Facebook Twitter LinkedIn

When NGDP growth falls 8% below trend, revenues also fall 8% below trend. Or much more than 8%, if you are a state like California with a fiscal regime all leveraged-up like a hedge fund.

But public employee wages and pensions do not fall 8% below trend, creating massive fiscal deficits. One solution is to have the Fed bring NGDP all the way back to trend. That won’t happen, and indeed at this point I’m not sure it should. What did happen is that after mid-2009 NGDP growth continued to fall further and further below trend, worsening the fiscal situation of state governments. Inevitably, you eventually end up with the following:

Still, discussions about something as far-reaching as bankruptcy could give governors and others more leverage in bargaining with unionized public workers. “They are readying a massive assault on us,” said Charles M. Loveless, legislative director of the American Federation of State, County and Municipal Employees. “We’re taking this very seriously.” [New York Times]

That’s right, 2 1/2 years after NGDP started plunging, states are “readying” an attempt to bring their costs in line with falling NGDP. Still think wages aren’t sticky?

The Times also had this interesting tidbit:

Meet the new banking system, same as the old banking system

And then there is this article:

Oregon was one of the few to buck that trend. Last January, voters approved a temporary increase in taxes for individuals making more than $125,000 a year and on couples whose income exceeded $250,000. An editorial in The Wall Street Journal later stated that these rates caused thousands of upper-income residents to flee the state, but studies revealed that a large majority simply made less money, and so fell beneath the income cutoff for the higher rates.

If I was a twenty-something high tech worker in Portland making 60k to 80k, I’d certainly expect to make over 125k at some point in my career. Thus I’d move up to Washington where there is no state income tax. And I’d do it now, not when in my 40s with kids in the public schools.

Another example of how income distribution data is misleading.

Facebook Twitter LinkedIn

Tags: Sticky wages

This entry was posted on January 22nd, 2011 and is filed under Misc.. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or Trackback from your own site.



