Public Sector Unions and How They Have Destroyed the West

In his outstanding book, Boomerang, Michael Lewis was spot on in his analysis of Greece:

As it turns out, what the Greeks wanted to do, once the lights went out and they were alone in the dark with a pile of borrowed money, was turn their government into a piñata stuffed with fantastic sums and give as many citizens as possible a whack at it. In just the past twelve years the wage bill of the Greek public sector has doubled, in real terms – and that number doesn’t take into account the bribes collected by public officials. The average government job pays almost three times the average private-sector job. The national railroad has annual revenues of 100 million euros against an annual wage bill of 400 million, plus 300 million euros in other expenses. The average state railroad employee earns 65,000 euros a years. Twenty years ago a successful businessman turned minister of finance….pointed out that it would be cheaper to put all Greece’s rail passengers into taxicabs: it’s still true. “We have a railroad company which is bankrupt beyond comprehension…..and there isn’t a single private company in Greece with that kind of average pay.”

For more on Greece:

Greece: Yes, Life Does Go On When the SHTF

Suffocating Athena: Public Sector Unions Kill Greek Salvation — Again 

Greece’s finances are spinning out of control. If nothing is done, public debt could reach 179.3 percent of GDP by next year. But this does not concern unions. They are fighting the austerity measures that could give Greece its first budget surplus in 10 years.

Hardly a day goes by when we aren't greeted with youtubes and photos of civil unrest in Greece, Spain and other European nations reeling from the big punch of economic misery. These folks are protesting austerity measures that includes proposed cuts in compensation, pensions and benefits. In Europe, public sector unions are an incredibly powerful force because they literally control nearly all vital infrastructure like power plants, transportation and much more. Over the decades, these union have managed to vote themselves huge salaries and benefits that far exceed private sector pay for comparable skills.

Spain is another country facing severe financial and economic problems. Spain has mountains of debt and a hugely bloated socialist public sector.  Spain, like other European nations with busted economies, has proposed a solution that will only magnify the problem:  higher taxes.

Time to Burst Spain's Public-Sector Bubble

Among this week's measures—which Spain's cabinet will officially approve today—is a hike in the rate of VAT to 21% from 18%. Civil servants' wages are being slashed by 7%, unemployment benefits beyond the sixth month will be reduced by 15%, and some bureaucratic expenditures and subsidies will be cut by a third.....

Until now, the Rajoy government had tried to maintain the oversized public sector by raising taxes on families and enterprises.....

The sad part of this story is that the bloat in the Spanish public sector is actually quite recent. Government spending swelled thanks to the extraordinary revenue growth provided by the housing bubble. Between 2001 and 2007, total revenues grew by 67% while expenditures increased by 57%. Spain ran modest budget surpluses for a few of those years, but those vanished as bubble revenues ran out while spending continued to grow. A 1.9% surplus in 2007 turned into an 11.2% deficit in just two years.

By the end of 2011, public expenditures were 75% higher (33% higher after adjusting for inflation) than a decade before.

The Economist chirped in on the severity of the situation which is far more complicated than a mere localized capital vs. labor dispute. Even the statist and socialist leaning Economist observed that public sector unions have been literally feasting at the expense of the much lower paid private economy that, incidentally, works to pay the taxes to feed the bloated public sector.

The battle ahead

LOOK around the world and the forces are massing. On one side are Californian prison guards, British policemen, French railworkers, Greek civil servants, and teachers just about everywhere. On the other stand the cash-strapped governments of the rich world. Even the mere mention of cuts has brought public-sector workers onto the streets across Europe. When those plans are put into action, expect much worse.....

People in the private sector are only just beginning to understand how much of a banquet public-sector unions have been having at everybody else's expense...

While union membership has collapsed in the private sector over the past 30 years (from 44% of the workforce to 15% in Britain and from 33% to 15% in America), it has remained buoyant in the public sector. In Britain over half the workers are unionised. In America the figure is now 36% (compared with just 11% in 1960). In much of continental Europe most civil servants belong to unions, albeit ones that straddle the private sector as well. And in public services union power is magnified not just by strikers' ability to shut down monopolies that everyone needs without seeing their employer go bust, but also by their political clout over those employers.

Many Western centre-left parties are union-backed. Britain's Labour Party gets 80% of its funding from public-sector unions (which also, in effect, chose its new leader). Spain's sluggish state reform may be partly explained by its prime minister's union membership. In America teachers alone accounted for a tenth of the delegates to the Democratic convention in 2008.....

Public sector unions claim they enshrine middle class values and that they they indeed represent the working class man.  In fact, the opposite is true.  Public sectors really don't care about a damn thing except their license to steal at the expense of the common man. In bankrupt California, it's a crisis of public sector tyranny.

Who Runs California? Follow Public-Sector Union Money

California: A century ago, a railroad dominated the Golden State. Now government workers are in charge. A look at funding marshaled against a reform initiative tells the story.

Public employees want us to think they're members in good standing of the struggling middle class, but they sure manage to pony up the cash when elections come around. Maybe it's strength in numbers. Maybe it's union strong-arming. Whatever the reason, California's teachers, firefighters, police, prison guards and other government workers are, as a group, the richest and most powerful in state politics.

The public sector unions have become a noose around the necks of government and taxpayers. Socialist governments everywhere bred them, fed them and now are faced with the abject horror that nobody can afford them.

So as we witness the protests on an almost daily basis, the protesters are all pampered public sector union employees just raising hell at the prospect that their gravy train is in jeopardy.

For public sector unions, it's austerity for everybody except for them. Compounding the situation is the fact that European nations borrowed heavily to fund their un-affordable cradle to the grave entitlement states. However, there are indeed severe problems beside the public sector unions which include that fact that taxpayers are being forced to bailout the failed banks that are swimming in bad loans. The dual edged sword of socialism for public sector unions and banksters will continue to impede economic recovery while intensifying the misery of stagnation.  In fact, together they definitely have the power to guarantee the death of Western Civilization.

What's Really Wrong With Greece? It Lacks Secure Property Rights, and US Property Rights Keep Declining

The Washington Post had a most interesting piece on property rights in Greece.

Greece faces difficult odds with privatization

The gods lived at Mount Olympus, but the gamblers live at a casino on Mount Parnitha, and, lately, Greek leaders have been praying to strike it big here.

The Greek government owns an unusual half-stake in this mountaintop casino, the second-largest in the country, and Prime Minister Antonis Samaras has vowed that selling it — along with dozens of other properties, buildings and companies across the country — will be a top priority in last-ditch efforts to save the Greek economy.

But with time ticking on Greece’s bailout, and the country’s future on the shared euro currency ever more in question, the odds are stacked against him.

Greece owns large swaths of sectors like gambling that in other countries are in private hands. The arrangement helped derail Greece’s finances in the first place, with powerful unions bidding up workers’ salaries to unsustainable levels and money leaking to politically connected contractors. Now, few investors want to bet their money on these properties in the middle of what Samaras has called “our version of the Great Depression.” And it is not politically attractive to sell off Greece’s crown jewels at fire-sale prices.

Greece is the collectivist dream of every socialist Marxist big government statist. Socialists have been ruling Greece for decades and its corrupt government and powerful public sector labor unions have literally plundered and bankrupted the nation, in addition to stripping Greeks of their property rights and liberty. Nobody summarized the state of Greece better than Michael Lewis in his awesome book Boomerang.

As it turns out, what the Greeks wanted to do, once the lights went out and they were alone in the dark with a pile of borrowed money, was turn their government into a piñata stuffed with fantastic sums and give as many citizens as possible a whack at it. In just the past twelve years the wage bill of the Greek public sector has doubled, in real terms – and that number doesn’t take into account the bribes collected by public officials. The average government job pays almost three times the average private-sector job. The national railroad has annual revenues of 100 million euros against an annual wage bill of 400 million, plus 300 million euros in other expenses. The average state railroad employee earns 65,000 euros a years. Twenty years ago a successful businessman turned minister of finance….pointed out that it would be cheaper to put all Greece’s rail passengers into taxicabs: it’s still true. “We have a railroad company which is bankrupt beyond comprehension…..and there isn’t a single private company in Greece with that kind of average pay.”

Back to the Washington Post article, a Greek government official opines on the very problematic issue of privatizing Greek state owned property and business with the statement “There’s just no market”.

He's probably right but why? Greece does not have secure property right and in fact has some of the least secure property rights protections in the western world. Of course, insecure or state restricted property rights are also a chronic socialist statist dream. There are organizations that track and rate nations on the security of their property rights. International Property Rights Index uses several benchmarks to assess the security of property rights to arrive at an overall rating and index.  These benchmarks include legal and political environment, personal property rights and intellectual property rights.

The top 10 nations with the most secure property rights, here.:

1. Finland           8.6
2. Sweden          8.5
3. Norway           8.3
4. Singapore       8.3
5. Switzerland     8.3
6. Denmark         8.2
7. Luxembourg    8.2
8. New Zealand   8.2
9. Netherland      8.1
10. Canada         8.0

The United States (7.5 Index Ranking) is ranked 19, behind the top 10 and also behind United Kingdom, Austria, Hong Kong, Australia, Germany, Japan, Ireland and Belgium.  America is a nation that is experiencing a decline in the security of property rights, largely because of the growth of government power that hacks away at property rights.

Greece ranks 57th on the list with a pitiful 5.6 and is lower than Rwanda and many other nations deemed 2nd or 3rd world.

Secure property rights are the absolute and only foundation for liberty and prosperity, and the stronger they are the greater the prosperity and liberty of the people.  Without economic liberty, there can be no liberty and without secure property rights, there can be no economic liberty.

Greece is such a totalitarian collectivist mess that it can't even sell off its massive state owned real estate and business holdings because without secure property rights, there will be no buyers.  Simply put, nobody with money will invest in any property and asset when it can be seized or plundered at will by government, its goons and the corrupt rent seekers perennially attached to the state (oligarchs, plutocrats, corporatists, fascists, public sector unions etc.).

What Happens When Governments No Longer Have Money to Pay Entitlements and Pensions?

Greece is broke. Spain is broke. Portugal is broke. Italy is nearly broke. Bailout requests continue to mount. Many nations simply borrowed heavily to sustain an unsustainable socialist cradle to the grave paradise. Folks are protesting in the streets in big numbers. They are protesting cuts in entitlements. They are protesting cuts in public sector pensions.  They are protesting cuts in healthcare benefits.  They are protesting the lack of jobs.

Demand for Spanish Bonds Collapses; "No Money Left to Pay Services" says Treasury Minister; Massive Protests Over Austerity; Two-Year Yield soars 60 Basis Points

But they can protest all they want. At the end of the day, broke is still broke, bankrupt is still bankrupt and there literally is no money to pay promised benefits. As the debt mounts, more and more revenues are siphoned off just to service the gargantuan debt which in turn decreases the amount of money left over for entitlements.

In France, Francois Holland won an election by promising to tax the rich at a rate of 75%, a campaign promised that he kept.  It's widely believed that such a draconian measure will drive the wealthy out of France and to much friendlier tax abodes.  The panicked Spainards are considering similar measures.

Prepare for Spanish Implosion: Businesses Threaten to Leave Spain Over Tax Hikes; Finance Minister Proposes 56% Tax on Short-Term Financial Transactions

Americans tend to ignore what is happening across the pond because they really don't believe that what is happening in Europe and elsewhere could ever happen in America.  Of  course, Americans are living in a fantasy land but that won't last long and when reality finally hits America it will pack a wallop of a bite.

There are credible signs in America that our delusions will be short lived.  The US is sitting on unfunded liabilities (pensions, SS, Medicare, Medicaid and other entitlements) of over $100 trillion.  This didn't come from Alex Jones.  It came from the Dallas Federal Reserve!

According to our calculations at the Dallas Fed, that unfunded debt of Social Security and Medicare combined has now reached $104 trillion—trillion with a 'T'—in discounted present value. – Richard Fisher, February 10, 2010

There is also the issue of massively underfunded public sector pensions and retirement benefits at the state and municipal level.

Public Sector Pensions Underfunded by $4.6 Trillion - That's a Future Tax Folks

Here's what is really going to happen.  Sooner rather than later, nations and people will simply be forced to start living off what they actually produce and save instead of the debt fueled consumerist economy driven by fiat banksters.

Will it be painful?  Absolutely.  But the alternative of continuing to live the monetary lie will be far more painful as central banks just continue to inflate currencies to the point where folks will need a truckload of greenback just to buy a loaf of bread.

Governments steal from the people by devaluing currencies with inflation.  And yes, citizens are complicit in the schemes so long as they perceive a value for themselves (raking in their share of the plunder).

America has one huge advantage.  The dollar still maintains its lofty status as the world's reserve currency and it's also a petro-currency.  If oil ever starts trading in non-dollar currencies, the dollar is toast and America officially becomes just another failed banana boat republic.  Moreover, there is the issue of our mountain of unsustainable debt and the continued willingness of foreign nations to subsidize our outsized debt fueled fictitious lifestyles.  Many astute financial pundits believe and have documented the fact the foreign nations are quietly and not so quietly shedding Treasuries because they are very concerned about ever getting paid. The simple truth is that America is a Debt Man Walking.   Who is the largest purchaser of Treasuries?  The Federal Reserve!

The Federal Reserve has been the largest buyer of U.S debt in the last three years...here.

Economist Peter Schiff has been saying for years that America needs to get back to producing things, learning to save and living within our means.  He's right.  It's precisely how America became the wealthiest and greatest free nation to ever grace the planet.   America once had the most prosperous middle class in all of human history.

We simply blew it by allowing government, banksters, militarists and corporatists to concentrate wealth and power into the hands of a few.  The consequences have been devastating.

Pundits like using the term SHTF (shit its the fan).  When the SHTF what will really happen?  Commodities will become the new temporary currency, especially food, fuel and medicines.  Alternative paradigms of survival will emerge, notably in underground economies that will grow as government becomes powerless.  There are communities in Greece where they barter and use local currency (not the Euro).   Raw and absolute survival instincts will kick in and trump loyalty to the state.

Some folks have put forth the premise that America's failed system of governance and its fascist, crony capitalist economic system must fail if the people are ever going to have the opportunity to rise in liberty and restore their prosperity.  It's a valid premise.

100 years of Keynesian statist economic central planning has effectively obliterated all that once propelled western nations to liberty and prosperity.  The system can't be tweaked or even saved. All that's left is starting over and starting over can only work with sound money and minimal government power.

Greece: Yes, Life Does Go On When the SHTF

The Greeks legitimately lay claim to one of the world's oldest surviving civilizations.  It's a fascinating and tumultuous history full of wars, empires, conquests and much more.  During the 20th century the Greeks endured civil war, monarchy and eventually settling on a democracy of sorts, a situation fairly similar to all European nations.  At the end of the day the Greek are no different than anybody else - they are just people trying to survive in a world gone mad.  What makes the Greeks unique is that while their situation is not necessarily historically unique, Greece is the first western nation to literally implode financially and politically, a fate that many predict will ultimately fall on most western nations as a result statism and fiat central banksters.

Greece is at the end of its rope. It  indebted itself on a massive scale to sustain its socialist paradise and there is no way the debt can ever be repaid without making Greek citizens debt slaves for a very long time. Michael Lewis summarized the Greek situation best in his book Boomerang.

As it turns out, what the Greeks wanted to do, once the lights went out and they were alone in the dark with a pile of borrowed money, was turn their government into a piñata stuffed with fantastic sums and give as many citizens as possible a whack at it. In just the past twelve years the wage bill of the Greek public sector has doubled, in real terms – and that number doesn’t take into account the bribes collected by public officials. The average government job pays almost three times the average private-sector job. The national railroad has annual revenues of 100 million euros against an annual wage bill of 400 million, plus 300 million euros in other expenses. The average state railroad employee earns 65,000 euros a years. Twenty years ago a successful businessman turned minister of finance….pointed out that it would be cheaper to put all Greece’s rail passengers into taxicabs: it’s still true. “We have a railroad company which is bankrupt beyond comprehension…..and there isn’t a single private company in Greece with that kind of average pay.”

If you think the words of Michael Lewis are harsh, the Brits have their own peculiar views of Greeks and basically accuses the Greeks of being lazy and/or overpaid folks who robbed European taxpayers while refusing to pay their own taxes.

The Big Fat Greek Gravy Train: A special investigation into the EU-funded culture of greed, tax evasion and scandalous waste 

Andrew Malone of Mail Online writes:

Even on a stiflingly hot summer's day, the Athens underground is a pleasure. It is air-conditioned, with plasma screens to entertain passengers relaxing in cool, cavernous departure halls - and the trains even run on time. There is another bonus for users of this state-of-the-art rapid transport system: it is, in effect, free for the five million people of the Greek capital....

Indeed, as well as not paying for their metro tickets, the people of Greece barely paid a penny of the underground’s £1.5 billion cost — a ‘sweetener’ from Brussels (and, therefore, the UK taxpayer) to help the country put on an impressive 2004 Olympics free of the city’s notorious traffic jams. The transport perks are not confined to the customers. Incredibly, the average salary on Greece’s railways is £60,000, which includes cleaners and track workers - treble the earnings of the average private sector employee here....

Significantly, since entering Europe as part of an ill-fated dream by politicians of creating a European super-state, the wage bill of the Greek public sector has doubled in a decade. At the same time, perks and fiddles reminiscent of Britain in the union-controlled 1970s have flourished.

Whatever the situation in Greece and for whatever reason(s), life as the Greeks know it is rapidly coming to an end.

The bailouts arranged by the Troika (the European Commission - EC, the European Central Bank - ECB and the IMF) are a big fail and only added more debt to the gargantuan mountain of Greek debt. Postponing reality was the primary motivation of the Troika because European banks can’t handle the write-off of Greek debt without severe pain, pain sufficiently painful to crash the Euro and many European banks, notably French and German banks. Essentially, the Greek bailout was really nothing more than a temporary bailout of primarily French and German banks.

Michael ‘Mish’ Shedlock accurately summarized the situation in his blog, Global Economic Trend Analysis, here.

Pressure from the Troika and fear-mongering by all the politicians in the bailout-bed will be immense. There will be another decade of pain and suffering for Greeks if they stick to the Troika plan.

However, there will be short but intense pain for Greeks if they tell the Troika to shove it. Which is worse? It seems Greeks have come to the correct conclusion.

The Greeks really need to just bite the bullet now which is different than putting the gun in their mouths, pulling the trigger and eating the bullet, something the Troika expects the Greeks to do. When a nation is so debt ridden and so bankrupt that most of its revenues go to debt service, there is only one option: default. Many financial pundits are predicting that Greece will simply be forced to exit the Euro-zone but not the EU. But the systemic risk is far wider than Greece as Spain and other nations find themselves in dire financial condition. Some pundits have even suggested that the Greeks might attempt to blackmail the Troika just to keep the Euro-zone from financially detonating itself.

Greece Black Mailing Eurozone? As mentioned above most of the Euro 400 billion of Greek debt is now owed to other euro-zone member state institutions and the IMF, therefore a Greek default will have a double whammy on the Euro-zone as institutions such as the ECB will be sitting on huge losses that would require a bailout from member states even before it attempted to rescue the euro-zone wide banking system from collapse. Clearly the Greek politicians are using the losses the euro-zone would directly suffer were Greece to default as a blackmail tool to try and evade any responsibility. However the problem with the Greek strategy is that if Greece is allowed to successfully black mail the Euro-zone then so will other larger countries such as Spain and Italy eventually engage in similar tactics to evade economic austerity pain as their populations also demand a similar solution to economic austerity as Greece were being allowed to get away with.

Read the rest here

The Market Oracle

But how are the Greek surviving economic calamity? Folks are fleeing Athens for the rural life and learning agricultural skills.

Crisis-hit Greeks leave the cities for a new rural life

”Before, the olive groves had all been abandoned,” said Flores, noting that the island now has an industrial press and for the first time, is producing its own olive oil.

But the Greeks are doing far more than sharpening their survival skills, they are learning to barter with each other as communities work cooperatively.

Battered by Economic Crisis, Greeks Turn to Barter Networks

VOLOS, Greece — The first time he bought eggs, milk and jam at an outdoor market using not euros but an informal barter currency, Theodoros Mavridis, an unemployed electrician, was thrilled. “I felt liberated, I felt free for the first time,” Mr. Mavridis said in a recent interview at a cafe in this port city in central Greece. “I instinctively reached into my pocket, but there was no need to.” Mr. Mavridis is a co-founder of a growing network here in Volos that uses a so-called Local Alternative Unit, or TEM in Greek, to exchange goods and services...Part alternative currency, part barter system, part open-air market, the Volos network has grown exponentially in the past year, from 50 to 400 members. It is one of several such groups cropping up around the country, as Greeks squeezed by large wage cuts, tax increases and growing fears about whether they will continue to use the euro have looked for creative ways to cope with a radically changing economic landscape.

The Greeks have also become adept at operating an underground economy and producing goods and services that escapes the grubby hands of the dreaded and insidious tax collector.

In Greece, Underground Economy Fuels Financial Crisis

If you think there's been a tax revolt in the U.S. -- or even California -- consider Greece. The estimates we've heard, from the sources that seem the most reliable: 40-50 percent of the Greek economy is underground. i.e., untaxed. When we were in Spain, people there were embarrassed that the estimate was as high as 25 percent. In the U.S., the usual estimates are less than 10 percent.

Paul Solman, who wrote the above referenced 7/2010 PBS article attributed Greek financial problems to its inability to collect taxes. Solman writes:

The key to fixing the Greek economy is getting Greeks to finally stop paying cash and start paying their taxes. It would be a revolution. It would be a transformation. The push is on. In April, the top income tax rate was raised to 45 percent for those making more than 100,00 Euros and the country raised taxes on dividends, large real estate holdings and offshore companies. "The new tax bill is a revolution for Greece," said Prime Minister George Papandreou at the time. "No government in the past has dared such reforms."

Like every other big government statist, Solman actually believes that an ailing economy can be magically resurrected from the dead and instantly made prosperous and flourishing simply by raising taxes.

How well did that work out for the Greeks?

When public corruption is rampant and taxation continues to rise to feed government waste and fraud, there is a point when folks just refuse to feed the system and they go underground.  It's called 'screw the government that's done nothing but screw me'.

Judy Morris