Tuesday, February 22, 2011

Wisconsin’s Economic Protests Will Spread As Health Care Costs Bankrupt States

What we’re really seeing today with the union worker protests in Madison, Wisconsin is the collision of money desires with fiscal reality. Everywhere across the country, union workers want to take home more money. Across the board, from teachers and firemen to law enforcement officers and government office workers, everybody wants a bigger paycheck. But the states are going broke. And the economic realities we’re now facing are making everybody nervous.

The voters, you see, don’t really want balanced budgets. Voters, as a rule, are rather short-sighted. They want the higher government wages, benefits and social programs today but they’d rather not think about the financial cost of it all tomorrow.

That works fine for a while… until tomorrow actually arrives. And then suddenly your state (or your nation) is facing a debt burden crisis that forces it to make extremely difficult financial decisions.

That’s when the protests begin. And before long, the protests lead to riots.

If only money grew on trees
Nobody is happy about making less money… even when they’re already making a lot. The average compensation for teachers in the Milwaukee Public School system, when you add up the salaries and benefits, is over $100,000 a year. (http://maciverinstitute.com/2010/03/average-mps-teacher-compensation-tops-100kyear/) The salary portion alone is over $56,000.

That’s pretty good money for being a teacher in a public school system. But it’s never enough, you see. Nearly everyone spends to the limit of their salary — and then they spend a little more, too, driving them into debt and desperation. The debt spending of a typical wage-earner in America is now so severe that the average annual savings rate is a negative number. And it drives people to a sense of desperation.

Yet economic reality says the public salaries must be cut. Either that, or jobs must be cut. One way or another, states are going to have to cut spending to remain solvent, and that means either cutting benefits, cutting jobs or cutting salaries. Of course, states could always just try to raise taxes on individuals and businesses, but that merely has the longer-term effect of driving businesses out of the state, causing a long-term job loss that ends up denying the state income tax dollars from working people, further worsening the state’s economic problems.