War on the middle class E-mail
Written by Marshall Auerback   

Public sector unions have come under serious attack which is also an attack on middle class and working class Americans. As a recent front page article in The New York Times, "Public Workers Facing Outrage in Budget Crisis," reflects. It is fascinating to see how the public narrative in the media has gradually shifted over the past year from Wall Street's sociopathic practices which were directly responsible for the creation of the crisis to the alleged greed of public employee unions and their pension benefits, many of which were the product of agreed upon wage negotiation packages in which unions were receiving these pension benefits in lieu of increased wage benefits.


During 2008, we were told that the government's hands were tied and that the sanctity of contracts had to be honored. This was when the Federal Reserve authorized 100 percent pay outs to the likes of Goldman Sachs on AIG's credit default swaps in effect allowing the Fed to act as an extra budgetary vehicle of the Treasury, which is a violation of the Constitution and shows how patently false the Fed's claims of independence are.

But I don't seem to recall many Wall Street types going on about the sanctity of contracts when agreements with the UAW were reworked to save GM or now when public employee union pension benefits are under attack. And to judge from statements on both the left AND the right, it is clear that social programs will continue to come under attack in 2011.

This has already occurred in the UK over the past few months. There, a Tory-led coalition government has completely drunk the deficit reduction "Kool-Aid.". Instead of the public sector providing employment leadership at a time when the private sector is not yet ready to expand jobs growth, David Cameron's administration has been cutting jobs and forcing unemployment up (see the UK's Labour Market Statistics).

As the austerity drive deepens, the deflationary impact of these job cuts will undermine private sector employment growth. Not that this will stop the cuts from happening here in the US. This sort of economic vandalism has now metamorphosed into "responsible fiscal action," if one is to believe the vast majority of the "experts" in the mainstream commentariat.

The argument seems to be that the states are suffering from a genuine solvency crisis in which everybody has to make sacrifices, including the "greedy" unions. So why should big financial firms, which would otherwise have been toast but for the munificence of the suffering American taxpayer, be any different? If the attacks outlined in The New York Times piece reflect a broader trend this year, then it has ominous implications for the country as a whole. Bank regulators continue to impose policies that work against small bank lending, whose wholesale funding costs are substantially higher than their "too big to fail" counterparts.

The Dodd-Frank "financial reform" entrenches the dominance of the systemically dangerous institutions at the expense of the 6,000 or so other banks that engage in classic loan intermediation activity - the sort of thing we want our banks to be doing. The revolving door between Wall Street and Washington calls attention to the rotten heart at the core of the American polity today - what James Galbraith has felicitously termed "the predator state".

The state has become too weak and therefore remains another instrument of corporate predation. The revolving door policy (eagerly embraced by this president, much like his predecessors) perpetuates the problem because it enhances the dominance of the so-called "FIRE" (finance, insurance, real estate) sector of the economy.

The FIRE sector simply acts as a parasite on the production and consumption core, extracting financial and rent charges that are not technologically or economically necessary costs. Its revenue takes the form of what classical economists called "economic rent," a broad category that includes interest, monopoly super-profits (price gouging) and land rent, as well as "capital" gains.

Its ethos consists largely of denuding the state of any provision of public goods, privatizing the public domain and erecting tollbooths to charge access fees for basic necessities such as health insurance, land sites, home ownership, the communication spectrum (cable and phone rights), patent medicine, water and electricity, and other public utilities, including the use of credit cards or the credit needed to get by. It's a zero-sum economic activity. One party's gain (that of Wall Street usually) is another's loss. It looks like we'll have much more of the same as we enter into 2011.

Marshall Auerback is a Senior Fellow at the Roosevelt Institute. He has 28 years of experience in the investment management business, currently serving as a global portfolio strategist for Madison Street Partners, LLC, a Denver-based hedge fund, and as an economic consultant to PIMCO, the world's largest bond fund management group. He is a fellow at Economists for Peace and Security.

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Comments (3)Add Comment
Are you kidding?
written by John, February 19, 2011
You've got to be kidding here. When you start bantering about the name "Galbraith", that alone should set off alarm bells about the writer of this claptrap. When real unemployment is over 10% and the public sector employees haven't really "felt" the pain yet and when the private sector "middle class" is being asked to pony up the dough so the public sector can continue to receive outrageous pension benefits, you bet their mad. Wall Street isn't the one that's going after the public sector. Tax payers are. This author is asking people who have had to tighten their belts over the last few years to tighten it another notch or two and come up with the money to keep public sector employees employed in jobs where they have to pay "less" out of their paychecks for the cost of share of their medical benefits, and they work at jobs that allow them to retire at an age where they are going to be collecting 80% of their salary (with cost of living adjustments) for as many or more years as they actually were employed. You expect the taxpayer to be OK with that??? The amazing thing is that the states that are facing the most difficult financial times are the states with the highest tax rates in the country. People are sick and tired of watching public sector unions raid the state treasuries and then have the audacity to complain about it when they are asked to make some concessions. When you hear the union thug leadership in Wisconsin violently demand that the state needs to take more from the rich, you get the picture. They loudly claim that the money doesn't belong to those who earned it. Socialism, communism, class warfare - call it what you want, but the idea that all you need to do it take more from the rich to fix this mess tells you of the mindset and agenda of those who are complaining. I'll admit that most of the members of the Unions don't share those radical positions, but never the less, they pay for those union thugs with their dues and they are financing that radical position.

I worked in Law Enforcement for 23 years and now am working in the private sector and my job was to protect innocent folks from being prayed upon by the bad guys. (I currently work not because I have to, but because I want to - and I'm in a financial situation where I donate my law enforcement pension to my department's "relief association" because I don't need it.) When I hear and see the public sector unions, like those in Wisconsin, demand that more money be taken from the rich I know that I am hearing and watching a very nefarious "bad guy" going after folks who have earned their money and should have a right to keep what they earned. I've fought bad guys like that with those attitudes and put them in jail. Enough is enough. Public sector - you don't get any more money - live within your means. A little advice here for you public sector employees - - work hard and save about 20 - 30% of your salary starting at 22 years of age, invest wisely, live frugally for about 20 years, and you'll be fine. You'll actually be better than fine when you reach the age of 55-60.

Complain, whine, throw tantrums and demand more from those who have seen their taxes go up year after year after year and you'll find that you will be vilified (and rightfully so). The only sympathy you'll get is from you co-dependents, not the taxpayer. You can't continue to say "let them eat cake" and expect the taxpayer to smile and go merrily about their business. They'll take their wealth and head to greener pastures (or head to the states that have jobs or take jobs with them to less oppressive states).

Look at two different states, California (my home state) and New Jersey and see which state ends in a better financial position. Both are at their tipping points where something has to give. They can't borrow any more and there is no more money in their treasuries. The bills have come due and both of those bills have "final notice" stamped on them. They're respective Governors are about as different as they can be and both are addressing their fiscal crisis from opposite directions. New Jersey leadership is aggressively taking on the powerful public sector unions and California is cozying up to the public sector unions and is trying to raise the overall taxes to the highest level of any state in the union. New Jersey is right, California is wrong. Watch closely what happens to each state over the next 3 years and learn from it.

written by Andrew, February 21, 2011
This article is bias and complete garbage.

Thank you.
Are you kidding me?!
written by Michael Brick, March 08, 2011
-Jon you are certainly not reading the fact correctly nor are you telling anything but half truths. The situation in New Jersey was created by Gov. Christy who was attempting to get away with pension raiding in the form of not paying the bills.
-People like you want to make it sound as though unions have stolen something when in fact wages and pensions were decided on in a legal and binding contractual negotiation process that both parties agreed to, lawyers reviewed and elected public officials (mayor, city council, governor) signed in agreement.
-What's more, cops and firemen are nothing more than middle class taxpayers themselves who usually can't afford to live in the very communities they protect.
-The NJ Governor simply decides, all by himself, that there would be a ton of money to use on everything else if he didn't have to pay those pesky pension bills... that were legally required of him. Then when the pot boils over he points to the cops and firemen as the problem?!?! You are clearly misinformed and attempting to spread misinformation based on your opinion.
-Fact; Gov. Christy stop paying into the state pension system prior to the economic crisis
-Fact; Gov. Christy decided to stop paying the pension system in order to use earmarked tax money elsewhere;
-Fact; Gov. Christy is guilty of front end pension raiding and thereby causing the pension system shortfall and crisis
-Fact; the NJ pension system is legally obligated to police officers and firefighters by legal and binding contracts that they help pay for themselves.

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