Public Sector Union Delema

America’s Public Sector Union Dilemma

By Lee E. Ohanian Saturday, November 26, 2011

Filed under: Economic Policy, Public Square

There is much less competition in the public sector than the private sector and that has made all the difference.

Since the Great Recession began in 2008, there has been a growing criticism of public sector unions, reflecting taxpayer concerns about union compensation and unfunded pension liabilities. These concerns have led to proposals to change public sector union policy in very significant ways. Earlier this month, voters in Ohio defeated by a wide margin a law that would have restricted union powers, although polls showed broad support for portions of the law that would have reduced union benefits. In Wisconsin, a state with a long-standing pro-union stance, Governor Scott Walker advanced policy in February that would cut pay and substantially curtail collective bargaining rights of many public sector union workers. In Florida, State Senator John Thrasher introduced legislation that would prevent governments from collecting union dues from union worker state paychecks. And it is not just Ohio, Wisconsin, and Florida that are attempting to change the landscape of public unions. Cash-strapped governments in many states are considering ways to reduce the costs associated with public unions.

It is important to determine why public unionization rates are so much higher than in the private sector, and whether public union employees are excessively raising costs to taxpayers. Public sector workers may be paid significantly more than private sector workers and their pensions and job security are often higher than in the private sector. Factoring in the lower likelihood of dismissal and layoffs in the public sector, public sector compensation may be 10 percent higher than market rates.
I calculate that bringing public sector wages closer in line with private sector wages by reducing them by 5 percent can reduce state fiscal deficits considerably. For California, which is among the most fiscally strapped states in the nation, reducing state worker wages by 5 percent would reduce the state deficit by about 15 percent. Moreover, some public sector workers, such as California prison guards, are paid far in excess of competitive levels, reflecting a strong union and effective lobbying that has fostered rapid compensation growth. Other unions, such as teacher unions, do not drive up compensation nearly as much, but instead have substantial negative impact by protecting poor teachers, which in turn reduces the quality of public education and reduces human capital.


The Economic Implications of Unions

It is clear that governments must use a systematic approach to public sector compensation if the public is to avoid overpaying government employees.

A union is a form of monopoly, or cartel. It is a single seller of labor services to a business. This means that unions have the ability to raise compensation for its members above the level that would prevail in a competitive marketplace, as well as to define work rules for its members that reduce efficiency. There has been considerable research on the effects of collective bargaining on wages, and consensus estimates are that unions raise wages by about 10 to 15 percent above the rate that would prevail in their absence.¹
There is comparatively less research on the impact of work rules on economic activity, but the available data suggests that union work rules, particularly in industries that face little competition, can substantially reduce efficiency and output. James A. Schmitz of the University of Chicago estimates that during periods of very limited competition, union work rules in the iron ore industry reduced output per worker by about 50 percent.²
By raising wages and adopting inefficient work rules, unions increase business costs and prices, which in turn reduce employment and output. From this perspective, unions seem misplaced in a modern economy in which there is considerable competition in the labor market and in other markets, and in which there is general recognition among economists and policymakers that increasing competition benefits society by improving the allocation of scarce resources, increasing efficiency, and maximizing output.
Unions are largely a carryover from many years ago, when there was much less competition in the economy for workers and unions were considered an important economic force that was necessary to protect worker safety and health. But both labor market conditions and worker health and safety conditions are much different today. Most workers now live in locations with many employers competing for their services. This competition for workers means that wages coincide with worker productivity. And workplace health and safety is now largely covered by federal and state laws. As a result of these changes, the socially useful role of unions has declined considerably over time.
Divergent Trends in Private and Public Unionization Rates
These changes in the importance of unions to workers over time are also reflected in changes in unionization rates. One of the most striking trends in labor markets over the last century is the very rapid increase, followed by the subsequent substantial decline, in unionization rates in the private sector. Figure 1 shows the share of unionized employment from 1929 to the present. The data show a very significant increase in private sector unionization during the 1930s as union membership jumped from about 12 percent in 1929 to about 35 percent during World War II.

This dramatic increase reflects the passage of a number of important pieces of pro-union legislation, including the National Labor Relations Act in 1935, which not only made it easier to organize workers into a union, but also increased union bargaining power, which in turn raised union wages and thus increased the attractiveness of unions for workers.

The cost of California’s prison system is about $44,000 per inmate, compared to a national average of $28,000.

But union representation in the private sector began to decline, at first slowly in the 1960s, and then accelerating in the 1970s. Private sector unionization rates have declined from about 37 percent in 1952 to only about 6 percent today. Declining private sector unionization reflects a number of factors, including that the economy is much more competitive than it was 60 years ago, and that many of today’s workers prefer to negotiate their own opportunities rather than relinquish their individual bargaining rights to collective bargaining.
It is also important to recognize that declining unionization is not the result of the country’s declining industrial base, as is often suggested (see for example Bluestone, 1990, and Rowthorn and Ramaswamy, 1997). In particular, declining unionization characterizes most of the private sector economy, including industry. As Barry T. Hirsch shows, unionization rates in manufacturing and construction, two of the most heavily unionized sectors, fell from about 40 percent in the early 1970s to less than 15 percent in 2006.³
Increased competition is considered by many economists to be a major factor in understanding lower private sector unionization.^4,5 In a competitive industry, competition for workers drives wages up to the level of worker productivity, and competition in product markets drives output prices down to the level that is consistent with the market return on capital. Thus, union attempts to raise compensation or implement inefficient work rules in a highly competitive market would result in firms becoming unprofitable.


In contrast, if a firm or industry is protected from competition, then profits will be higher compared to profits under competition. Excess profits are called economic rents by economists, and unions can obtain a share of these rents for their members by raising wages and/or changing work rules. Thus, the economic rents that result from too little competition are divided between labor and capital, and the relative division between these two parties depends on their respective bargaining positions.

Not surprisingly, much union organization focused on highly concentrated industries in which there was little competition, such as autos and steel.⁶ Unions are likely to be more successful in raising wages in highly concentrated industries because it is feasible to unionize the entire industry, such as the United Auto Workers in organizing General Motors, Ford, and Chrysler in the 1930s.

Consensus estimates are that unions raise wages by about 10 to 15 percent above the rate that would prevail in their absence.

But the auto industry, as well as much of the manufacturing sector, has not only been impacted by foreign competition (auto imports are now about 17 percent of GDP compared to about 5 percent of GDP in 1970), but by competition among the U.S. states. In 1947, the Taft Hartley Act substantially changed the National Labor Relations Act by giving states the right to outlaw the union shop, in which workers must join a union. Today, 23 states have passed these “right to work” laws, including most of the South and many of the Midwest and the Mountain West states. The share of employment in these “right to work” states has increased from about 24 percent of employment in 1955 to about 38 percent today. Thomas J. Holmes has studied how “right to work” laws impact the location of industry and finds that these laws are quantitatively important determinants of where manufacturers choose to locate.⁷ Using detailed county-level data, Holmes examines business activity at state borders in which a “right to work” state borders a non-“right to work” state. He finds that the manufacturing share of employment increases by one-third in the right-to-work state at the border compared to the other state, and concludes that this higher share of manufacturing is significantly due to differences in these unionization policies.

The impact of competition among the states is clearly illustrated by the location decisions of foreign companies like Toyota and Honda. When these companies decided to produce autos in the United States, they chose to locate in right-to-work states, including Kentucky, Texas, Mississippi, and Alabama. Foreign companies now produce about 50 percent of autos manufactured in the United States, and this production share will likely increase in coming years. Auto workers in non-union plants show little interest in United Auto Workers overtures to become organized. One worker at a southern U.S. auto plant stated "We have good communication with management here.
Why would you need a union? The only time a union shows up is to collect dues or at election time".⁸ Another worker of 17 years stated "The UAW has to have a reason to come inside the company. Nissan doesn't give them one. I don't need someone talking to the boss for me”.⁹

Today’s increasingly competitive global and domestic economy indicates that there are important limitations on what unions can plausibly achieve compared to what they were able to achieve in the past. Thus, workers will have little demand for union representation when unions cannot deliver better pay and working conditions than what workers can achieve on their own. From this perspective, the very large decline in private sector unionization is not surprising.
But unionization trends among public sector workers differ considerably. Figure 1 also shows unionization rates for state and local government workers since the early 1980s. But rather than declining, as in the case of the private sector, public sector unionization rates have been relatively high and stable over time, at around 43 percent for local government workers and about 33 percent for state workers. These very different trends reflect large differences in the impact of competition on private versus public sector employees. Specifically, the very large decline in unionization in the private sector has been significantly impacted by increased competition, which has reduced the ability of unions to raise wages or change work rules. But much less competition exists in the public sector, and this means that unions have more opportunities, which makes union membership more attractive.



Figure 2 shows compensation rates for public and private sector workers since 1929, measured in 2008 dollars. Between the end of World War II and 1980, note that private sector and public sector compensation moved in lockstep with each other, as both rose from about $25,000 after World War II to nearly $50,000 in 1980. But after 1980, public sector compensation diverges from private sector compensation significantly, as public sector compensation rises to nearly $70,000 per worker, representing about a 40 percent increase from 1980, but private sector compensation rises to only about $60,000, representing about a 20 percent increase from 1980. The gap tends to become larger during the recessions of the early 1990s and also the Great Recession, reflecting slower compensation growth in the private but not the public sector. Moreover, this rising compensation differential between the public and private sector may be significantly understated, as it does not include pension benefits, which tend to be more generous in the public sector. While other factors are likely involved, it is plausible that the relatively high unionization rates in the public sector can account for some of the acceleration in public sector pay relative to private sector pay over the last 30 years.

Is Public Sector Compensation Too High?

The socially useful role of unions has declined considerably over time.

Some economists have argued that the acceleration of public sector compensation compared to private sector compensation is imposing a significant cost to taxpayers. At first glance, it may seem reasonable that the public sector should provide approximately the same compensation rates as the private sector. However, if one factors in the higher job security and pensions of public sector jobs, public sector wages should actually be lower than those in the private sector.
Regarding job security, Chris Edwards documents that the chance of job loss by layoff is three times higher in the private sector than in the public sector.¹⁰ Since most individuals dislike risk (what economists call risk aversion), the fact that public sector jobs have more job security than private sector jobs raises the benefit of working for the public sector and suggests that the public sector may be able to pay lower compensation rates than the private sector because of this added benefit. This explanation for why the public sector could compete with the private sector even while paying lower compensation follows the same reasoning as why relatively riskless assets, such as U.S. Treasury securities, provide a lower rate of return than risky assets such as stocks and real estate.

I provide an estimate of this differential by conducting an analysis of the difference in private and public compensation, accounting for the additional job security offered by the public sector. To simplify the analysis, I focus on a representative worker, and thus abstract from potential differences in worker characteristics between public and private sector workers that might impact the analysis. I use a standard economic model in which a risk-averse individual faces unemployment risk, which is about three times higher in the private sector than the public sector. In the model, there is a representative worker with a risk aversion coefficient of two, which is close to the consensus estimate in the related literature. At any point in time, the worker in the model will be in one of three possible states: employed in a relatively high paying job, employed in a job paying 25 percent less than the high paying job, or unemployed, in which they receive unemployment benefits. The relatively low paying job is included in the analysis because workers frequently take jobs following a layoff that pay considerably less than their previous job.

I use historical data from the Bureau of Labor Statistics to identify the probability that a worker in the model is involuntarily separated from their job, which is about a 4 percent chance per month, average duration of unemployment, which is about 3.5 months, and the probability of continuing employment, which is about 96 percent.

For the case of the public sector, the probability of involuntary separation is just 1.3 percent, which is one-third as high as the probability in the private sector case. I then calculate the difference in compensation between the public sector (low unemployment case) and the private sector, such that a worker would be indifferent between working in either sector. I find that workers would be willing to work for about 10 percent less compensation in the public sector, given the additional benefit of much higher job security. This estimate is conservative in terms of considering today’s labor market, as average unemployment duration today is much higher than its historical average.

The dismissal rate of teachers for performance-based reasons, which is about 0.1 percent, is very low compared to dismissal rates in other occupations.

This analysis suggests the possibility that public sector compensation may be significantly higher than competitive levels. Moreover, the fact that public sector workers are only about one-third as likely to voluntarily leave their job as private sector workers is consistent with the conclusion that average public sector compensation rates are in excess of competitive levels, indicating that there are relatively few external employment opportunities that dominate public sector workers’ jobs. The fact that average public compensation is higher than average private sector compensation suggests that public sector worker compensation may be well above competitive levels and indicates that public sector wages could be reduced without significantly impacting public sector employment. For example, I’ve calculated the impact of a 5 percent wage reduction for all public employees in California, a state with one of the most severe fiscal crises in the country. A 5 percent wage cut would reduce state spending by $1.33 billion, which would reduce California’s 2011 state budget deficit by nearly 15 percent.

This finding has implications for how public sector wages should be determined. Specifically, there are no systematic efforts in government to evaluate the level of public sector compensation with reference to the private sector, particularly at the local level where unionization among public workers is the highest. Robert G. Gregory and Jeff Borland analyze wage determination in federal, state, and local governments and conclude that pay scales are significantly determined by wage bargaining, which ranges from national wage agreements to decentralized wage agreements within a local area.¹¹ Federal General Schedule compensation is determined by the executive and legislature on the basis of some evidence on private enterprise pay rates for similar types of work. But at the state and particularly the local level, compensation determination takes place through negotiation between employers and unions representing public sector employees. In this case, compensation outcomes depend upon features of the institutional environment, including the extent to which employers are required to bargain with unions, whether arbitration procedures are available to resolve disputes, and whether unions have the legal right to take strike action as part of wage-setting negotiations. Bargaining between employers and unions is the most common method of wage-setting for local government employees in the United States.

It is clear that governments must use a systematic approach to public sector compensation if the public is to avoid overpaying government employees. This approach is imperative because of the limited scope of competition within government for at least some services and because of the relatively high level of unionization in the public sector.

Governments should first make assessments of the adequacy of public sector compensation with reference to private sector compensation, as in the case of the federal government. But all forms of government should evaluate compensation beyond simple comparisons with the private sector by adding in the relative advantages of public sector employment, including job security, relative differences between vacations and other paid leaves, and relative differences between pension and retirement benefits. This analysis could be an integral component in bargaining with public sector unions and insure that public sector compensation levels do not deviate far from reasonable levels. The following section describes what can happen to compensation levels when there is lack of competition, strong unions, and no comparative reference points for assessing compensation levels.

Some states are pursuing reforms that are in this spirit in dealing with public sector pensions. New York Governor Andrew Cuomo and New Jersey Governor Chris Christie have proposed plans that would reduce public pension costs in their respective states by increasing worker contributions to pensions, changing retirement ages, and eliminating the ability of workers to use overtime in late career years to pad pension payments. Both governors support these proposals by pointing out that current pension rules in their states are uncompetitive compared to other plans.

The Economic Impact of Unions: Excessive Compensation in California’s Prison Guard Union
The California Correctional Peace Officers Association (CCPOA) is the bargaining unit for California’s prison guards. CCPOA has been very effective in raising compensation for them. Figure 3 shows prison guard pay across states, and highlights the high level of California guard pay.

I
n 2006, when California’s last contract with the CCPOA expired, about 900 guards received at least $50,000 in overtime pay, and about 1,600 officers received more than $110,000 in pay. The cost of California’s prison system is about $44,000 per inmate, compared to a national average of $28,000.¹² The CCPOA has been able to engineer remarkable compensation growth for its members not through any demonstrable evidence of substantially higher productivity, which is the typical determinant of compensation growth in a competitive labor market, but rather through its monopoly status as a single seller of labor to the state prison system and through political contributions that selectively support legislation and programs that boost the demand for prison guards.

Declining private sector unionization reflects how many of today’s workers prefer to negotiate their own opportunities.

Some of the CCPOA’s political contributions have probably reduced the effectiveness of California’s prison system, particularly regarding its ability to rehabilitate and reform offenders, and as a consequence may have made crime worse in the state and increased its cost. Today’s California prisons are much less effective than in the past, as 77 percent of crime in California is the result of recidivism (crimes by repeat offenders). California’s recidivism rate is about twice the national average, and this is attributed by many to the lack of rehabilitation and training programs in California prisons. These programs, which at one time were common in California prisons and were acknowledged as a central positive feature of California prison policy, lost funding beginning around 1980 and are now largely absent.

CCPOA has actively lobbied against legislation that would enhance training and rehabilitation in prisons. In 2005, CCPOA spent $11 million on political activities, compared to around $3 million in previous years, as 2005 was Governor Arnold Schwarzenegger’s “year of reform” for California government. Some of CCPOA’s lobbying and contributions helped defeat Schwarzenegger’s 2005 proposal to reduce overcrowded prison populations by as much as 20,000 inmates through a program that would have placed parole violators into rehabilitation programs rather than returning them to prison. Schwarzenegger dropped this proposal following television ads funded by the CCPOA that criticized the governor for proposing to release dangerous criminals. In 1999, the CCPOA opposed a bill that would have funded a pilot program for alternative sentences for nonviolent parole offenders, thus reducing the prison population, and which was vetoed by Governor Gray Davis. The CCPOA has also opposed candidates who advocated private prisons, which tend to have lower operating costs. In 2004, CCPOA strongly supported California’s controversial “ three strikes” law—which requires that three-time offenders face mandatory and extended prison terms, including for petty theft and nonviolent drug crimes—by spending over $1 million to defeat Proposition 66, which would have reduced the number of offenders who would serve life sentences under this law.

In 2010, CCPOA contributed about $1 million to defeat Proposition 5, which would have reduced prison overcrowding by providing treatment rather than prison sentences for nonviolent drug offenders. CCPOA also contributed about $2 million to Jerry Brown’s gubernatorial campaign. Governor Brown recently agreed to bargaining terms with the CCPOA, which had been operating without a contract since 2006, having failed to reach agreement with Schwarzenegger. All told, the CCPOA spent about $7 million on 2010 elections, including supporting 107 political candidates, 104 of whom were elected. California State Senator Juan Vargas, who won by 22 votes in 2010, said “I won by 22 votes and without CCPOA I wouldn’t have been close … They literally won this campaign for me.”¹³

And prior to reaching a contract agreement with Governor Brown, CCPOA President Mike Jimenez remarked, “We’ve had a long-term relationship with Jerry Brown. He’s got really good intuition … on what we need as a profession.” Furthermore, Craig Brown, a CCPOA lobbyist, stated, “We should be able to develop a good contract with this governor and we should have no trouble getting it ratified.”¹⁴

The agreement includes eight weeks of vacation per year and a controversial component that would allow prison guards to cash in unused vacation time at a 100 percent accrual rate, compared to an 80 percent rate that is used for most other state employees. Moreover, the unused vacation time can be used to increase pensions. The accrual of unused vacation days and the significant use of overtime is partially the result of California’s prison system being far above capacity, which likely reflects the lack of reform programs in the system as well as California’s three-strikes law. California State Senator Anthony Cannela, who was supported by the CCPOA in last fall’s election, broke ranks with other Republican lawmakers to cast the deciding vote when the State Senate ratified the contract. Cannela remarked that “I feel that the CCPOA was actually critical to my election.”¹⁵

Unions are likely to be more successful in raising wages in highly concentrated industries because it is feasible to unionize the entire industry.

Overall, the CCPOA spent about $7 million on California’s recent elections. And of the 107 candidates they endorsed, 104 won their election. The CCPOA website boasted, “We won big this year. Played a decisive role in electing the governor. Elected new friends in the legislature. Made a difference for the men and women who walk the toughest beat. We win because we never quit, and that’s what makes us CCPOA.”

The CCPOA has consistently and systematically taken positions on candidates and bills that directly impact the demand for prison guard services and that in turn drive up prison guard compensation. The remarkable effectiveness of the CCPOA has resulted in some of the highest paid state workers anywhere, with compensation that significantly exceeds the national average.
But public sector unions do not impact the economy just by increasing wages above competitive levels. They also protect union members who don’t perform adequately. And the economic cost of protecting deficient workers can even be higher than simply increasing compensation.

The Economic Impact of Public Sector Unions: Protecting Underperforming Teachers
Unlike the prison guards union, school teacher unions have not driven compensation up dramatically; teacher compensation has increased at roughly the same rate of all workers.
But teacher unions significantly impact the quality of education and the human capital of new workers by protecting teachers who do not perform well. Recent research suggests that improving teacher quality, particularly by replacing the lowest performing teachers, can generate very large productivity and income gains that are essential if the United States is to maintain its competitiveness in the world economy.

There is considerable research on the impact of teacher unions on education quality and teaching outcomes. For example, Caroline Hoxby presents evidence that teacher unions are an important contributing factor for why quality and efficiency of public education has declined since 1960 despite the fact that state and local government spending on K–12 education has increased, reflecting higher teacher salaries and higher per-pupil expenditures.¹⁶ Hoxby identifies the impact of teacher unions through differences in the timing of collective bargaining, with a focus on when legislation is passed that fosters organization of teachers. She concludes that teacher unions are responsible for increasing the resources devoted to public education by using their market power in bargaining with school districts, and that, despite higher spending, unions depress the quality of education by reducing the productivity of teaching.

There is also evidence that the overall quality of teachers has declined over time and that a significant fraction of this decline reflects teacher unions. For example, Caroline Hoxby and Andrew Leigh find that the share of teachers who are among the top aptitude individuals, as measured by SAT scores, has declined over time from about 5 percent of teachers in 1963 to only 1 percent in 2000, and that much of this decline is due to the fact that teacher unions, like most other unions, compress compensation, which means that the spread in compensation between the highest quality and lowest quality teachers is reduced.¹⁷ And it is not only the very top aptitude individuals that are entering teaching at a lower rate. Wage compression benefits lower ability teachers, but reduces compensation of the best teachers, and this decline in compensation at the top end leads to fewer top aptitude individuals pursuing a teaching career.

Much less competition exists in the public sector, and this means that unions have more opportunities, which makes union membership more attractive.

Hoxby and Leigh also note that there has been a large increase in the lowest aptitude individuals—those in the bottom 25 percent of SAT achievement—entering teaching, and that they now make up about 16 percent to around 36 percent of the teacher population.¹⁸ This change in the composition of teachers is negatively impacting teaching outcomes.

There is significant evidence that teacher unions, which bargain for tenure for their members, protect underperforming teachers through the tenure system. For example, the dismissal rate of teachers for performance-based reasons, which is about 0.1 percent, is very low compared to dismissal rates in other occupations. Moreover, the cost associated with dismissing an underperforming teacher is very high, ranging from $100,000 to $200,000 per case. And union contracts also implicitly protect underperforming teachers with seniority-based layoff policies. Last year, Megan Sampson, a public school teacher in Milwaukee, Wisconsin, was laid off because of lack of seniority, even though she received Wisconsin’s outstanding first-year teacher award.

Some teacher unions have largely eliminated competition from the process of setting compensation. Michael Podgursky describes how teacher pay is often set by inflexible salary schedules in which pay depends on years of experience and degrees, but with no salary differences across teaching area, effort, or performance.¹⁹ He notes that these criteria “virtually guarantee shortages by field.” Moreover, some of the criteria used in wage setting, such as taking additional courses, are unrelated to instructional skill and quality. These courses raise salaries in the Los Angeles Unified School District by about $500 million every year without any significant increase in performance.²⁰

Former teacher union insider A.J. Duffy, who for six years was president of one of the largest teacher unions, United Teachers Los Angeles, acknowledges the severe inefficiencies in union teacher contracts. While Duffy served as UTLA president, Los Angeles Mayor Antonio Villaraigosa called the UTLA “one unwavering roadblock to reform.”²¹ Now, Duffy states that the teacher tenure process requires reform. He advocates a longer review period in order to earn tenure, and that teachers continue to establish that they are effective in order to retain tenure. Duffy also states that the teacher dismissal process should be reformed by substantially shortening it, saying, “I would make it 10 days if I could.”

Recent research shows that protecting poor teachers is very costly. In particular, research by Eric Hanushek finds that the economic impact of protecting poor teachers is remarkably high.²² He estimates that if the bottom 5 to 8 percent of teachers were replaced with average quality teachers, then U.S. student test scores in math and science would be at the top of international comparisons. This means that the human capital of future U.S. workers would rise, and thus generate higher production and income in the future. Hanushek estimates that the present discounted value of higher future incomes that would result from replacing poorly performing teachers would be about $100 trillion.
Some teacher unions are responding to calls for reform by working with school boards to address some of these issues, including unions in Pittsburgh and in some parts of Florida. And at its 2011 annual meeting, the National Education Association endorsed assessing teachers to ensure that they are accountable for student learning. However, teacher union reforms must be much more broadly and deeply based for public education to be efficient and effective.
The Future for Public Sector Unions

After 1980, public sector compensation diverges from private sector compensation significantly.

Unionization is much higher in the public sector than in the private sector, and there has been no tendency for unionization to decline in the public sector. While private sector unionization has declined from about 37 percent to about 6 percent, unionization in local government has been steady at around 45 percent.
Public sector unions have been able to thrive because of the very limited competition in state and local governments. This has allowed unions to increase wages above competitive levels. In particular, state and local government compensation has increased by about 40 percent since 1980, compared to about a 20 percent increase in the private sector. The average public sector compensation level is now $70,000, compared to an average of $60,000 in the private sector.

Moreover, the much higher rate of job security in the public sector, plus superior public pensions, suggest that state and local government workers would be willing to work for less than private sector pay. My findings indicate that accounting for just the much higher rate of public sector job security suggests that public sector employment could be competitive even with compensation that was about 10 percent lower than the private sector. The fact that average public sector worker compensation is higher than in the private sector, without taking into account pension benefits, suggests that public sector compensation levels may be significantly above competitive levels. I find that reducing the wages of state workers by 5 percent would reduce California’s 2011-2012 state budget deficit by nearly 15 percent.

There may be considerable savings from state and local government reforms that systematically develop competitive compensation analyses. Specifically, government should first benchmark compensation, including pensions, to private sector comparisons. Current efforts regarding pensions that have been proposed by New York Governor Cuomo and New Jersey Governor Christie are useful first steps along these lines. These proposals are aimed at reducing pension benefits to levels that are competitive from previous levels that have been the result of negotiations with powerful unions. Compensation analyses should also take into account other beneficial components of public sector employment, including much greater job security.

At the same time, public sector unions must understand that taxpayers will no longer accept uncompetitive agreements with unions. Rather than continue the union model of yesteryear in which unions focus on maximizing the size of the pie that members can receive, unions should understand that increasing wages for their members requires increasing productivity and reducing costs. Southwest Airlines has long been one of the most successful carriers because both labor and management are focused on achieving higher efficiency and levels of service than their competitors. Unions that can follow these principles will succeed, while unions that cannot will continue to come under fire.
Lee E. Ohanian is Professor of Economics at UCLA, and a Senior Fellow at the Hoover Institution.

FURTHER READING: Michael M. Rosen describes “The Real Problem with Government Employee Unions.” Alan J. Haus writes “Right-To-Work Unionism?” Andrew G. Biggs and Jason Richwine contribute “Public School Teachers Aren't Underpaid” and “Public vs. Private Sector Compensation in Ohio.” Biggs also reports “State Pension Hole Is Much Deeper Than Official Estimates.”

Footnotes

VDH Obama's Imaginarium

The Imaginarium of Barack Obama

Posted By Victor Davis Hanson On November 16, 2011

The presidency of Barack Obama is full of funny things that need not follow any sort of logic. Images and ideas just pop in and out, without worry of inconsistency, contradiction, or hypocrisy. It’s a fascinating mish-mash of strange heroes and bogeymen, this imaginarium of our president.

In the imaginarium there are no revolving doors, earmarks, or lobbyists. So Peter Orszag did not go from being OMB director to a Citigroup fat-cat. Once chief-of-staff Rahm Emanuel did not make $16 million for his well-known banking expertise. The more you damn the pernicious role of lobbyists and the polluting role of big money, the more you must hire and seek out both. Public financing of campaigns is wonderful for everyone else who lacks the integrity of Barack Obama who understandably must renounce such unfair impositions.

Those who now vote against raising the large Obama debt ceiling are political hucksters and opportunists; those who not long ago voted against raising the smaller Bush debt ceiling were principled statesmen. “Unpatriotic” presidents borrow $4 trillion in eight years; patriotic ones we’ve been waiting for can trump that in three.

Catching known terrorists and putting them in Guantanamo is very bad; killing suspected ones by drone assassinations — and anyone unlucky enough to be in their general vicinity — is exceptionally good. Tribunals, renditions, preventative detention, and all that were bad ideas under Bush-Cheney, but could become good ideas under Barack Obama, the law professor who often sees no need to follow the law when an immigration or marriage statute is deemed regressive.

A million Iranians protesting a soon-to-be-nuclear theocracy is false revolutionary consciousness and to be left alone; a few thousand Israelis wanting to buy apartments in the Jerusalem suburbs is subversive and worthy of presidential condemnation. And when atoning for supposed American lapses, what better place to begin apologizing than in Turkey, the incubator of the Armenian, Greek, and Kurdish mass killings? We need to deny history to make the case that America is not exceptional, and to invent it to persuade us that the Muslim world is extraordinary.

Twenty-four months of a Democratic Congress, and over $4 trillion in spending, resulted in 9.1% unemployment and near nonexistent growth. Yet the culprit for the current situation is ten months of a Republican-controlled House that has yet to approve another $500 billion of borrowing. In the imaginarium, just a little more of the massive amount that has failed will not fail. But if the Republicans are to be blamed for not wanting to waste the last half-trillion, are the Democrats to be praised for borrowing the first wasted $4 trillion?

In the imaginarium, all sorts of demons and devils can unite to derail the brilliance of Barack Obama’s economic recovery plan. ATMs have for the first time after 2009 begun to eliminate jobs. But then so did the Japanese tsunami and the EU meltdown. The DC earthquake did its part, but then so did climbing oil prices and the Arab Spring. Of course, the ghost of George Bush floats over all the present mess. Economic gurus like Austan Goolsbee, Peter Orszag, Christina Romer, and Larry Summers used to write brilliant essays of what would work if they were to be in charge, and now write brilliant essays about why it did not work when they were in charge.

There are lots of ways to bring Americans together across class and racial lines. One in the imaginarium is to focus on the “teabag, anti-government people.” Another is to encourage Hispanics to “punish our enemies” — or have the attorney general lambaste Americans as racial “cowards” and to defend “my people.” Joining foreign governments to sue a fellow American state is no more red/no more blue state unity. Still another is to divide up the people between the suspect who make over $200,000 and the noble who make less, or yet again target the dubious “1%” at “the very top” who do not pay “their fair share,” a mere 40% of the aggregate income tax.

Inside the imaginarium, the way to demonize the “1%” is to vacation among them — whether at Martha’s Vineyard or Costa del Sol. Buying a corporate jet is a waste of the people’s money — unlike daily flying on a much bigger private jet paid by the people.

To encourage energy self-sufficiency, the administration lent a half-billion dollars to campaign donor insiders and got unsellable solar panels in return — as it prevents a huge pipeline from Canada that will bring “shovel-ready” jobs and fuel to the United States far more cheaply than from the volatile Middle East. We have a brilliantly obtuse energy secretary who is a Nobel laureate but who thinks California farms — a record $15 billion in exports this year — will soon blow away and that gas should climb to European levels of about $9 a gallon. In the imaginarium, the purpose of Dr. Chu’s Department of Energy is not to encourage energy production and lower prices, but to find ways to prevent its development in search of raising its cost. The attorney general must be entirely conversant in small matters like a Black Panther voting intimidation case, but was completely ignorant of large ones like Fast and Furious that saw his subordinates sell automatic weapons to Mexican drug cartels.

The president regrets that we are not innovative any more, and have gone “soft” and “lazy.” You see, his efforts at ensuring cradle-to-grave health care entitlements, of granting 99 weeks of unemployment insurance, and of extending food stamps to nearly 50 million are apparently incentives that should have led to a “hard” and “industrious” populace that was more self-reliant and willing to take risks on their own. “Spread the wealth” is a time-honored way of galvanizing people to become more self-disciplined and sufficient.
Business has failed us as well. And the way to get Las Vegas and Super Bowl junketeering CEOs profitable enough again to fund the growing redistributive state, is for them to take risks that result in the sort of massive projects that used to be an American trademark — things like the Hoover Dam, which changed the environmental landscape far more than would the apparently cancelled gargantuan pipeline from Canada to Texas. Business can be encouraged not to be lazy by a prod now and then — either by trying to shut down a big aircraft plant or a small guitar factory. And in the imaginarium, the way to gently chide the private sector is with words of encouragement like “millionaires and billionaires,” and “corporate jet owners,” along with grandfatherly advice to clueless capitalists about realizing the point at which they should cease making money.

In the imaginarium of Barack Obama there is no contradiction between smearing and shaking down Wall Street, a bunch that needs both to be told when and when not to profit, and to whom and to whom not to give tens of millions of dollars in campaign contributions. Barney Frank, who helped pressure Wall Street and Fannie Mae and Freddie Mac to issue billions in unsound loans, and Chris Dodd, who shook down fat cats for below-market interest rates for his vacation home, logically are the eponymous heroes of the Dodd-Frank fiscal reform act to ensure others do not do as did they. Former liberal governor, senator, and Goldman Sachs CEO Jon Corzine, who both wrecked MF Global and can’t account for $600 million in lost investments, is, in George Soros-like fashion, the best emblem of the contradictory desire to be the worst pirate on Wall Street in order to make the most money in order to be its most liberal critic. In the imaginarium we receive advice about the need for higher income taxes from multibillionaires Warren Buffett and Bill Gates who have always sought to avoid them. Big government and big inheritance taxes, both magnates swear are good, and therefore the administration of their own postmortem fortunes will forever avoid both.

In the imaginarium, community organizer Barack Obama never lived in a small mansion. John “two Americas” Edwards never lived in a big one. “Earth in the balance” Al Gore never lived in a few of them, and yacht owning John Kerry never lived in lots of them. You see in the imaginarium of Barack Obama you can be whatever you wish to be. Just wishing and saying something can wonderfully make it so.

JP TAX SUPER COMMITTEE - DEVOLUTION

Democrats’ tax-hike obsession killed the SuperCommittee

By James Pethokoukis

November 20, 2011, 9:27 pm

The spectacular failure of the much-hyped, congressional debt-reduction panel completes the devolution of the Democratic Party back to its pre-Clintonion state: unabashed champion of the high-tax welfare state. And America is worse for it.

It’s like the 1990s never happened and the 1970s never stopped happening for the Washington Obamacrats. The U.S. economy faces two screamingly obvious problems: historically slow growth and historically high government spending leading to massive budget deficits. In this way, American is already frighteningly like Greece and Italy.

Yet Democrats used the SuperCommittee to push a trillion-dollar tax hike and block fundamental entitlement reform.

As one GOP aide told Politico, “If they were willing to go a little further on entitlements, we’d see what we can do on revenues. That was the way it would have to work. What we found was, they needed a trillion-plus in revenues, and weren’t willing to do anywhere near that on entitlements.”
It’s been an underappreciated fact just how far left Democrats have moved on taxes in recent years. But it should now be blindingly clear.

The SuperCommittee Democrats are perfectly happy to let the top tax rate soar to nearly 45 percent in 2013 (including both income taxes and Medicare taxes) on small business and entrepreneurs and investors. This, even though the exploding eurozone debt crisis threatens to push the U.S. economy from sputter speed to stall.
 
And even if financial contagion doesn’t wash up on our shores, few economists see growth fast enough to substantially reduce unemployment and boost incomes any year soon.

Yet Democrats seem unconcerned or even eager for taxes to rise, thanks in part to the work of liberal economists advocating taxes rates as high as 80 percent. It will also take dramatically higher tax revenue to fund what Democrats argue is an unavoidable surge in government spending due to a) the aging of the population and — as they see it — b) trillions in needed public “investment” catch-up after years of Republican stinginess.

But it’s a self-fulfilling prophecy. Without market-based entitlement reform — which even many centrists endorse — government health spending will indeed continue to soar.

If Uncle Sam does need more revenue, pro-growth tax reform is the best way to get it. A host of studies from both liberal and conservative economists have found that eliminating the tax code’s bias against investment would boost long-term GDP growth by as much as 10 percent and add perhaps a full percentage point to annual GDP growth for a number of years.

But cutting taxes on capital cuts against the Democrat embrace of Occupy politics. So no tax reform, no entitlement reform and no progress on America’s biggest problems.

Why NG is Greener Than Green

Lost in the debate over fracking and drilling to extract natural gas in the US and abroad rather than pursuing supposedly clean renewables is this: natural gas is actually greener.  New Geography’s Matt Ridley starts off by asking which view homeowners would prefer — a modest gas well or a towering, noisy commercial windmill — and then explains that choosing wind means you get both (via NewsAlert):

Wind turbines slice thousands of birds of prey in half every year, including white-tailed eagles in Norway, golden eagles in California, wedge-tailed eagles in Tasmania. There’s a video on YouTube of one winging a griffon vulture in Crete. According to a study in Pennsylvania, a wind farm with eight turbines would kill about a 200 bats a year. The pressure wave from the passing blade just implodes the little creatures’ lungs. You and I can go to jail for harming bats or eagles; wind companies are immune.
Still can’t make up your mind? The wind farm requires eight tonnes of an element called neodymium, which is produced only in Inner Mongolia, by boiling ores in acid leaving lakes of radioactive tailings so toxic no creature goes near them.
Not convinced? The gas well requires no subsidy – in fact it pays a hefty tax to the government – whereas the wind turbines each cost you a substantial add-on to your electricity bill, part of which goes to the rich landowner whose land they stand on. Wind power costs three times as much as gas-fired power. Make that nine times if the wind farm is offshore. And that’s assuming the cost of decommissioning the wind farm is left to your children – few will last 25 years.
Decided yet? I forgot to mention something. If you choose the gas well, that’s it, you can have it. If you choose the wind farm, you are going to need the gas well too. That’s because when the wind does not blow you will need a back-up power station running on something more reliable. But the bloke who builds gas turbines is not happy to build one that only operates when the wind drops, so he’s now demanding a subsidy, too.

Thanks to fracking and other adaptations of well-developed technology, we can now access vast pools of methane.  That’s not just in the US either, but all over the world.  Instead of running out of so-called fossil fuel (Ridley writes that the origin of this methane may be much older), we’re now looking at centuries of supply.  That has created consternation in central Asian nations like Iran and Russia, which had hoped to corner the market on natural gas in the Eastern Hemisphere, and with the enviros of the Western Hemisphere, who had hoped that it become so expensive that it would make the higher costs of wind and solar more competitive.
Remember when the US pushed hard to build LNG terminals in its ports so that we could import natural gas?  According to Ridley, those terminals are now either idle, or serving as export stations.
But what about the carbon?  As it turns out, natural gas is better than most of the alternatives — and would still be needed for the “intermittent and resource-depleting” renewables:

Wind cannot even help cut carbon emissions, because it needs carbon back-up, which is wastefully inefficient when powering up or down (nuclear cannot be turned on and off so fast). Even Germany and Denmark have failed to cut their carbon emissions by installing vast quantities of wind.
Yet switching to gas would hasten decarbonisation. In a combined cycle turbine gas converts to electricity with higher efficiency than other fossil fuels. And when you burn gas, you oxidise four hydrogen atoms for every carbon atom. That’s a better ratio than oil, much better than coal and much, much better than wood. Ausubel calculates that, thanks to gas, we will accelerate a relentless shift from carbon to hydrogen as the source of our energy without touching renewables.

Let’s not forget that the green issues go beyond the extraction of neodymium.  The green movement wants to move to electric vehicles as replacements for the internal-combustion automobile, one of their betes noires for pollution and carbon-dioxide emissions through the consumption of gasoline.  However, putting tens of millions of automobiles on the electrical grid will create huge demand for reliable and consistent energy production, which means that — at least under the current condition of renewables — we’re going to have to burn a lot more fossil fuel or build a lot of nuclear-power plants. Despite decades of government subsidies, we are nowhere near close to the kind of  mass production in wind and solar energy to take on that demand, or even today’s existing demand, reliably or intermittently.
And then there’s the issue of making and disposing of the large battery arrays necessary for electric cars to run, which ruin the economics of personal transportation.  That will require a lot more mining, much more traumatic mining than fracking, in order to get the limited amount of lithium and rare-earth elements needed for the mass production of battery arrays.  On top of that, the US doesn’t have much of these ores and minerals, which will make us even more dependent on imports for energy than we are now. When all of these batteries expire, where do we end up storing the extremely dirty waste?  There are no “green” answers to that question.
Instead of pushing for electric vehicles that have extremely limited range and zero independence from the electrical grid, we should push to move vehicles to natural gas — a technology that has existed for at least 30 years, and one in which I have personal experience.  We could shift the use of petroleum to specialized transport fuels like jet fuel, which would greatly reduce or eliminate our dependence on imports, and let the natural-gas technology boost our economy so that we can allow the private sector to properly develop the next generations of energy technology.
We have an opportunity to actually achieve real energy independence by shifting our efforts away from wind and solar and adopting a natural-gas infrastructure instead.  The best part?  It won’t require an avalanche of subsidies to succeed, either.  All we need to do is get government and its social engineers out of the way.

The 99

Way back in 1968, after the riots at the Democratic Convention in Chicago, Mayor Daley declared that his forces were there to “preserve disorder.” I believe that was one of Hizzoner’s famous malapropisms. Forty-three years later Jean Quan, mayor of Oakland, and the Oakland city council have made “preserving disorder” the official municipal policy. On Wednesday, the “Occupy Oakland” occupiers rampaged through the city, shutting down the nation’s fifth-busiest port, forcing stores to close, terrorizing those residents foolish enough to commit the reactionary crime of “shopping,” destroying ATMs, spraying the Christ the Light Cathedral with the insightful observation “F**k,” etc. And how did the Oakland city council react? The following day they considered a resolution to express their support for “Occupy Oakland” and to call on the city administration to “collaborate with protesters.”

That’s “collaborate” in the Nazi-occupied-France sense: The city’s feckless political class are collaborating with anarchists against the taxpayers who maintain them in their sinecures. They’re not the only ones. When the rumor spread that the Whole Foods store, of all unlikely corporate villains, had threatened to fire employees who participated in the protest, the regional president, David Lannon, took to Facebook: “We totally support our Team Members participating in the General Strike today — rumors are false!” But, despite his “total support,” they trashed his store anyway, breaking windows and spraypainting walls. As the Oakland Tribune reported:

A man who witnessed the Whole Foods attack, but asked not to be identified, said he was in the store buying an organic orange when the crowd arrived.

There’s an epitaph for the republic if ever I heard one.

The experience was surreal, the man said. “They were wearing masks. There was this whole mess of people, and no police here. That was weird.”

No, it wasn’t. It was municipal policy. In fairness to the miserable David Lannon, Whole Foods was in damage-control mode. Men’s Wearhouse in Oakland had no such excuse. In solidarity with the masses, they printed up a huge poster declaring “We stand with the 99%” and announcing they’d be closed that day. In return, they got their windows smashed.
I’m a proud member of the 1 percent, and I’d have been tempted to smash ’em myself. A few weeks back, finding myself suddenly without luggage, I shopped at a Men’s Wearhouse, faute de mieux, in Burlington, Vt. Never again. I’m not interested in patronizing craven corporations so decadent and self-indulgent that as a matter of corporate policy they support the destruction of civilized society. Did George Zimmer, founder of Men’s Wearhouse and backer of Howard Dean, marijuana decriminalization, and many other fashionable causes, ever glance at the photos of the OWS occupiers and ponder how many of “the 99%” were ever likely to be in need of his two-for-one deal on suits and neckties? And did he think even these dummies were dumb enough to fall for such a feebly corporatist attempt at appeasing the mob?
I don’t “stand with the 99%,” and certainly not downwind of them. But I’m all for their “occupation” continuing on its merry way. It usefully clarifies the stakes. At first glance, an alliance of anarchists and government might appear to be somewhat paradoxical. But the formal convergence in Oakland makes explicit the movement’s aims: They’re anarchists for statism, wild free-spirited youth demanding more and more total government control of every aspect of life — just so long as it respects the fundamental human right to sloth. What’s happening in Oakland is a logical exercise in class solidarity: The government class enthusiastically backing the breakdown of civil order is making common cause with the leisured varsity class, the thuggish union class, and the criminal class in order to stick it to what’s left of the beleaguered productive class. It’s a grand alliance of all those societal interests that wish to enjoy in perpetuity a lifestyle they are not willing to earn. Only the criminal class is reasonably upfront about this. The rest — the lifetime legislators, the unions defending lavish and unsustainable benefits, the “scholars” whiling away a somnolent half decade at Complacency U — are obliged to dress it up a little with some hooey about “social justice” and whatnot.
But that’s all it takes to get the media and modish if insecure corporate entities to string along. Whole Foods can probably pull it off. So can Ben & Jerry’s, the wholly owned subsidiary of the Anglo-Dutch corporation Unilever that nevertheless successfully passes itself off as some sort of tie-dyed Vermont hippie commune. But a chain of stores that sells shirts, ties, the garb of the corporate lackey has a tougher sell. The class that gets up in the morning, pulls on its lousy Men’s Wearhouse get-up, and trudges off to work has to pay for all the other classes, and the strain is beginning to tell.
Let it be said that the “occupiers” are right on the banks: They shouldn’t have been bailed out. America has one of the most dysfunctional banking systems in the civilized world, and most of its allegedly indispensable institutions should have been allowed to fail. But the Occupy Oakland types have no serious response, other than the overthrow of capitalism and its replacement by government-funded inertia.
America is seizing up before our eyes: The decrepit airports, the underwater property market, the education racket, the hyper-regulated business environment. Yet curiously the best example of this sclerosis is the alleged “revolutionary” movement itself. It’s the voice of youth, yet everything about it is cobwebbed. It’s more like an open-mike karaoke night of a revolution than the real thing. I don’t mean just the placards with the same old portable quotes by Lenin et al., but also, say, the photograph in Forbes of Rachel, a 20-year-old “unemployed cosmetologist” with remarkably uncosmetological complexion, dressed in pink hair and nose ring as if it’s London, 1977, and she’s killing time at Camden Lock before the Pistols gig. Except that that’s three and a half decades ago, so it would be like the Sex Pistols dressing like the Andrews Sisters. Are America’s revolting youth so totally pathetically moribund they can’t even invent their own hideous fashion statements? Last weekend, the nonagenarian Commie Pete Seeger was wheeled out at Zuccotti Park to serenade the oppressed masses with “If I Had a Hammer.” As it happens, I do have a hammer. Pace Mr. Seeger, they’re not that difficult to acquire, even in a recession. But, if I took it to Zuccotti Park, I doubt very much anyone would know how to use it, or be able to muster the energy to do so.
At heart, Oakland’s occupiers and worthless political class want more of the same fix that has made America the Brokest Nation in History: They expect to live as beneficiaries of a prosperous Western society without making any contribution to the productivity necessary to sustain it. This is the “idealism” that the media are happy to sentimentalize, and that enough poseurs among the corporate executives are happy to indulge — at least until the window-smashing starts. To “occupy” Oakland or anywhere else, you have to have something to put in there. Yet the most striking feature of OWS is its hollowness. And in a strange way the emptiness of its threats may be a more telling indictment of a fin de civilisation West than a more coherent protest movement could ever have mounted.

What OWS Moms didn't teach their kids

Here, then, are five things the OWS protesters' mothers should have taught their children but obviously didn't, so I will:
• Life isn't fair. The concept of justice - that everyone should be treated fairly - is a worthy and worthwhile moral imperative on which our nation was founded. But justice and economic equality are not the same. Or, as Mick Jagger said, "You can't always get what you want."
No matter how you try to "level the playing field," some people have better luck, skills, talents or connections that land them in better places. Some seem to have all the advantages in life but squander them, others play the modest hand they're dealt and make up the difference in hard work and perseverance, and some find jobs on Wall Street and eventually buy houses in the Hamptons. Is it fair? Stupid question.
• Nothing is "free." Protesting with signs that seek "free" college degrees and "free" health care make you look like idiots, because colleges and hospitals don't operate on rainbows and sunshine. There is no magic money machine to tap for your meandering educational careers and "slow paths" to adulthood, and the 53 percent of taxpaying Americans owe you neither a degree nor an annual physical.
While I'm pointing out this obvious fact, here are a few other things that are not free: overtime for police officers and municipal workers, trash hauling, repairs to fixtures and property, condoms, Band-Aids and the food that inexplicably appears on the tables in your makeshift protest kitchens. Real people with real dollars are underwriting your civic temper tantrum.
• Your word is your bond. When you demonstrate to eliminate student loan debt, you are advocating precisely the lack of integrity you decry in others. Loans are made based on solemn promises to repay them. No one forces you to borrow money; you are free to choose educational pursuits that don't require loans, or to seek technical or vocational training that allows you to support yourself and your ongoing educational goals. Also, for the record, being a college student is not a state of victimization. It's a privilege that billions of young people around the globe would die for - literally.
• A protest is not a party. On Saturday in New York, while making a mad dash from my cab to the door of my hotel to avoid you, I saw what isn't evident in the newsreel footage of your demonstrations: Most of you are doing this only for attention and fun. Serious people in a sober pursuit of social and political change don't dance jigs down Sixth Avenue like attendees of a Renaissance festival. You look foolish, you smell gross, you are clearly high and you don't seem to realize that all around you are people who deem you irrelevant.
• There are reasons you haven't found jobs. The truth? Your tattooed necks, gauged ears, facial piercings and dirty dreadlocks are off-putting. Nonconformity for the sake of nonconformity isn't a virtue. Occupy reality: Only 4 percent of college graduates are out of work. If you are among that 4 percent, find a mirror and face the problem. It's not them. It's you.
• Marybeth Hicks is the author of "Don't Let the Kids Drink the Kool-Aid: Confronting the Left's Assault on Our Families, Faith and Freedom." Find her on the Web at www.marybethhicks.com.

VDH - Who's a Fat Cat

Who Are These Fat-Cat Few at the Top?
By Victor Davis Hanson

http://www.JewishWorldReview.com |
 
First lady Michelle Obama the other day railed at "the few at the top," who do all sorts of bad things. A few months ago, we began hearing of the "1 percent" who are responsible for the current economic mess. "They" apparently make all their money at the expense of the other 99 percent. Are they the same as last year's villains, who had not paid "their fair share" in making over $200,000 in annual income?

Do they include the greedy doctors, who, the president once asserted, recklessly lop off limbs and yank tonsils for profits? Is my urologist a dreaded one-percenter? He found out what was causing my kidney stones but probably makes good money. Was a nearby farmer one, too? I bet he makes over $200,000 but, like many other growers in this area, has found a way to produce beef and cotton more cheaply and efficiently than farmers in almost any other part of the world, thereby enriching his county, state and nation.

I am writing this essay on a MacBook Pro laptop. So I wonder, was the late Apple CEO Steve Jobs a suspect billionaire? Should I be mad or grateful that he made billions by permanently replacing my old scissors, paste, and bottle of liquid paper of the 1970s?

Did Johnny Depp really have to earn $50 million last year alone -- or Leonardo DiCaprio $77 million? Couldn't they have settled for $2 million in salary in 2010, and thereby passed on a little bit of the savings to their ticket-buying fans? What kind of system would allow Oprah Winfrey or the late Michael Jackson each to accumulate nearly $1 billion? Is left-wing filmmaker Michael Moore -- reportedly worth $50 million -- a one-percenter? Why does such an enemy of capitalism need so much capitalist largesse?

Do this administration and its supporters really wish to separate millions of diverse Americans by a moral divide of the "few at the top"? Are liberals like Sens. John Kerry or Dianne Feinstein -- among the richest in the U.S. Senate -- in that elite group?

How about Warren Buffett and Bill Gates, together worth over $100 billion? They are certainly philanthropists. But their charities are predicated on two assumptions: They both apparently trust the private sector more than government to administer their vast estates, and neither sees much of a problem in avoiding billions in inheritance taxes that would one day be due to a now-broke federal treasury.

Is George Soros a "corporate jet owner"? He nearly broke the Bank of England by shorting the British pound and was convicted in France of insider training. Rather than comply with new federal financial-disclosure regulations, he told some of his outside investors just to keep their money. Is Obama's former director of the budget, Peter Orszag, a "fat-cat banker"? He left the administration to enter the "revolving door" of Wall Street, where he is now a rich banker for Citigroup.

So do we really want to go down this them/us road? Using a new financial redline crudely to divide us is a tricky business. Those most likely to fly corporate jets are precisely the elite who show up at the president's mega-fundraisers and play golf with him on the world's most exclusive courses -- or visit Martha's Vineyard and Vail, where the first family sometimes vacations. They don't all wear pinstripes and Guccis, but can hang out at Occupy Wall Street rallies as actors, rappers and filmmakers in jeans and baseball caps.

In a larger sense, we should remember a few things about the new orchestrated envy of, and animosity toward, the better-off. Most Americans each day depend on our medical care, our retirement packages, our food, our gas and our computers from exactly these "few at the top" who seem to enrich rather than prey on society.

The BMWs or Porsches of the one-percenters aren't that much faster, quieter or safer than our Chevys and Hondas. Damning the wealthy nonstop is often an embarrassing symptom of one's own longing, even obsession, for the perks and attention that wealth brings. And if we really want more tax revenue, there is far more to be had from the nearly 50 percent of American households that pay no federal income tax than from the one percent that now pays 37 percent of all the collected revenue.

In short, a confident, successful society neither idolizes nor demonizes its rich, but instead believes that wealth can be created rather than taken from others. And it simply judges the better-off by the content of their characters, not the size of their wallets.

2nd Great Compression

We are living through the Second Great Compression. The first was in the 1950s, when income inequality in America declined thanks to the postwar boom, stable families, a lack of cheap immigrant labor, and a "big unit" economy of relatively few major corporate players insulated from global competition (which was largely nonexistent at the time). Here at the beginning of the twenty-first century, another compression is taking place. Millions of people are rising from poverty. A huge middle class is coming into being.

The problem? The compression I am talking about is not American. It is not national. It is global.

The economic liberalization of China, India, southeast Asia, and Latin America; the creation of a globalized marketplace for products, capital, and labor; the emergence of disruptive technologies in electronics and telecommunications—all of these phenomena have led to more wealth for more people than ever before in human history. But most of them aren't Americans. In the United States, globalization has given us cheap goods and cheap labor and fantastic personal devices. But it has also given us a service economy, a decade of wage stagnation, and rising income inequality.

Now, I am not an economic leveler. I think government exists to secure natural rights rather than to redistribute material goods. But that is a minority opinion. Most Americans expect the government to furnish them with a well-paying job with benefits, with health care, with an adequate retirement. The many would like to redistribute the wealth of the few, or the rich.

The second great compression has produced a political reaction in the Democratic party, in Occupy Wall Street, even in the "egalitarian right" and those elements of the Tea Party and Ron Paul Revolution which crusade against corporate welfare and undeserving bankers. The tradeoff they face is this: more domestic income equality, or more globalization? Choose wisely. You can have one only by sacrificing the other.

See you next week. And don't forget you can write me at editor@weeklystandard.com.

--Matthew Continetti