Financial FAQs

There is one overriding lesson in the Republican vs. Democrat struggle to preserve union negotiating rights in Wisconsin and elsewhere. If Wisconsin’s unions lose the right to collective bargaining, Wisconsin will not only lose their most productive workers in fields such as teaching, nursing, and even in police and fire—50 percent of whom have college degrees—but also impoverish their economy.

This is because reducing employees’ incomes and benefits does the same thing as reducing government spending in general during recessionary times. It reduces demand for the very goods and services that spur economic growth, as we said last week, at a time when the private sector cannot boost its own spending and investment.

So Wisconsin Governor Scott Walker is in effect biting the hand that feeds him, and all Wisconsinites. There are many ways to address budget deficits, but giving tax breaks isn’t one of them. This reduces revenues, increasing the very budget deficits that need to be addressed.

This is something that many politicians and ideologues simply do not understand. A Tea Party candidate and Illinois Republican congressman, Joe Walsh, recently echoed this misconception on Sunday’s ABC This Week: “Every dollar we take out of the public sector goes into the private sector, and it will grow the economy.” No, it won’t necessarily grow the economy. The tax cuts of the Bush era were meant to grow the economy, but resulted in record debt levels and the Great Recession. In fact, we now know only the ‘economy’ of the wealthiest benefited. This philosophy of ‘trickle down’ economics won’t work, if its benefits are not distributed evenly.

Right now because of the huge wealth disparity that prevails, most private sector dollars go into the hands of such as the Koch Brothers who funded Scott Walker’s campaign and other wealthy backers, not into the hands of those workers who will spend it. And the purpose of their support of conservative causes in the case of the Koch Brothers is obvious, to reduce the amount of government regulations in general. There is also a clause in the legislation that dissolves unions’ collective bargaining rights—called SB 11—that also allows sale of Wisconsin’s public utilities without any competitive bidding. And that wouldn’t benefit the Koch Brothers who already own 45 percent of Wisconsin’s power plants?

So opposing in effect what are the rights of workers everywhere—whether union or non-union—Scott Walker and company impoverish Wisconsin and so drive one more state into the ‘have-not’ category by reducing workers incomes and benefits, including health care.  America’s declining health care system already produces the highest infant mortality rate, for example, and a declining longevity at the bottom of any developed country, according to numerous Pentagon, CIA, and IMF surveys. Our wealth inequality is also the greatest of any developed country, approaching that of Mexico.

And it seems Governor Walker wants to do the same for Wisconsin. Walker’s bill throws the old one-two punch at health care in Wisconsin. First, it undermines the ability of health care workers to advocate for improved working conditions that improve patient care. Then it gives Walker’s administration the power to unilaterally change the state’s Medical Assistance program, subject only to review by the state legislature’s Joint Finance Committee (dominated by very conservative Republicans) and the minimum standards set by the federal government. The state’s Department of Health Services can make these unilateral changes even if the changes conflict with other existing aspects of state law.

In fact, history shows that it was unions via collective bargaining who formed America’s middle class after WWII—by redistributing income from the topmost income earners that prevailed before the Great Depression to a workforce that was able to participate in the increased post-WWII productivity brought on by its technological advances.

It is a different matter today. The richest 1 percent of households have garnered 23.5 percent of national income, as it did in 1928, whereas the top 1 percent had just 9 percent of national income in the 1970s . All other income classes have seen a decline in real, after tax incomes, since then. It is a well-known fact thanks to recent research by two economists sure to be on the Nobel Prize short list, Emmanuel Saez and Thomas Piketty, that has not yet reached the national consciousness.

This is the major reason for the economic instability we are experiencing at present, and why governments as well as consumers had to rely on so much borrowed money. What will it take before policymakers realize this? Sharing the pain also creates a shared prosperity.

Harlan Green © 2011