Guest Post: Government Employees, Unions, And Bankruptcy

Submitted by James E. Miller of the Ludwig von Mises Institute of Canada,

During an economic boom, exuberance finds itself lodged in all types of industries.  When profits soar, so does the public’s disregard for prudence.  And as tax revenues rise, politicians can’t help but give in to their bread and butter of buying votes.  Periods of accelerated economic growth typically come in two different forms.  If capital is drawn from a pool of real savings to finance investment in more efficient forms of production, the boost in wages and income will be sustainable as long as consumers remain willing to purchase whatever is being produced in greater amounts.  In the case of a credit-expansion boom fueled primarily by fractional reserve banking and interest rate manipulation through a central bank, the boom conditions are destined toward bust.  Liquidation then becomes necessary as the bust gets underway and malinvestments come to light.

For private industry it means slashing costs, laying off workers, and possible bankruptcy to discharge debt.  For government, it typically means shoring up the lost revenue due to unemployment by raising taxes and promising to cut spending by some significant amount.  Usually those promised cuts never come to fruition.  Political reelection hinges too much upon filling the pockets of voter blocs.   When private enterprise tightens its belt, the state hardly bats an eye since its revenue is dependent on how much it decides to fleece from taxpayers in any given year.

Some levels of government aren’t so lucky however.  Without ready access to a printing press or eager creditors, local municipalities in the U.S. are facing tough choices as the Great Recession drags on.  Unable to cope with the rising cost of providing public services, many cities are taking drastic action.  Three major cities in California have recenlty declared bankruptcy; including San Bernardino which is the second largest city to do so in recent history.  The city council of Detroit, which is facing about $12 billion in pension and benefit obligations, has voted to allow a state advisory board to assist the former manufacturing powerhouse grapple with a fiscal future that is anything but promising.  North Las Vegas, Nevada is facing the same kind of hurdle with a gaping $30 million budget deficit.  According to Mayor Sharon Buck, “We’ve balanced our budget, we’ve paid all of our bills [and] all of our bonds are paid…Our biggest issue is salaries and compensation and benefits. And they’re very unsustainable.”  Most recently, the mayor of Scranton, Pennsylvania cut the wages of city workers to the state’s minimum wage of $7.25 an hour.  The unions which represent the city’s firefighters, police officers, and other public workers are taking the issue to court.

In carrying out such a drastic pay cut, Mayor Chris Doherty defied a previous court order.  The unions’ attorney called the defiance “incredible.”  The president of the International Association of Fire Fighters, Local 60, lamented that “there are kids working at ice cream stands earning more than their fathers, which is ridiculous.”

In actuality, there is nothing ridiculous about Mayor Doherty’s behavior.  The city is out of money to pay its workers.  After riding the taxpayer-funded gravy train, the trip has come to an abrupt end.  The mayor can’t pay money he doesn’t have.  In his words “I can’t print it in the basement.”

But to this writer, Doherty didn’t go far enough in cutting the pay of city workers.  In a just world, public sector workers would be paid the rightful amount equal to their contribution to society: zero dollars an hour.  If production is to entail mutual exchange and careful consideration toward profit and loss accounting, then government produces nothing without a negative effect on some individuals.  The government worker is paid solely through whatever funds were forcefully taken from actual producers of wealth.  The kid working in an ice cream stand whom the president of the firefighter’s union referred to is providing a valued service to society.  His pay is based off of whatever marginal revenue he brings in.  The firefighter paid by tax dollars is a functioning leech whose pay is totally separated from any measure of consumer satisfaction.  Government workers have little, if any, incentive to serve the public in an efficient or convenient manner.  In America, police have no legal obligation to assist you.  And if you think the local fire company will be there at your beck and call, just ask Gene Cranick of Tennessee who watched his house burn down with fire crews standing by as he neglected to pay a $75 dollar fee beforehand.  The selfless civil servants simply watched the spectacle of a man’s home being destroyed even as Cranick offered to pay the fee for service right then and there.  Compare this to the private, for-profit firefighting that existed in many towns in 19th century America.  As urban historian Mark Tebeau describes it in an interview with NPR’s Robert Siegel nearly two years ago:

SIEGEL: Now, I read this today – and you tell me if there’s any truth to it -that sometimes competitive fire brigades in their zeal to be the one to put out fire, maybe to get an award or be backed by an insurer, might actually have played a little defense against another competing fire company.

Prof. TEBEAU: Yeah. They would race to the fires. This reflected community tensions of the era, as well as a sort of manly pride in being first not only to get to the scene, but first to put the fire out.

No doubt Cranick, who found himself on the wrong end of government’s over-bureaucratization, would have jumped for joy at the prospect of multiple fire brigades rushing to save his home.

By virtue of its monopoly on coercion, the public sector exists wholeheartedly at the expense of society.  Worse are the unions that piggyback off this extortion and kick taxpayers in the gut even harder just to take a few extra dollars out of their wallets.  Unions remain empowered through their government-granted privilege of forcing employers to bargain with them; including the various levels of government.  But this only scratches the surface to the despicable nature of both private sector and public sector unions.  As libertarian economist Walter Block notes:

Yes, unions are disgusting and repulsive institutions, as the right side of the political spectrum properly emphasizes. They restrict entry into the labor market, and either beat up potential competitors who they characterize as “scabs” (where are the politically correct opponents of hate speech when we need them?), and/or get the government to do this evil deed for them, via legislation such as the Wagner Act which forbids employers from hiring replacement workers on a permanent basis.

What the city of Scranton has in common with San Bernardino, Detroit, et al. is that its dire fiscal condition is due to one thing and one thing only: benefits promised to unionized workers.   For decades, public sector workers and their professionally dressed cohorts in plunder known as union representatives have operated under the fallacious assumption that government is the gift that never stops giving.  But in today’s environment of economic stagnation, their dreams of living off of stolen fruits of labor are thankfully starting to represent reality.  Whole countries in the European Union are beginning to crumble under the weight of their bloated government workforces and entitlement programs.  American cities are currently facing up to the extravagant benefits promised to public workers.  In a mater of years, Illinois and California will likely follow.

To quote Pat Buchanan,” The salad days of the government employee are coming to an end, as they have already in Greece, Italy and Spain.”  To those sick and tired of the tax-eater mentality that is destroying the very core of society’s productive capacity and moral base, those days can’t come soon enough.