Fiscal & Monetary Policy – Page 5

Are Public-Sector Unions Destroying Democratic Government?

G’Day!

The fiscal and debt crisis facing many of the 50 states and the bankruptcy of General Motors have highlighted the critical role public and private-sector unions have in our ability to compete globally and in the functioning and long term solvency of our state and federal governments. The demonstrations in Wisconsin and similar events in Indiana, Rhode Island, New Jersey, and Ohio, not to mention the budget crisis in New York and California, are emphasizing the magnitude of the controversy and crisis facing our governments over well-intended but overly generous and unsupportable public-sector union benefit packages. Unlike the private sector, public-sector workers are paid by taxpayers, currently receive benefits and wages that are above the average paid for similar work in the private sector, and have greater job security. Without significant change and fiscal sanity restored, many states will ultimately face one or a combination of undesirable choices: raising taxes on business and/or the general population, cutting services, reducing salaries and benefits of public-sector workers, or declaring bankruptcy and starting over.

Originating in Europe, unions transferred to the USA in the 19^th and especially the 20^th century. They began in the private sector with legitimate goals of fair pay, better & safer working conditions, and fair bargaining for labor contracts. In the private sector unions work because in a competitive free-market there is an objective economic outcome, which, when successful, maintains profit for the owners and appropriate wages and working conditions for the employees. If owners are too greedy, good employees will leave and the firm will fail. If employees are too greedy, costs will be uncompetitive and the firm will fail. Under either situation both owners and employees will lose, so both parties have incentive to balance their demands so that the firm succeeds. It was the excessive bargaining power of the unions combined with increasing competition that led to many private U.S. firms’ bankruptcies (think General Motors and the Airlines) and that ultimately led to a decline in private-sector unions. Private-sector union membership peaked in 1953 at 25.5% of the labor force and has declined steadily afterwards. I support private-sector unions in a competitive, free-market economy as long as they are “open shop”, represent “right to work” conditions, have “secret balloting” for elections, and are not biased by legislation.

Public-sector unions did not exist until the late 1950s, when, Robert Wagner, Mayor of New York City, in an appeal for votes (an omen of things to come), signed an executive order authorizing the city workers to unionize. Other Democrat-led local and state governments followed his lead and President Kennedy, also by executive order, authorized federal workers to form unions in 1962. Prior to this, public-sector workers were expected to earn less than private-sector workers in return for job security and service to the public. Even union leaders recognized at that time that collective bargaining by government workers was biased in favor of workers, unfair, and inappropriate.

Public-sector unions do not represent the conditions necessary for fair and balanced negotiations with elected government representatives. Government jobs do not have a competitive market (governments and essential services don’t compete), don’t have an objective economic outcome that forces compromise (governments don’t go bankrupt, yet), and the taxpayer owners are represented by temporary agents who negotiate for wages and benefits with workers who vote them into office. The contracts from these negotiations endure permanently into the future long after the elected politicians negotiating for the taxpayers have departed. There is clear bias when short-term reelection partially depends on the votes of these employees. This process is further biased where public-sector unions are large and have full “Collective Bargaining” rights, as is currently the case in 26 states.

Because wages and benefits to public-sector workers come from taxpayers, ALL taxpayers in total are funding these contracts AND union dues. A portion of these union dues is recycled into the election and lobbying process as political support for union favored candidates and laws (like the current “Employee Free Choice Act”, which is union biased and should be killed). In 2007-08 unions spent $165 million on elections and proposed legislation. Andy Stern of the SEIU bragged that the union spent $60 million to get Obama elected. Not surprisingly, the majority of these recycled union funds go to support the Democratic Party and no wonder that Democratic Senators in Wisconsin and Indiana have fled their states and elected responsibilities in support of union protests against proposed limits on union power and benefits.

Do the public-sector unions really have a legitimate complaint? Are they underpaid? Are their benefits unfair? Is their job security worse than the private sector? The obvious answer to all these questions is, “Hell No!” The US Bureau of Labor Statistics for 2009 indicates that unionized public-sector workers have a 31% advantage in wages and a 68% advantage in benefits over nonunionized workers (with a much larger advantage in defined-benefit pensions and health insurance) and their job security is almost assured, especially in education. Public-sector union members generally contribute little or nothing for their healthcare and pensions and in many cases can retire at a significantly earlier age than private sector workers. And remember, taxpayers are the source of their wages and benefits. I ask the questions, “Does the service and value provided by public-sector workers justify their higher-level of pay and benefits over the private sector?” If not, why are we, the taxpayers, paying it?

The chart above represents the trend in public vs. private-sector union workers since 1973. It illustrates that union membership in the private sector has declined by over 50% from approximately 15 million to 7.1 million to approximately 8% of the workforce. During this period public-sector membership has increased by over 150% from approximately 3 million to 7.6 million and represents more union members than the competitive private sector for the first time in history. This growth in government workers and spending must stop and proper priorities set on what we can fiscally afford as a nation. Our government cannot do every “desirable” project. Endless growth in State and Federal Governments promoted by unions is increasing regulations, increasing the size and cost of government, stifling economic growth and innovation, and restricting private sector job expansion. We, the people not the government, must accept primary responsibility for our families, our neighborhoods, our country, and ourselves.

So what should we do? First and most important, where it still exists, collective bargaining for the public sector, which should have never been permitted, should be ended, the proper balance between taxpayers and government workers restored, and its undemocratic and prejudiced influence in the electoral and negotiating process halted. Second, effective immediately, all new hires into public-sector employment should have a new retirement age consistent with those in the private sector, revised pension and healthcare contracts in which they must contribute appropriately to their health and pension plans, pension plans that are based on defined-contribution not defined-benefit, wages based on performance not longevity, and where it exists, “tenure” should be abolished. Third, existing retirement contracts for long-term government employees approaching retirement age (to be determined but within approximately 10 years of retirement) should be honored, but they should be required to begin contributing to their healthcare and pension plans as above. Fourth, employees with longer than approximately 10 years to retirement age should also begin contributing and have their retirement phased-in as appropriate to match the new retirement age.

These major recommendations are admittedly oversimplified for brevity and will differ by State and between State and Federal workers depending on existing contracts. However, they will significantly reduce the current and long-term fiscal crises facing our state and federal governments. Other non-union related issues and recommendations will be the subjects of a future post.

The near-monopoly stranglehold public-sector unions have over large portions of our state and federal governments must be broken or the unsustainable budget and debt problems will continue to erode and potentially destroy our democratic institutions of government. Public-sector workers must be compensated like private sector workers based on value-added.

It’s time to curb public-sector unions, return power to the taxpayers, and restore fiscal sanity to our government.

The Old Guy PhD

How to Solve Healthcare Part I

G’Day!

The 2,000+ page “Obamacare” legislation has good intentions but is potentially a government fiscal, debt, and administrative disaster. Like President Obama’s impressive rhetoric, it sounds good but will only increase costs, undermine individual freedom of choice, result in jobs lost in the private economy, reduce competition, increase government spending and regulations, and ultimately lead to government-only rationed health services & treatment.

Since “Obamacare” regulations are still being written and implemented, the ultimate consequences are unclear but they are certain to be, on balance, unfavorable and more costly for the majority of US citizens. More importantly, free-market improvements are available which would expand individual choices and minimize or prevent a government takeover of healthcare. The Republicans are right to oppose the bill, but the question of how we can fix it, reduce costs, and maintain our freedom of choice is still open. Perhaps the biggest question to be answered is, “Who should make healthcare decisions, the government or the patient in consultation with his or her doctor?” For me, given my belief in personal liberty and the effectiveness of free markets, individual freedom of choice is the answer.

The need for improvement in cost and coverage is obvious. In their most recent report, the UN World Health Organization ranked the USA #37 in overall world health results. The OECD 2008 report ranked the USA #1 (highest) in healthcare cost per capita. USA costs were $7,538/capita, more than twice the average for OECD countries and 50% higher than the #2 country, Norway, at $5,003/capita. Equally important is the September, 2010 report that 50.7 million of our citizens do not have healthcare insurance. While some legislation is necessary for those temporarily without healthcare insurance AND IN NEED, more government control over healthcare products and pricing will ultimately lead to higher not lower costs, fewer choices, higher taxes, more debt, and less competition.

Let’s start with the major issues upon which there is general agreement for improvement: 1) cost reduction, 2) coverage for “pre-existing conditions”, 3) patient choice in doctor selection & treatment, 4) portability of existing coverage in relocation, 5) coverage for catastrophic events, 6) tort reform, and 7) coverage for those involuntarily uninsured because of need.

Some potential solutions are relatively simple and should have immediate beneficial effects. First, allow insurance companies to compete across state lines (nationwide competition). The immediate effect would be to dramatically increase competition and put downward pressure on prices and costs. Second, remove the anti-trust exemption for insurance companies by amending/repealing the McCarren-Ferguson Act of 1945. The effect would be to reduce the potential for insurance companies to engage in unfair or collusive practices to the detriment of the consumer. When combined with nationwide competition, this should also put pressure on prices and increase transparency. Third, coverage of pre-existing conditions is in “Obamacare”, is important, and should be retained. Fourth, there is no reason for individuals to lose insurance when relocating and changing jobs. Insurance companies should be required to continue healthcare for individuals currently covered and moving under these conditions

Fifth, enact “tort reform” by capping “punitive damages” at a reasonable level and forcing the “loser” in a lawsuit to pay the legal costs of the “winner”. This should dramatically reduce the number of frivolous or speculative lawsuits by reducing the benefits for lawyers and increasing the costs of losing in a lawsuit. There can be little doubt that the high costs of defending medical malpractice lawsuits by insurance companies adds to medical expenses by increasing insurance premiums and stimulating “defensive” medical practices (unnecessary or marginal medical testing and consultations). There can also be no doubt that the victims of legitimate cases of medical malpractice deserve and should receive appropriate compensation for actual damages. What is at fault with the current system is that it is a patient cost-free, one-sided lottery, funded, not by legitimate actual damages, but by “punitive” damages. Anyone with common sense knows the magnitude of these “punitive” claims is ridiculously excessive and largely serve the lawyers, (just watch your TV to see how many ads there are claiming “you may be entitled to compensation”). Capping “punitive” damages at a reasonable level reduces the financial incentive for lawyers (and patients) to initiate unwarranted or marginal lawsuits. Combining this with “loser pays” the legal costs of the “winner” in a lawsuit creates a potential penalty, which further discourages initiating lawsuits with little or no merit in the hope getting a large settlement from the insurance company, a substantial portion of which goes to the lawyers. Without a “loser pays” penalty, the lawyer can rightly claim to any patient that there is no downside cost for the patient in filing a lawsuit. It is truly a one-sided, no-cost “lottery” for the patient and the maximum loss for the lawyer is only his or her time. This is absurd and without correction adds to medical costs by increasing insurance company costs and premiums and stimulating “defensive” medical practices by doctors.

Sixth, regarding healthcare for those not currently covered and temporarily in poverty, Medicaid already provides a means-tested method of coverage, including children. If Medicaid is not working properly, it should be changed. But, it should be a transitional bridge, not be a permanent provider, and should be modified to keep routine treatment out of Hospital Emergency Rooms. Improving Medicaid to better and more efficiently provide the intended services should not require a new bill with 2000+ pages of unclear legislation AND “Obamacare” seeks to expand Medicaid coverage (& CHIP for children) far beyond poverty levels.

These six items should be “doable” with some political will and a little common sense. Other potential solutions including better “catastrophic” coverage are more complicated and would require major structural change in the industry but potentially could have even larger positive effects on costs, individual doctor choices, and decisions on treatment in the long term. Perhaps the biggest of these is to remove the employer from the insurance business. This will be the subject of a future post on this site.

Healthcare should be a choice and responsibility of individual citizens in a nationwide free-market economy. Let’s keep our government’s role at the minimum necessary to provide a competitive level playing field and a safety net for only those in temporary need.

Individual choice in a free-market economy with competition is the best way forward.

The Old Guy PhD

Big Government IS Our Problem!

G’Day!

President Reagan was right! Big government IS our problem. Many of you are justified in your frustration with government for its increasing size, spending, regulation, and control over our lives. Left unchecked (pun intended), our individual freedoms, ability as a nation to innovate, and competitiveness in the global economy will continue to be eroded. If government would get out of the way, business would improve, jobs would be created, and the country would prosper. Reforming both personal and business income taxes is also required and would further stimulate growth and job creation. Taxes will be the subject of future posts on this site.

The magnitude of our nation’s financial problem is enormous and growing! We anticipate a fiscal deficit of $1.6 trillion in 2011 and President Obama’s budget proposal for 2012 projects a further deficit of $1.1 trillion. Over the next 10 years the new Obama budget proposal projects a cumulative deficit of $7.2 trillion. Additionally, we currently have an overall national debt in excess of $14 trillion, nearly the size of our annual GDP, and according to the National Debt Clock, have unfunded “entitlement” liabilities for Social Security of $14.8 trillion, Prescription Drugs of $19.6 trillion, & Medicare of $78.1 trillion. This is a current total obligation for future generations of $112.5 trillion, nearly 8 times our total annual output and just over $1.0 MILLION per current taxpayer. This is madness and is unsustainable for our economy.

President Obama has impressive rhetoric, but his new “centrist” oratory is unconvincing and inconsistent with the actions of his administration. He has a very different view for the future of our government than I. Obama’s actions indicate the socialist belief that BIG government is the answer to most, if not all, issues. He is converting our personal freedoms and free market economy into a European-style collectivist society with strong central governmental control over our lives and appears to believe that central government can make better decisions for individuals than individuals can make for themselves in a free society. This is a dangerous trend toward expanded central planning and is not the constitutional basis for liberty upon which the Founding Fathers established our great nation. Oddly enough, Obama’s action is taking place at a time when the major European nations are moving in the opposite direction toward American ideals. I believe it was Abraham Lincoln who said, “Government should only do for the people what the people cannot do for themselves.” I fully agree.

If the current administration is not stopped, America’s freedoms, spirit of entrepreneurship, & economic strength could be set back for years and probably permanently diminished. Much has already been initiated with the new legislation for healthcare and financial reform. Both of these new acts add too much central governmental control over crucial industries and need to be repealed or modified to conform to the principles of our free market economy. Future posts will also explore these two subjects in more detail.

America is on an unfavorable and unsustainable course, which must be changed or we face extremely serious consequences for our economy and our freedoms. Ronald Reagan was right (additional pun intended) when he said the 9 scariest words are, “I’m from the government and I’m here to help.” It is time for us to take back our country.

Big government IS the problem; freedom is the answer.

The Old Guy PhD