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Consumers Are Also to Blame for the Economy
 The average American is at the heart of this story ‐ as the victim and as the perpetrator. We suffer as employees because we exert influence as consumers.Yeah, just like a hundred years ago. Except eventually, everyone got to be better off. One of the best explanations I ever read of any economic topic is by Arnold Kling, who points out that the fundamental purpose of any advanced banking system is to resolve a tension between what savers want (stable, profitable, liquid assets like bank accounts and mutual funds) and what investors want (stable, long-term finance of big, illiquid assets like houses and farms and industrial machinery). When we are providing the money, we want to be able to get at it whenever possible and bear no risk. When we are borrowing it, we want to be able to lock it up as long as possible, and have the lender eat as much of the risk as possible. The banking system exists to transform the long-term, illiquid loans we want as borrowers into the short-term, liquid investments we want as savers. And we the gubbermint to resolve this tension? Just like a hundred years ago? In a similar way, as employees, we want to have maximum freedom to take better jobs, to withhold our labor until we get a better deal, or to take time off for stuff we think is important, while enjoying maximum income stability. As customers, however, we want folks who will work cheaply with no commitments and yet show up reliably, which is why we hate the cable company so much. The institutions that intermediate these two desires are employers: governments and companies. Economic tension or spoiled-rotten crybabies? Gotta have the gubbamint protect you from the big, bad corporations/ Whazzamatter, it ain't fair? As with the banking system, this creates immense value: You don't have to personally locate a cable installer every time a wire goes on the fritz. However, as we saw in 2007, it also creates risks. These risks can be mitigated by good government policy, but they can never be entirely eliminated. But that will never stop the progressives from trying. Because we have these intermediaries standing between us and the other side, transforming the trades into something more suited to our tastes, it's easy to generate contradictory demands as voters, ones that ratchet up that risk because we ask officials to guard our interests as consumers as well as our interests as workers. You can see a recent Illinois Supreme Court decision on pensions as an example of the maximalist position on obligations to employees. The court has taken some criticism for that decision, but it's hard to see how the outcome could have been different. The voters of Illinois wrote into their constitution a provision that said that participation in a government retirement system "shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired." Guess who voted that in?  I'm sure it was not clear to them that this meant that they had essentially written a blank check that could be used by their elected representatives at any time, and then used to draw down their bank accounts to the last penny, if need be. But that is what they did. Voters were thinking like workers who wanted protection, not like consumers who would pay higher and higher prices (taxes and reduced services) to provide that protection.But it was their elected official who gave away the store, to their employees, at the expense of everybody else still living in Illinois. And at some point, the check may bounce, leaving us worse off as customers and employees. Government would fail to provide services to taxpayers and income to workers. Locking in long-term obligations that can never be changed for any reason sets up a structural imbalance that might catastrophically rupture, as it recently did in Greece, and has in many other places and times throughout history.  This is not an argument for getting rid of government regulations, or employers, any more than the occasional financial crisis is an argument for tearing down the banking system and going back to hoarding sacks of gold. But i ain't an argument for more gubbermint regulation, is it. How about a little less? Not a rollback to 1899, but may be to just 1960? It's simply an appreciation of the inevitable tensions between what we want in our dual roles as taxpayers and employees, as producers and consumers, and the difficulty of fully resolving those tensions. That's what Milton Friedman defined as the free-market economy - millions of greedy bastids fighting for their own best interests that sort of average out to nearly everyone's best interest, overall. Without much of the giant hand of government 'guiding the way.' If you look at what's happening with Chicago's pensions, it seems plausible that the city, and possibly the state, is heading for a fiscal disaster that will be hard on taxpayers and employees. She already said, "Like Greece", right? So instead, we try to adjust the imbalance slowly. And the easiest way to do that is to change things for new workers. Professors who already have tenure get to keep it; new hires become adjuncts instead. Established workers in unions get the old terms of employment, new workers get a much less generous deal. My Dad could've retired at 65, but I must wait until 66. It'll be even later for my kids, and who knows about the grandkids. Cowen argues that we may be looking at a big reset ‐ not just eroding pay and security in a few industries, but broadly ending Americans' faith in a rising standard of living. The reset might not be fair. It will certainly not be easy. But it may be necessary. Link - Cowen: What if the Economy Doesn't Get Any Better? Posted by: Bobby 2015-06-07 |
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