July 11, 2009

Good and Bad Addendum

Justin Katz

One of that union guy's talking points on the recent episode of Newsmakers that I addressed the other day didn't spark an immediate rebuttal from Bill Felkner or from me.

If you listen to the language that Bill uses — "lucrative contracts" — I think the reality is that that money that goes into a public sector contract does in fact go right into the economy. Firefighters, teachers, public servants — they live in and around the communities they serve. They're not taking their money and dumping it in the stock market. They're going to the Dunkin' Donuts at the corner; they're going to the local mom-and-pop restaurant. So that money's going into the local economy.

It's true that public sector workers are no different from private sector workers as residents — as economic units in the state's economy. It's a dramatic distortion, though, to lift that up as a response to Bill's one-to-one statement about money taken out of the economy and shifted to labor.

Trace the pot of money that goes to public-sector labor: There's some cost for the government to collect it. Some of it enables policies of inefficiency, such as requiring multiple traffic controllers to stare into space at construction sites in order to meet a genitalia quota. Some of it is siphoned off to pay people like Pat Crowley and the entire organizational structure that supports him — which I suspect includes a flow to the national organizations and which I know includes a flow to politicians and political activism. When it comes to the individual worker, some of it is exported (trips, out of state shopping, etc.). Some of it is saved. And yes, a percentage goes into the active local economy. Only that very last percentage — and I'd love to have the time to do the research and figure out a rough per-dollar amount — has the potential to advance anything new. The pay that goes to government bureaucrats, union executives, and so on supports an activity that is already established; we're not talking innovations that might result in economic growth.

By contrast, the dollar that the government takes out of the economy to feed this machine comes out of what might be seen as an "excess" end, in that the first column from which taxpayers are likely to draw funds in order to pay their tax bills will be the least necessary to survival. I long ago decided that I couldn't justify a daily stop at the Dunkin' Donuts for a $1.50 coffee when a can of Chock Full o' Nuts supplies the same caffeine fix for pennies. A weekly dinner at the mom-and-pop restaurant might be the first thing to go when the property tax bill jumps up by double-digit percentages.

In order to grant the public sector unionist sufficient funds to add a dinner out to the weekly schedule or a flat-screen TV to the living room wall, multiple families have to give theirs up.

Extrapolate that example to the "extra" spending of the wealthier residents from whom a greater percentage of the money is taken. Tax money for labor doesn't come from basic house-upkeep money. It's not diversified, global, long-term investment money. It's not pick-up-an-extra-shift-at-work money. Rather it's money that would be risked on local high-growth investment opportunities, or that would simply be given away with no expectation of return. Now apply this imaginative exercise to corporations.

This isn't an argument that we ought to give the rich as much as we possibly can. I'm merely pointing to a dynamic that we ought to take into consideration as we assess potential economic policies, and the right answer is likely to vary from era to era. Suffice to say, though, that an economic downturn that has sent the state into a landslide to bankruptcy is not the time to be pulling money out of a portion of the economy that can tolerate risk and loss and from which expenditures may be lightly made in order to maintain and increase payments to a portion that is notoriously inefficient at recycling dollars.

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Are you for a much smaller government that provides less and fewer services and by doing so costs less, or, are you wanting the same service level and same government size for less cost arrived at by slashing employee's wages and benefits?

Posted by: David at July 11, 2009 12:43 PM

Why is that an either/or? I want a smaller government that promises fewer services and interferes in the operation of the society less, and I want those services that the government does provide to operate more efficiently.

For starters, though, I wouldn't even go so far as "slashing." "Freezing" would be quite an achievement, in this state.

Posted by: Justin Katz at July 11, 2009 12:50 PM

Do you think a smaller government in our larger, more complex world would be able to be efficient and effective in providing the services you want? Gangsters and con artists and exploiters of all stripes favor small and ineffective governments.

Posted by: David at July 11, 2009 1:15 PM

Yes, I do think a smaller government in our larger, more complex world would be able to be efficient and effective in providing the services I want.

And, by the way, let's acknowledge that we're on a tangent to the specific point about whether paying government workers more presents an economic gain for the state.

Posted by: Justin Katz at July 11, 2009 1:20 PM

Those who fear that society would fall apart with a smaller government seem to ignore the idea of "efficiency" in capital expenditure. As we have it, government seems to be very inefficient in its expenditures. Can anyone name a government project that came in on budget? Can anyone explain why it took FEMA five days to get water to the stadium? Were children slaughtered before crossing guards?

Have they never noticed that costs and time of government projects are never compared to cost and time in the private sector? Governmental units only compare themselves with each other, that is only "relative efficiency".

If anyone thinks I only have questions, Relax, I also have answers.

We could begin with demanding efficiency from governments. After all, they are taking our money by force.

Posted by: Warrington Faust at July 11, 2009 1:55 PM

One other thought on smaller government. Was America in chaos less than 50 years ago? Government was about 40% smaller.

Posted by: Warrington Faust at July 11, 2009 1:57 PM

I was trying for a more general philosophical response from you. I would disagree with your specific point. Public sector union workers provide a more democratic distribution of wealth than the private sector. More money stays in RI and local merchants. If you privatized as much of the local government as possible, top heavy earners would not have to be state residents and state taxpayers. In fact you would probably have companies with local contracts operate like United Health.

Posted by: David at July 11, 2009 2:07 PM

Two points:

1. My objective is a strong economy, not "a more democratic distribution of wealth." If my opportunities are high, I don't particularly care that a rich person's are even higher.

2. I'm not talking about privatizing government activity. I'm talking about ceasing much of it and restraining the contractual advances of the other workers. Those who work in the private sector are suffering. Year after year the RI government builds in expected and escalating deficits nearing a billion dollars. And yet union contracts are calling for costlier labor. Every dollar procured to pay for that labor comes out of the private sector.

At best, your point is that public-sector workers keep more money in the state than privatized providers of the same services. It's an arguable point, by it's irrelevant to the point that the money to pay still has to be withdrawn from the Rhode Island economy in the first place.

Posted by: Justin Katz at July 11, 2009 2:16 PM

The current labor situation in the public sector has more to do with giving up less than gaining more. Raises (something I haven't seen in years) barely keep up with cost of living. The question I am asked is how much are you going to give back, not how much of an advance will you take.

Posted by: michael at July 11, 2009 3:17 PM


I think you might err in conflating your situation with the Rhode Island public sector in general. In fact, I'm beginning to wonder if one of the reasons you guys are twisting in the wind, as you are, isn't a contrivance of the rest of the union structure in the state to have a contrary example to present when the heat is turned up. (No metaphorical pun intended.)

Posted by: Justin Katz at July 11, 2009 3:48 PM

I suspect you are correct!

Posted by: michael at July 11, 2009 4:07 PM

"This isn't an argument that we ought to give the rich as much as we possibly can."
What is it we would be "giving" to the rich, an opportunity to keep more of their money. How magnanimous!

Posted by: bobc at July 12, 2009 11:38 AM

Sometimes in argumentative writing — when one is attempting to convey an idea to readers who may disagree on broader premises — a writer attempts to anticipate objections and present them more or less in their own terms. That is how we endeavor to dig down to the baseline sources of our disagreement and put aside issues on which we either need not battle or cannot resolve.

"Giving the rich as much as we possibly can" is what the opposition would likely say of my argument, so I asserted that it wasn't my point at all.

Posted by: Justin Katz at July 12, 2009 12:08 PM
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