Daily Archives: March 3, 2011 @ 2:34 pm (Thursday)

Why the public sector is not overpaid

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The rhetoric is that the public sector is overpaid relative to the private sector.
Ok, they don’t adjust for education and probably a few other things, but it all still misses the point.

Back when I was a kid in Ct. the 50’s, I recall the private sector jobs paying a lot more than the public sector jobs. People worked for the US Post Office, for example, because of the security, or because they couldn’t get a higher paying private sector job for one reason or another.

So seems since then things have reversed.

The reason is the overly tight fiscal policy that’s kept unemployment a lot higher, and beat down the private sector.

And best I can tell, it’s not that public sector employees are earning too much (with a few anecdotal exceptions), it’s that because the economy is so bad, private sector employees aren’t earning what they might in a good economy.

The obvious answer to me.
Instead of trying to drag down public sector compensation to today’s depressed private sector levels, which also happens to further hurt the private sector at exactly the wrong time,
I’d rather see us restore a full employment economy (like we had in 1999-2000)
and let the good times bring up private sector wages and benefits, which, in a good economy, surpass public sector wages and benefits.

But no one is even considering that option.
Because they all agree:
The US has run out of money.
And now must borrow from the likes of China in order to spend
And leave the tab to the grandchildren.
And Social Security and Medicare are bankrupting the nation.
And the deficit is taking away our savings starving private investment.
And that the US could be the next Greece if we don’t get our fiscal house in order NOW.
And all the rest of that kind of nonsense.

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Claims/ECB

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Karim writes:

  • Claims drop to new cycle low of 368k; prior week revised down to 388k from 391k.
  • No special factors cited

Trichet Introductory Statement KeyLine:
It is essential that the recent rise in inflation does not give rise to broad-based inflationary pressures over the medium term. Strong vigilance is warranted with a view to containing upside risks to price stability. Overall, the Governing Council remains prepared to act in a firm and timely manner to ensure that upside risks to price stability over the medium term do not materialise.


In the 2005-7 rate hiking cycle, ‘strong vigilance’ or ‘vigilance’ was used in the introductory statement in the month prior to all 8 rate hikes in that cycle. Base Case: Look for the ECB to start raising rates 25bps every 3mths until they get to 2%, likely starting next month. Other key messages were ‘act in a firm and timely manner’ and the absence of the phrase ‘rates are still appropriate’.

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Why public sector workers should not have actual bargaining power

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Government, desirous of provisioning itself, does it as follows:

1. It imposes nominal tax liabilities payable in it’s currency of issue.

2. This serves to create a population desirous of obtaining the funds needed to pay the tax.

3. The real tax is then paid as government transfers real resources from private to public domain by spending it’s otherwise worthless currency, hiring its employees and buying the goods and services it desires to provision itself and function as directed by the legislature.

4. Prices paid by government when it spends defines the value of the currency, and therefore the terms of the real taxation.

Therefore, the hiring and compensation of public sector employees is the real taxation, which is a legislative function.

Letting individuals negotiate the terms of their taxation other than through the legislative process makes no sense whatsoever.

This is not to say that public employees can not have representatives to make their case before the legislature, much like any tax payer or group of taxpayers might address the legislature.

And this is not to say public employees should not be treated well, well paid in real terms, or abused.

It is to suggest public employee compensation be recognized as part of the real process of taxation of the electorate and treated accordingly by all parties involved.

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