The Wisconsin Recall - Another View

           Keith below presents a well-reasoned and fairly balanced discussion of the recent recall election in Wisconsin. His main purpose seems to be to chide his fellow Democrats against misconstruing the political significance of this development. The circumstances surrounding the recall, however, I think reveal a problem more fundamental than partisan political strategy.

          At the risk of sounding like the kind of idiot who quotes himself, I’m going to quote myself here. The excerpt is from a review I did of Michael Lewis's Boomerang, a recent compilation of his earlier reportages on several of the world's financial flashpoints. He writes on Greece, Ireland, and Iceland, but it's his take on the American state of California that has the most direct relevance to the present imbroglio in Wisconsin. This is the way in which I attempted to summarize the picture that Lewis paints.

“I'm pretty sure that Michael Lewis is a Democrat, but he writes without ideological blinders. He obviously admires the Republican Schwarzenegger (Lewis reports on  a bicycle jaunt and meeting he has had with the former California governor) for his intellectual honesty, optimism and relentless energy. However, even the redoubtable strongman, by his own admission, proved helpless against the problems of California. The state's voters embraced him initially and then eight years later threw him out of office, his approval ratings having crashed through the bottom of the floor. In Lewis's rendition, the travails of California sound depressingly like those of Greece. A land of shallow idealism mired in administrative incompetence, California promises everything but is willing to pay for little. The state's perpetual budget crisis seems to be without the slightest hope of being resolved at any point in the foreseeable future. Arnold seems disappointed but has taken it all in stride and moved on with his life. He says he had fun trying.

"Lewis realizes he could visit just about any city in the state and find a relevant crisis to observe, so he picks a few. The mayor of one of them - San Jose
-  (a Democrat by the way) sums up pretty well the problems of his city and most of the others when he points out that he could terminate every single current employ in his government and not save enough money to pay the pensions and post-retirement benefits of the former employees. He could then tax his wealthy citizens into oblivion and, having thus destroyed his tax base, still not put much of a dent in the problem. Apparently believing themselves much richer than they were - particularly during the Fin de siècle boom years - government officials had fecklessly backed away from confrontation with the public service unions, who were thus able to assume a largely free hand in crafting pay and benefit packages. The day of reckoning came much sooner than even pessimists had imagined.

"On his way out of the Mayor's office, Lewis asks as couple of his aids for suggestions about where, given his investigative focus, he should go next. Without hesitation they both point him to Vallejo, and Lewis makes a beeline for the place. Three years earlier, Vallejo became one of the few municipalities in the United States ever to file for bankruptcy, overwhelmed by reckless promises made in happier times to its public employees. By the time Lewis gets there, the city has few active public employees left and is a shell of itself. Many of its homes are in foreclosure and its taxable population is drifting away. Street maintenance is non-existent, and crime is rising.

"Paradoxically, though, it's in reporting on Vallejo that Lewis discovers more glimmers of hope than he has managed to find elsewhere, for much the same reason that former drug addicts can sometimes be inspirational: hitting absolute rock bottom creates a certain clear-sightedness about problems and a motivation to correct them. Lewis meets the recently-hired city manager, Phil Batchelor, who has come reluctantly out of retirement to take the job. A sober, unassuming man, his one precondition for doing so was that the city council members all sign a written pledge to him they will start behaving in a civil manner towards one another. It seems someone had recently thrown a severed pig's head onto the floor at one of their meetings. Having been able to discharge most of their debt in bankruptcy and renegotiate their labor contracts, Vallejo has the chance for a fresh start, and Batchelor is determined to make the best of it. He's not interested is apportioning blame to anyone for past failures and is pragmatically focused on solving problems one at a time.

"Lewis also spends time with a 41-year-old Vallejo fireman named Paige Meyer. Meyer has seen his compensation and benefits cut sharply, but is nonetheless still passionate about his work. He treats fighting fires as though it were a calling, and is re-inventing the job to make do with fewer resources, even though Vallejo apparently has many more fires than other comparable communities. He seems to have no bitterness and to enjoy his life despite the financial devastation around him.

"Putting all these stories together, it's not hard to get Lewis's vision of what has happened to our developed Western economies. He doesn't preach, but rather like Dickens' Ghost of Christmas Future, he lets the grim facts unfold and speak for themselves. The common denominator here is the illusion of easy money, which our modern financial markets have conjured up for us and which has fooled everyone from multi-millionaire bankers to municipal street cleaners into thinking that everything they want is there for the taking. Lewis doesn't say it directly, but he appears to regard the problems of places like Greece and Vallejo as indicative of what lies in store for all of us who fall prey to illusions that life is easy and money is free."

          Certain American commentators nowadays seem never to tire of pointing out sagely that the United States is not Greece. They might also remind us, fairly enough,  that Wisconsin is not California. Nonetheless, all of these crises have common roots, and all are symptomatic of a global breakdown in the model governing the world's developed economies.  This model is neither "capitalist" nor "socialist", in the nineteenth-century lingo that economists sometimes still employ, but a hybrid in which market-oriented production entities co-exist with monopolistic government service providers. And while market forces still provide a degree of restraint over the private sector (with banking a partial exception), no such organic discipline exists to reshape ineffective and inefficient government services. As a result, following the course of least resistance, politicians continue to fund old programs even as they create new ones, and they tend readily to accede to employee demands for growing compensation and benefits. All of this ensures that government's share of the economy will grow relentlessly, as indeed it has throughout most of the last century.

          Various Catch-22 problems ensue. The most obvious one is that the growing tax burden needed to pay for government  weakens the private sector, contributing to unemployment and other private-sector failures which in turn increase the demand for more government spending. The less noted Catch-22 is the problem that the essential services of government itself become squeezed as money is diverted towards non-essential and wasteful ends. As Keith points out, the anger that many people feel towards government stems less from a belief that they are spending too much money on government than from a knowledge that they are receiving inadequate services in return. I would suggest that this problem in general does not result from incompetence  among of people in government, but rather is inherent in the nature of government monopoly.  And the problem would seem only to get worse as time progresses.

          Analyzing such a system on a theoretical level, it would seem inevitably inclined towards a terminal breakdown at some stage in its existence. To borrow a Marxian notion, the system would appear doomed by an inescapable internal contradiction. In the United States, the most serious long-term problem exists at the federal level. Here, however,  a temporary safety valve is provided by the ability to incur debt-financed deficits, and the concurrent ability the support this debt with unconstrained quantities of fiat money. Our powerful Federal Reserve Bank has now learned how to utilize "quantitative easing" and other monetary gimmicks to repress the rise in long-term interest rates normally be expected from such practices. All this may well postpone the day of reckoning for a while longer at the federal level.

          It is, however, our state and local governments that sit on the cutting edge of the current crisis. Like Greece, they lack control over their own currency, and additionally many of them face hardwired legal constraints on most forms of deficit financing. Hence, unlike their federal brethren, they must face reality and either cut services or raise taxes. And increasing taxes in many cases risks undermining the economic basis on which even existing taxes might be paid in the future.

          Scott Walker has applied a blunt instrument in attempting to grapple with the problems of Wisconsin. The impact of what he has done is indeed cruel and unfair to those people who have built their lives around the honest assumption that they could count on a certain level of financial well-being for their lives. But is the fault his, or that of earlier politicians who made unsustainable promises in the first place?  He has won his victory operating through democratic channels and has overcome an opposition that has been every bit as vicious as the rightwing "lunacy" that Keith decries.

          I certainly have not studied the problems in Wisconsin in any depth, but I suspect that Scott Walker may be protecting his people from a much more painful resolution at some point in the future. We might soon see a cautionary foreshadow in what's probably about to happen to the people of Greece.


  1. I don't agree that disgust with government is inevitable, "inherent in the nature of government monopoly." After all, our federal government was highly respected for about fifty years from the Depression to Reagan's election. Unfortunately, though, the issue really goes beyond ideology.

    After WW2, we had about 30 years of rising prosperity, and then another nearly 30 years of rising debt that seemed like rising prosperity, both of which allowed excessive gov't spending without much reckoning. Public employee unions won relentless compensation increases, and wealthy interests won acceleratingly decreasing tax burdens. With the Great Recession, much of the nation's apparent wealth has evaporated, and budgetary push has come to shove.

    The pressures generated by this loss of wealth allows governors like Walker to reduce union compensation (and while they're at it, cut off their funding and power), while the wealthy can use the Republican party to fend off any tax changes that displease them. In the 2012 elections, the tidal wave of conservative money will almost certainly sweep away Democrats at every level, installing a political class that will complete the job Walker began, not just on labor unions, but also on other Democratic funding supports, such as lawyers. Although divisions within the Republican Party will certainly emerge, the Democrats will be as dead as the Whigs.

    At least in the immediate future, the consequences will be that budgets will come into balance by cutting services and support for the population at large, and for investments in R&D, education, and infrastructure, reserving the remaining tax revenues for military and police functions. During Romney's presidency, millions of people will lose their jobs as a result of Republican policies, along with their cohorts who will suffer sharply reduced incomes, and throw the country into a severe Depression.

    If I can take late Rome as a model, there will not be a recovery of balance. The very wealthy, and the wealthiest corporations, will retain their political power. They may well find it necessary to invest in R&D and infrastructure, but not with funds raised through increased taxes.

  2. Thanks for the comment.

    My point about the 'inherent' failure of government monopoly was that government is by its nature incapable of delivering a quality and range of services fully satisfactory to its recipients or to the employees charged with administering the programs. This leads to a continuous demand for increased funding that is initially not dissimilar to what happens in private companies, where divisional managers foreever clamor for additional resources. The difference, however, is that private companies cannot continue operating for long unless they earn a profit margin on new spending, placing an imperfect but nonetheless real brake on waste and inefficiency. Goverment agencies, on the other hand, are constrained ultimately only by the influence of their political patrons. This dynamic leads to the relentless and secular increse in both the absolute and relative size of government that we've seen in all out developed economies. Such a system inevitably reaches a breakdown point at which both taxpayers and the recipients of essential services are feeling cheated and angry. This is where we are right now.