidy. Once guarantees are offered to a privileged group of people, a society ends up in the current tit-for-tat gameplay currently reaching elevated heights in the US.

Of course, there must be exceptions for certain programs which provide legitimate social value for the statistically small percentage of people who genuinely need it. But insofar as guaranteeing survival in the private marketplace or irrational retirement benefits in the public sector, the government must end these practices now before we follow the same path as ancient Rome.

The death spiral is as such:

First, public sector employees see private sector companies receiving generous taxpayer aid for all types of unfair reasons. Then, the private sector sees public workers retiring after 15-20 years with full pensions at insane rates based on trickery (e.g., padded time sheets with unnecessary overtime), paid-up medical with zero to infinitesimal worker contributions, and other outrageous benefits which seem like they were added to the public budgets during a real life trip through Tim Burton’s Alice in Wonderland.

After that, the private sector lashes back because there’s no justice in using tax dollars to provide one set of workers with a better standard of living than another set of equally deserving workers. This game goes back and forth until the parents step in and quash the childish nonsense.

Taxpayers Cannot Sustain Irrational Public Sector Benefits

In addition to getting back to Adam Smith’s authentic version of capitalism — not crony capitalism or corporate socialism — the public sector must recognize that 1 + 1 = 2. Therefore, public budgets must be based on realistic tax burdens. No one I know debates whether we need teachers or police officers. However, they do question whether a 40-year old police officer really needs so much tax payer support as to have a Hummer, live in the wealthiest neighborhood in town, etc.

Moreover, there is a major problem with military officers marrying friends simply so the tax payer will send benefits to the new “spouses”. Anyone who has spent any time around the military knows there is a huge cancer of scams such as this being perpetrated against the taxpayers. Rather than nickel and dime our nation’s protectors, let’s take care of the honest ones more generously while rooting out those who are stealing from the system.

Those Are Fighting Words

Arthur C. Brooks’ new book The Battle: How the Fight between Free Enterprise and Big Government Will Shape America’s Futureis gaining a head of steam. If the anger continues to spread on both sides, I would agree that our nation’s workers are on a path to war.

While I share many concerns raised in this article, let me also present the flip side of this capitalistic view of retirement benefits that you will never see in mainstream media.

Guns & Butter had another outstanding interview with Michael Hudson on Europe's Financial Class War Against Labor, Industry and Government:

"Europe's Financial Class War Against Labor, Industry and Government" with Dr. Michael Hudson. Economic crisis in Europe created by predatory lending; European Central Bank stranglehold on the Eurozone; the Euro; foreign banks decimate Greece's social structure; Marx's industrial capital versus fictitious capital; Latvia as a model for the rest of Europe; Hudson's financial and fiscal plan for Latvia; the Cold War and its ruinous effect on progressive economic thought.

Take the time to listen to Michael Hudson below. There are few people in this world who understand the new financial class war more than him. I don't agree with everything he says, but his analysis is devastatingly brilliant. An absolute must listen interview.

Guns and Butter - June 16, 2010 at 1:00pm

Click to listen (or download)