The Obama Watch

Slouching Towards Argentina

Obama's allies in Wisconsin are a throwback to Juan Peron's public employee unions.

By 3.16.11

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Argentina enjoyed the world's fourth highest per capita GDP in 1929, on par with America at the time. But then the nation lost its way with a union dominated government taking control of the economy, and imposing wildly irresponsible taxes, spending, deficits and debt. After World War II, the hugely popular Juan Peron came to power in alliance with the unions, which effectively became part of the government. It has been all downhill for Argentina ever since.

The nation's currency lost 70% of its value in 2 years, and inflation roared to 50% in 1951, amidst out of control spending, deficits and debt, which the nation's monetary authorities accommodated through the "quantitative easing" of the time. The economy has never really recovered, as union dominated government only expanded and solidified control of the economy.

Further national debt was piled up in the 1970s for stimulus infrastructure projects and bailouts of private sector debts. The government in the early 1980s said unemployment was 5%, but private economists estimated it at 18%. Inflation rose to 10% to 20% per month. By 1989, it reached 200% per month, 5000% for the year. This effectively expropriated the savings of everyone in the country, from the rich to the middle class, as whatever anyone had managed to save was reduced to worthlessness. The inflation also cut real wages for working people almost in half. This is what happens when the voting public proves incapable of self-government.

By 2001-2002 demonstrations turned violent, with noisy crowds breaking the windows of major businesses and setting fires at their doors. Many companies began erecting large metal barriers to deny access to the crowds.

Today, Argentina ranks 53rd in the world in per capita GDP according to the International Monetary Fund, 57th in the CIA World Factbook, at a level less than one third that of America. But its national debt at 51% of GDP is actually less than that of the United States under the Obama Administration at 61% of GDP and rocketing skyward. Peron's party, the Justicialist Party (PJ), remains a central factor in Argentina's Kirchner government to this day.

Barack Peron?

Is America now headed down this same road? Already, President Obama's own 2012 budget documents show that more national debt will be added in one term under Obama than under all previous U.S. Presidents combined, from George Washington to George Bush. That national debt is already on track to soar past the all-time record as a percent of GDP set at the end of World War II, and past the level that triggered bankruptcy for Greece.

Those budget documents also show that this year the federal deficit will be $1.645 trillion, the highest in world history, without comparison. The federal deficit last month alone, at $222.5 billion, was higher than the deficit for the entire year in 2007, at $161 billion, which was the last fiscal year for which the federal budget was adopted by a Republican-controlled Congress.

The Fed's policy of accommodating this fiscal profligacy with its "quantitative easing" is precisely a recipe for surging inflation. About 70% of federal debt issued to cover the deficit is bought by the Fed today with printed money, which is the only reason interest rates remain low. The minute the Fed stops that to avoid surging inflation, interest rates will soar, turning the economy back down.

And already we see the early warning signs of inflation. First the dollar started to fall. Then the price of gold started to rise, to all-time record levels today. Then other commodity prices started to soar, including oil to over $100 a barrel, which itself threatens economic downturn as an effective huge tax increase on the economy. Now we begin to see inflation showing up in producer prices.

With President Obama running for reelection next year, the Fed is unlikely to reverse course and allow interest rates to rise with all of the resulting contractionary effects. With the double whammy of the expiration of the Bush tax cuts and the new Obamacare taxes both now scheduled to take effect in 2013, the Fed is likely to want to avoid any reinforcing contractionary effects then or any time soon thereafter. That means it may effectively be trapped into allowing inflation to roar higher and higher through 2014, or else cause a horrific recession in 2013, if not 2012, that will cause further exploding deficits and national debt, which the U.S. cannot afford. See, e.g. Greece.

The only way to avoid that is to sharply cut rather than sharply raise tax rates, allowing the Fed to reverse course to avoid inflation without causing economic mayhem. And the only way to achieve that, it seems, is to not reelect Barack Obama.

Obama's Political Machine and Government Unions

But already we see government employee unions, central players in the Obama political machine as in the Peron political machine, in the streets in Wisconsin and elsewhere causing their own mayhem. And we see the Democrat party in Wisconsin and elsewhere repudiating the 2010 election results and refusing to abide by them. That is the only way to interpret the 14 remaining Democrat Wisconsin state senators effectively shutting down the state legislature for 3 weeks by fleeing the state. The voters switched dominant control of the state legislature in Wisconsin from Democrat to Republican, and the Democrats responded by shutting down the legislature by refusing to serve until the Republicans agreed to Democrat policies on government union collective bargaining. Congratulations to Governor Scott Walker and the Republicans for having the courage to short-circuit the Democrats attempted coup d'état.

Democrats did the same thing in Indiana for a while, drawing the line at consideration of a right to work law for the state, which again involves refusing to follow the results of the 2010 elections unless Republicans agree to follow the Democrat policies on right to work. The Democrats and their government union allies are still threatening the same elsewhere.

Unions and collective bargaining in the private sector are perfectly valid, when the workers choose them. Workers' rights to such collective bargaining are protected by federal law, and everybody supports that, except maybe the unions themselves, which don't believe in working people having a choice of whether to join a union. The unions believe in government forcing workers to join unions whether they want to join or not.

But there is no place for collective bargaining in the public sector for government bureaucrats. Public servants working for government are subject to democracy and the will of the people like everyone else. Unions are not a fourth branch of government with the power of veto over democracy and the will of the people, which is effectively what they are demanding in Wisconsin, and across the country. Collective bargaining in the public sector means that after the people's elected representatives vote in state Houses and Senates across the country on pay and benefits for their own state government workers, they then have to go get permission from the unions. But democracy and the will of the people do not properly sit down as equals with the unions. Government workers are subject to what the people decide through democracy, just like the rest of us.

This is why there is no collective bargaining with Congress for federal workers. Congress already represents the will of the people, and Congress does not properly sit down to collectively bargain with unions over what it decides.

Government workers, federal, state, and local, are already protected perfectly well by the political process. If government workers feel they are being exploited and treated unfairly, they can take their case to the people through the political process, and participate themselves in that process. But what they are demanding with collective bargaining is additional powers above democracy, forcing democracy to come to them a second time as equals in collective bargaining. This is anti-democratic.

Government workers are not the ones being exploited today. Nationwide, state and local government workers are paid on average 45% more than private sector workers, with an average hourly wage of $26.25, plus $13.56 in hourly costs for benefits, for total hourly costs of $39.81, or $80,000 per year on average. Before Governor Scott Walker came along, the annual cost of the lavish family health coverage for public school teachers in Milwaukee was $26,844, for which the teachers paid nothing. Ann Coulter reported at Townhall.com on March 9 that one Madison bus driver made $159,000 in 2009, leading 7 bus drivers overall who made over $100,000 that year. Local government officials explained that was what was required by the union contract.

Federal government workers without collective bargaining do even better. Average pay and benefits for federal civilian employees at $123,049 is more than double what private sector workers make on average. From 2005 to 2010, the number of federal workers making over $150,000 per year surged more than 10 fold. The ones being exploited today are not these government workers, but the taxpayers who have to pay the taxes to support them in the lifestyle to which they have become accustomed.

AFL-CIO President Richard Trumka wrote in the Wall Street Journal on March 4 that what is at stake in government union collective bargaining is "[t]he freedom of workers to come together to bargain for decent living standards, safe workplaces, and dignity on the job." But as the above numbers show, what is at stake is whether government workers, so-called public servants, are working for us, or whether we are working for them.

Howard Dean goes on CNBC's Kudlow Report on CNBC shouting everyone else down over what the people of Wisconsin think about all this. But no one appointed Howard Dean to speak for the people of Wisconsin. Howard Dean is not even from Wisconsin. The only person who can arguably speak for the people of Wisconsin is the man the people elected Governor of Wisconsin, Scott Walker.

The Prosperity of Working People

Trumka argues further in the Wall Street Journal that the wages of working people and the middle class have stagnated because of the decline of unions. But the traditional prosperity of the American worker has never been based on unions. It is based on economic growth, and when unions and their policies reduce that growth, they reduce the wages and standard of living of working people.

That is proven by one simple fact. Throughout the 20th century, with unions soaring by mid-century to represent close to 40% of workers, and then collapsing to represent less than 10% in the private sector today, the proportion of national income going to labor has remained steady at about 70%. Only 30% goes to capital. The soaring rise, and then collapse, of unions made no difference in the share of national income going to working people. What made working people rise and advance is increasing national income, due to economic growth.

Credulous union partisans argue that union wages are always higher, which allegedly proves the value of unions to working people. But those higher union wages come at the expense of lower wages for other workers. That is proved again by the stable long-term shares of national income going to labor and to capital. This is a straightforward result of economic principles. Unions raise the wages of their own members by creating an artificial reduction in the supply of labor for the employer, by denying other workers access to that employer. That is why unions are always most vociferous about scabs, or breaking union picket lines. With the supply of labor to the employer artificially reduced to the union labor pool, the union workers can get higher wages. But the non-union workers denied access to the unionized employers have fewer employment options as a result, and so get lower wages than they would without the unions.

Trumka also argues in the Journal that the question posed by the current debate is this: "Do we continue down a path that delivers virtually all income growth to the richest 1% of all Americans, or do we commit to building a thriving middle class?" But what experience shows is that numbers and unions don't mix, whether economic statistics, or the accounting on union books.

Scholar Alan Reynolds demonstrated in his brilliant book Income and Wealth that this notion that virtually all income growth went to the richest 1% of all Americans during any period in our history is a dirty misrepresentation of the facts regarding the broad-based bounty produced by the American economy, which is obvious to anyone familiar with America. The true, correct data regarding American living standards shows that they increased for all workers at all income levels consistently throughout the 20th century, especially during the 25-year Reagan boom from 1982 to 2007.

From 1973 to 2004, about 30 years, real per capita consumption in America nearly doubled. Over 75 years, 1929 to 2004, real per capita consumption by American workers increased by 5 times, even faster since 1961 than before. The fastest growth periods were 1983 to 1990, and 1992 to 2004, during the 25-year Reagan boom.

Finally, Trumka argues that Governor Walker is offering Wisconsin government workers the following choice: "If you want to keep your job, give up your rights. If you want to keep your rights, you're going to be laid off." But that is actually the choice that Trumka offers working people in the states without right-to-work laws. In those feudal states, if you want to keep your job, you have to give up your right to choose whether to pay union dues on a voluntary basis. Every other institution in America, even the military, is voluntary. But not Trumka's unions, at least where they are allowed to get away with it. Under Trumka's union dictatorships, if you want to keep your right to choose not to pay dues to a union you don't want to join, you're going to be laid off.

But Governor Walker has freed the government union serfs from Trumka's plantations in Wisconsin. Under Walker's new law, each government worker now has the complete freedom to choose whether to pay union dues and join the union. If the union wants the dues, it is going to have to prove to each individual worker that the union is worth it. No longer will the government seize the dues out of each worker's paycheck, and send them to the union, as Trumka demands.

Free at last.

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About the Author
Peter Ferrara is Director of Entitlement and Budget Policy at the Heartland Institute, General Counsel of the American Civil Rights Union, Senior Fellow at the National Center for Policy Analysis, and Senior Policy Advisor on Entitlements and Budget Policy at the National Tax Limitation Foundation. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.