The Unionization of the Electorate

What happens when an entire nation goes on strike?

Back in 500 BC, Confucius pointed out that government employees were just as greedy as anyone else and would be tempted to abuse their positions in order to live well at public expense.  He declared that the Emperor's main job was to find ineffective or crooked government employees and chop their heads off to encourage virtue in the survivors.

In our day, government employees have become costly, not through corruption as in Confucius' day, but through publicly-negotiated contracts.

Even the pro-union mainstream media are beginning to talk about the damage done to the budgets of New York, New Jersey, California, Illinois and other states where public employee unions have pushed up their salaries and benefits to the point that the states can't operate effectively any more.  Government becoming too costly to function is precisely what Confucius predicted.

The difference was that when the national Chinese government ended up as bankrupt as, say, California, they couldn't afford the army any more.  At that point, the Mongol hordes would sweep in from the north, conquer the country, reset the bureaucracy back to zero, and set up a new dynasty.

Going Beyond Confucius

Asking for excessive pay, pensions, and other benefits isn't limited to government employees, of course.  General Motors, once the most profitable business in the world, was driven into bankruptcy when the workers demanded more pay than the business could afford.

The American situation is going beyond what Confucius anticipated with respect to government employees draining the treasury, however.  In his day, nobody imagined government spending massive sums to prop up failed businesses.  What's new about our situation is that in addition to being bled to death by government employees, we're being bled by politically-connected employees of private businesses.

It's worse in Europe.  Countries like Greece, Spain, Portugal, and Italy have spent so much more money than they take in via taxes that the European Union recently announced a one trillion dollar lending fund so the hopelessly indebted nations could roll over their liabilities without defaulting.  That's bigger than Mr. Obama's initial "stimulus" package, and we all know how helpful that wasn't.

The basic Confucian conundrum in which Europe finds itself is that these countries are violating their commitments to the rest of Europe and are running up impossible debts to finance public spending.  The rest of Europe fears that if one of these countries went bankrupt - that is, had to cancel debt repayment entirely when their last euro is spent - that all the other European countries would find it hard to raise money to finance their spending.

As in America, government employees aren't the only workers who're getting paid a lot more than they're worth.  Many European private sector workers can retire with public pensions when they're relatively young, an unsustainable situation rather like our Social Security system only more expensive.  What's worse, workers who do cover their costs don't always pay income taxes - many Greek doctors prefer to be paid in cash and won't give receipts in order to avoid income tax, for example.

Everybody's In On It

The European governments who've offered this trillion-dollar package have to answer to their voters, and their voters are angry.  The same day the New York Times reported the trillion-dollar bailout, they reported taxpayer fury which might seem strangely familiar to observers of recent American Tea Parties:

Chancellor Angela Merkel's conservative bloc lost its grip on the upper house of Germany's Parliament on Sunday, as voters in an important regional election dealt her party a strong setback seen as the first significant political fallout from the Greece crisis. [emphasis added]

A wide majority of Germans had opposed bailing out the heavily indebted Greek government, but Mrs. Merkel pushed Germany's part of the $140 billion rescue package through Parliament last week.

The Upper House is similar in function to the US Senate.  Mrs. Merkel's support for the Greek bailout cost her party its majority there just as Obamacare cost the Democrats their chokehold on the US Senate.

Meanwhile, Greek government employees, students, pensioners, and anyone else who benefits from the Greek system as it is are rioting in the streets in protest against their gravy train being cut.  It would be easier for the Greek government to reform their system if there weren't so many other groups besides government employees benefiting from the system, but their politicians couldn't resist the temptation to hand out more and more public money in return for votes any more than ours have.

Democracy's Fatal Flaw

Long, long ago, someone pointed out that democracy can't possibly last very long because voters can demand benefits from the public treasury.  When enough voters who benefit from government agitate for more government spending, the system collapses as surely as each Chinese dynasty collapsed when government became too expensive for the economy to support.

Just as the United Auto Workers put pressure on GM management to pay more than the company could afford, welfare recipients want more benefits, low income workers want more negative income tax, and businesses want subsidies or price supports.

In effect, we've all become union members seeking to get whatever we can grab, but it seems that the bubble is about to pop.  Like German voters who see no reason why their hard-earned money should be given to spendthrift Greeks, wealthy Americans leave high-tax states and state revenues drop.

Unlike European countries which are permitted to borrow as much money as they can find lenders, most American states are required to "balance" their budgets.  They've been resorting to all kinds of gimmicks to make the budget look balanced, but the tricks are running out.  The Governor of New Jersey has declared that it doesn't matter what the law says about paying teachers and other government employees, he'll stop sending out checks because the money has run out.

The European governments who set up the bailout knew that they couldn't persuade Greek politicians to risk the wrath of the voters by cutting spending enough, so they lent them money from their taxpayers to postpone the day of reckoning.  The German voters have demonstrated how they feel about that.

In effect, most of the Greek electorate has become equivalent to unionized government employees - they benefit enough from government spending that they'll oppose any spending cuts until either Greece or all of Europe collapses, just as the unionized Eastern Airlines employees brought down their employer under the prophetic slogan of "Full pay 'till the last day."  Some of them never worked again.

Having a nation spend more than the economy can support can't go on forever.  The Chinese aren't lending to America as readily as before, investors are not as happy to buy Greek government debt, the British are having trouble financing their public spending, and so on.

For many years, the American ideal was that each person would take responsibility for looking out for his or her own needs, but times have changed.  As columnist Robert Samuelson put it, "We gradually moved from an era in which people did not want to use government for anything to today when people use government for almost everything." (Newsweek, Feb 1, 1993 p. 5.)  As people try to ask government for more and more of what they want, government costs go up and working becomes less worthwhile.

The main political question of our day is whether the working voters will be able to elect politicians who'll cut spending enough to keep their countries solvent, or whether the collecting voters will let the politicians keep spending too much until the entire economy collapses.  Confucius says there's no going back once spending reaches unsustainable levels.  Much as we abhor the notion, we tend to side with Confucius in our view of the future.

Will Offensicht is a staff writer for and an internationally published author by a different name.  Read other articles by Will Offensicht or other articles on Economics.
Reader Comments
If Greece or some other country collapses, what's the worst that will happen? The Chinese had to worry about the Monguls overrunning them. What does Greece have to worry about?
May 17, 2010 8:40 AM
The Turks?
May 17, 2010 8:59 AM
I think the point is that Greece is the canary in the coal mine. It may not be dead, yet, but it's past the point of resuscitation. It must die. Not because we want it to be that way, but because unlimited government spending is like a perpetual motion machine: impossible.

You cannot take out more than what is put in.

My fear is that we've already inhaled too much of the noxious gas and it's only a matter of time. Not an if, but when. There are still life saving measures possible, but I don't think there's a will.
May 17, 2010 10:03 AM
Greece has much more to worry about then being conquered by another nation. When the Mongols or Manchus conquered China it was a boon. It fixed the problems and, as the article pointed out, reset everything to zero governmentally speaking.

In this day when nation-states fail they are not conquered. Instead they languish. Somalia is what happens when strong neighboring nation-states are not able to replace ineffective government. While it may be unlikely that Greece will become like Somalia (that is only worst case) it is quite possible that they could slide into a decades long economic slump and depending on how the greek government and population react may not be able to recover anything resembling a strong western economy for a very long time.
May 20, 2010 12:24 PM
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