Free Markets, Free People
Paul Krugman poops out a little blog post along with accompanying chart to ostensibly prove his point that austerity is the wrong way to go in Europe (and elsewhere). He uses Estonia as his example because Estonia committed early to austerity measures.
Since Estonia has suddenly become the poster child for austerity defenders — they’re on the euro and they’re booming! — I thought it might be useful to have a picture of what we’re talking about.
So, a terrible — Depression-level — slump, followed by a significant but still incomplete recovery. Better than no recovery at all, obviously — but this is what passes for economic triumph?
CATO guts him with a single chart that makes the point about cherry picking data:
Note where they are headed and note too that this is after rather heavy austerity measures were placed into effect.
It’s called a “recovery”, unlike what is happening here where money we don’t have has been poured down a Krugmanesque rat hole. Estonia hit a bump in their road of growth, took austerity measures to right themselves and is on the path to full recovery (they still have more to do, but essentially, they’ve weathered the problem).
But you wouldn’t know that from Krugman’s chart would you?
Estonia’s achievement is all the more remarkable when you consider that it was one of the countries hardest hit by the global financial crisis. …How did they bounce back? “I can answer in one word: austerity. Austerity, austerity, austerity,” says Peeter Koppel, investment strategist at the SEB Bank. …that’s not exactly the message that Europeans further south want to hear. …Estonia has also paid close attention to the fundamentals of establishing a favorable business environment: reducing and simplifying taxes, and making it easy and cheap to build companies.
How much austerity? A lot:
… Estonians have endured some of the harshest austerity measures with barely a murmur. They even re-elected the politicians that imposed them. “It was very difficult, but we managed it,” explains Economy Minister Juhan Parts. “Everybody had to give a little bit. Salaries paid out of the budget were all cut, but we cut ministers’ salaries by 20 percent and the average civil servants’ by 10 percent,” Parts told Global Post. …As well as slashing public sector wages, the government responded to the 2008 crisis by raising the pension age, making it harder to claim health benefits and reducing job protection — all measures that have been met with anger when proposed in Western Europe.
But, you know, austerity doesn’t work (and so it is very important, to the point of giving half the story, that spending freaks like Krugman present Estonia as a failure).
Estonia reacted to the overspending and the downturn in a very responsible fashion. Instead of using the weak economy as an excuse to further expand the burden of government spending in hopes that Keynesian economics would magically work (after failing for Hoover and Roosevelt in the 1930s, Japan in the 1990s, Bush in 2008, and Obama in 2009), the Estonians realized that they needed to cut spending.
Look at Estonia’s chart (not Krugman’s version). Look at ours. Tell me again why deficit spending is the answer and the only answer, Mr. Krugman?
The following statistics were released today on the state of the US economy:
Initial Claims for unemployment fell 12,000 from last week’s revised 383,000 to a better-than-expected 377,000. Despite this, the 4-week moving average rose 1,750 to 377,750, the same as one month ago. Continuing claims also rose 34,000 to 3.293 million.
The Bloomberg Consumer Comfort Index rose for the thirds straight week to -37.6, on improved personal finances and buying climate.
On Wisconsin – the horrific drubbing the unions took, not the fight song. What if anything did the left learn?
There is lots of interesting (and not so interesting) “introspection” going on among lefties about why what happened in Wisconsin happened – and why it was so resounding a defeat.
Ed Rendell, former Democratic governor of Pennsylvania, just thought the attempt was dumb, politically:
"It was a dumb political fight — I would have waited until Walker’s reelection," Rendell told The Hill when asked if the recall push had been a mistake. The former governor and head of the Democratic National Committee pointed to exit polls that showed a number of independents and Democrats who opposed Walker’s policies nonetheless voted for him because they opposed a recall.
Yeah, there’s some merit to Rendell’s point, but if there were indies and Dems who voted for Walker, it may have been not just because they opposed the recall, but because they were actually been objective enough (i.e. not blinded by ideology) to understand the problem the state faced and had seen progress in resolving it.
Even Barney Frank thought it was a fight the unions shouldn’t have picked (and that too is a key point – the unions picked this fight):
"My side picked a fight they shouldn’t have picked. The recall was upsetting to people, the rerun of the election with [Democratic Milwaukee Mayor] Tom Barrett — it’s not a fight I would have picked."
But instead of cool heads prevailing, emotion took over and ended up with a resounding loss. Their first indication that the unions were in trouble was when they couldn’t even get their chosen candidate across the line in the Democratic primary.
Here’s a stat that I see being tossed around that ostensibly supports the Rendell point (i.e. these union members voted for Walker because they “opposed the recall”).
The network exit poll for the special election showed that Walker won the votes of 38 percent of voters who said they were a union member or lived in a household with a union member.
What they don’t point out is whether that 38% were members of a household with a “public service union member”.
Because that’s what this was about. The state, the public service unions, etc. My guess is most of these 38% were members of private unions who were among those getting 28% less in benefits than the public unions.
And, frankly, when the public service union members threw their collective tantrums prior to the recall effort, they turned a lot of people off, to include other union members. Finally, when public service union members were given the choice of whether or not to pay union dues (the state quit collecting them automatically), public union membership in the state dropped dramatically. The AFCME saw its membership drop by 55%. And the Wisconsin Education Association Council (which spent $4 million of members dues on the recall)?
Since the collective bargaining measure was enacted last year, WEAC’s membership has dropped from around 90,000 to 70,000 but the remaining membership became energized by the recall and union leaders are hopeful that passion will continue as the union rallies around issues such as public school funding. The union is working on membership drives this summer.
Over at Reason, Shikha Dalmia cites Alec MacGillis at TNR’s rationalization for the loss:
Over at The New Republic Alec MacGillis enumerates all the reasons why public unions experienced an utter rout yesterday in Wisconsin: they were outspent; they should have attempted a referendum like their more successful comrades in Ohio rather than a recall; voters were in a pro-incumbent mood; Walker is a wily bastard who exempted cop and firefighter unions and thereby splintered the union vote.
I talked about MacGillis’ nonsense the other day. It is hardly a “pro-incumbent” mood out there. And we’ve also come to know that the “we were outspent" assertion is nonsense as well. Dalmia contends there’s also another reason MacGillis avoided:
The only reason he neglected to mention happens to also be the correct one: taxpayers straining under out-of-control union demands finally cried: “ENUFF.”
I don’t think the public service unions yet understand this. They don’t seem to understand that their “special case” puts them in a position where they’re “bargaining” with the people they’ve elected and the public understands and doesn’t like that. And so they’ve gotten completely out of hand and what they’ve “bargained” for is unsustainable. Dalmia makes the point:
Whatever the flaws of private sector unions, they have a right to collectively bargain to get as big a share of company profits as is sustainable. What is sustainable? Something in line with the value they help generate. If they ask for more, employers can’t summarily fire them and hire someone else given how our labor law is currently written. But unions can’t make limitless demands forever without sucking the company dry. Hence there is some market discipline that they have to hew to even when labor law arguably gives them unfair latitude.
But there is no equivalent discipline that public sector unions have to submit to. They don’t generate profits. So there is no objective way to measure the value of their work. The main purpose of their collective bargaining powers – it is a misnomer to call them “rights” — is to extract the most lavish wages and benefits they can possibly get from their government employer. Meanwhile, the employer, who pays from taxpayer pockets not her own, has little incentive to insist on reasonableness, especially if unions have helped put her in office. Collective bargaining powers in the public sector, then, virtually invite abuse. And so long as unions have these powers, they will have little reason to “self reform" beyond minor, cosmetic changes.
An example of a private union which was their own worst enemy was the Eastern Airline union. It refused to compromise, refused to work until the company caved into its demands and when it finally got what it wanted, it had put the company in an unrecoverable position. Consequence? They got 100% of nothing.
Private sector unions, for the most part, understand that lesson and exercise a sort of discipline that keeps that line from being crossed (for the most part).
Public unions have no such governor. There is no line for them. They see the taxpayers as an unlimited source of funds. They see themselves as an entitled class. And even in the face of what any reasonable person would classify as unsustainable debt, they clamor for more. Recall the public service union members chanting “raise taxes” when they were confronted with the unsustainability of their benefits in Illinois? So do voters.
Bill Frezza sums up the point:
"The power of private sector unions was long ago broken by many heavily unionized companies going bankrupt. While this was painful for both workers and shareholders, the economy motored on as nimbler non-union competitors picked up the slack. This approach is problematic for the public sector because bankrupt state and local governments cannot be replaced by competitors waiting in the wings. Yes, citizens can always vote with their feet, emptying out cities like Detroit, leaving the blighted wreckage behind. But isn’t Walker’s targeted fiscal retrenchment less painful than scorched-earth abandonment?"
Yes, it is. And that’s what the voting public is discovering. Walker delivered results. And those results will serve as an example to other states. Reality is a bitch and reality is finally arriving in the public service union sector.
Finally, the big question: Does this victory in Wisconsin mean anything nationally?
The White House, unsurprisingly, says “no”.
"The President supported and stood by Tom Barrett, but I certainly wouldn’t read much into yesterday’s result beyond its effect on who’s occupying the governor’s seat in Wisconsin," Carney said in a question-and-answer session aboard Air Force One. "What you had was an incumbent governor in a repeat election that he had won once, in which he outspent his challenger by a magnitude of 7 or 8 to 1, with an enormous amount of outside corporate money and huge donations, and you got essentially the same result," Carney said.
But here’s the key point that those saying “no” seem to miss:
Walker’s surprisingly easy win over Democrat Tom Barrett on Tuesday was fueled by a big turnout from a motivated Republican base of voters, and by heavy spending by out-of-state conservatives who flooded Wisconsin with campaign cash.
Both trends raised difficult questions for Obama’s re-election campaign, which has struggled to match the enthusiasm of his 2008 White House run and compete financially with the huge sums of money being raised by conservative outside groups ahead of the November 6 election.
That’s right … what was exercised and proven in Wisconsin was a template that included cash and a ground game.
It worked. And it put WI in play in November (pretending that the wildly inaccurate exit polls prove otherwise is simply an exercise in whistling past the graveyard).
Which brings us to a question posed by Jim Geraghty in his Morning Jolt this morning:
A Blasphemous Question: What if Axelrod & Company Were More Lucky than Good in 2008?
Here’s a simple, basic explanation about David Axelrod and the Obama campaign, and their performance four years ago and now: When the wind is at your back, it’s easy to look smart. When the wind is in your face, it’s very hard to look good.
In 2008, Obama had a series of big gusts at his back. Yes, glowing media coverage was one, but he probably wouldn’t have done as well if he had brought the same resume and style to the 2004 political environment or the 2000 one. His ascension to the White House required eight years of the opposition party’s rule, an unpopular war, a series of scandals involving the opposition, and finally the Lehman collapse and the resulting economic meltdown. Almost a perfect storm.
And now, he’s got a record – and a poor one at that – combined with a stagnant economy, massive unemployment and, well you name it on the negative side and you’re likely to find it.
So, yes – it isn’t at all hard, given the number of missteps and misfires his re-election campaign has had to come down on the “lucky” side for 2008, is it?