Monday, February 28, 2011

The Recession Is Over For Some People...(Part 3).

     ...But it is going to last a long time for the rest of us. My last two postings listed several reasons why I believe the recession is going to be permanent for the non-rich. (See February 16 and February 21). Today I want to highlight another problem which will hinder the US from returning to the employment position which prevailed prior to the Bush years: Government pension committments.
     According to researchers at the Kellogg School of Management at Northwestern University, state and city governments are committed to paying pensions in the amount of $3.574T for which no funds have been provided. In addition, estimates of unfunded Federal pensions are $600B, for a total of $4.174T. (The number doesn't look so big untill it is written out: $4,174,000,000,000). The New York Post estimates that current payments for all governmental pensions amount to $81,500 per year per household. That money comes out of our taxes and it does not include any provision for chipping away at that unfunded debt.
     Nevertheless, that debt will eventually come due. In order to meet it, governments of all types will have to (a) cut costs, or (b) raise taxes. The current attitude considers tax increases to be an anathema, which leaves major downsizing as the alternative. Government workers - clerks, police, air traffic controllers, teachers, etc. - will lose their jobs en masse, and with the jobs will go their buying power. Additionally, such things as highway maintenance, health care, the environment, education – you name it – will suffer drastic cuts in funding.
     How did we get into this situation? By ignoring a primary rule of common sense: you save when times are good so that you will have resources when times are bad. It is so easy, not only for politicians, to make future committments when the cash is rolling in. Unfortunately, the bill eventually comes due.
     How will this affect our affluent class: the people who are at the top of the economic pecking order? Remember, although jobs are growing by leaps and bounds in China, India and other emerging countries, pension committments and other postponed perks which we have been taking for granted have not been made. A business buys its resources, including labor, where it can get the most for the money.
     And markets exist where people have jobs. With their huge populations, China and India alone can provide an almost unlimited supply of laborers/customers. When a CEO looks at the bank account he cannot tell, nor does he care, where the money came from.
     If the GOP wants to start cutting government costs, perhaps they should be looking at the bonuses being handed to corporations for shipping jobs overseas.
     It gets worse – stay tuned.
******
     [The first definition of a construct] covers anything from a physical bird nest or beaver dam to a jet plane or a super highway, and carries the connotation that the constructor has some definite use planned, either consciously or instinctively, for the construct.
     Constructs – The Spirit Runs Through It.

The Spirit Runs Through It is available in paperback or on Kindle.

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