There has been a lot of news lately about Wisconsin and the assault on labor unions.
There have been many assaults on labor unions in the past. One of the most famous was the strike at US Steel’s Homestead steel works near Pittsburgh in 1892. In that strike, workers risked their lives in an attempt to get better working conditions and wages, many of which we would consider basic rights today.
What’s happening in Wisconsin is a bit different. Public union employees are trying to protect state government funded pensions that most private workers only dream about.
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To put it in perspective, to get the kind of retirement benefits that public workers are getting would require savings of $1 million or more to produce the monthly payments given in a public pension.
On the private side, the average 401(k) plan has about $55,000 in it.
You basically have to be a millionaire to get the kind of income stream that many public employees get as retirement benefits. These aren’t your average workers. This isn't like Homestead.
Of course, I am assuming that the principal is never touched, only the earnings from the principal. So, a public pension isn’t exactly like personal savings. But public pensions also last your entire lifetime.
If a private employee starts drawing down principal from their savings they could easily find themselves running out of any retirement income.
Not going to happen for pubic employees. Also, these retirement benefits don’t come from corporations, but from taxes that fellow workers pay.
Given the high level of benefits, it's no surprise that public union employees are mad about losing even a part of them.
And expect that this type of anger to continue as other state governments have to deal with huge deficits. Of course, the U.S. government has a massive deficit and doesn’t even think about reducing pension benefits. They don’t need to. They can just borrow and print whatever it takes to make up the difference, unlike the states.
But once the U.S. government hits increasing difficulty in borrowing and printing (due to increasing inflation), expect pressure to be put on federal employees’ pension benefits and expect a lot of demonstrations against the federal government, too.
But in the end, the demonstrations don’t create the income needed to pay the benefits. Hence, in the end, the well-above market pensions will be cut both in the federal government and the states.
It isn’t a matter of workers rights, it’s a matter of well-above market pensions for just one group of workers at the expense of all other workers.
It’s only sustainable as long as the federal government can borrow and print money to boost the economy and fund the states directly and fund its own above-market pensions.
Once the U.S. government has difficulty borrowing and printing, it will no longer be sustainable — demonstration or no demonstrations. It’s just that simple.
About the Author: Robert Wiedemer
Robert Wiedemer is president of the Foresight Group, a macroeconomic forecasting firm that customizes its forecasts for specific businesses and investment funds. He is a regular contributor to Financial Intelligence Report, the flagship investment newsletter of Newsmax Media. Click Here
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