We Don't Write the News...We Just Report It

The Washington Times had some interesting figures from a Labor Department study today indicating that government workers are being paid substantially more than private sector employees while enjoying a higher level of benefits. Additionally, with these higher benefits typically comes greater job security. Though it is always nice to keep unemployment down, one can see that there are a few glaring problems with these statistics without putting so much as a big toe into the idealogical arena.

First, the government is already running an enormous deficit. Therefore it is mostly debt sales which are funding the salaries and perqs of government employees. This leaves our currency vulnerable and gives more power to large debt holders such as China and OPEC states than is prudent. It also puts our credit rating at risk and leaves open the possibility of debt default in the future if the foreign appetite for sovereign debt were to ever dry up. Such a scenario would have been unthinkable in the past; however with calls for global currency, possible Chinese de-pegging from the dollar and foreign states' asset diversication away from dollar-denominated assets, it no longer is.

Second, and more alarming, are the longer-term implications of such a situation. Government workers mean government pensions. And with workers entitled to retire at the ripe old age of 55, leaving many of them 25 to 30 years from death as of their last day on the job, the burden on future generations could be back breaking. Think of medicare, social security, and the pension schemes at the large autos; these are all examples of the generational problem we are facing as a nation where a boomer population will be seeking entitlements that a shrinking number of workers will be responsible for. In the investment world, pyramid schemes are prosecuted. In entitlement terms, they are the norm. This isn't always bad; indeed even the biggest opponents of social plans concede that they provide benefits for society. However, it is unfortunately the case that with population issues they look, at current trajectories, to be unsustainable.