On the Underfunded Liabilities Problem (Or Lack Thereof in Wisconsin)

Econbrowser reader Bob_in_MA has argued that Governor Walker’s [the] (edit 7:50am 2/22) desire to strip collective bargaining rights from Wisconsin public employees is derived in part from the high labor costs, hidden in part by large unfunded liabilities (e.g. pensions) in the state. This might be an apt characterization for Massachusetts. It is not for Wisconsin. From the Pew Center for the States:

Some states are doing a far better job than others of managing this bill coming due. States such as Florida, Idaho, New York, North Carolina and Wisconsin all entered the current recession with fully funded pensions.

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Dispatches (III): I Regret…

From “Wis. Law Enforcement Association ‘Regrets’ Endorsing Walker; Thousands Protest At Capitol,” Channel 3000:

[Executive board president of the Wisconsin Law Enforcement Association] Tracy Fuller writes, “I am going to make an effort to speak for myself, and every member of the Wisconsin State Patrol when I say this … I specifically regret the endorsement of the Wisconsin Trooper’s Association for Gov. Scott Walker. I regret the governor’s decision to ‘endorse’ the troopers and inspectors of the Wisconsin State Patrol. I regret being the recipient of any of the perceived benefits provided by the governor’s anointing. …

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Dispatches (II): Walker rejects union offer to accept concessions

From Milwaukee Sentinel Journal:

…The Walker statement was in response to a statement earlier Saturday from [State senator] Erpenbach, who said he had been informed that all state and local public employee unions had agreed to the financial aspects of Walker’s budget-repair bill. Erpenbach added in his statement that the groups wanted, in turn, for Walker to agree to let labor groups bargain collectively, as they do now.

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Analogy Watch: “Cairo has come to Wisconsin”?

mjs-bill_-nws_-lynn_-14-bil.jpg

Day 3 in the Wisconsin State capitol rotunda. Source: Milwaukee Sentinel Journal

From National Journal:

In an interview on MSNBC’s Morning Joe today, Rep. Paul Ryan, R-Wis., said the cuts were necessary to get Wisconsin back in the black.

“State workers who have extremely generous benefits packages, [Walker’s] asking that they contribute 12 percent to their health care packages. It’s not a lot, it’s about half of what private-sector employees pay, and he’s getting riots. It’s like Cairo has come to Wisconsin,” Ryan said. “People should be able to express their way, but we’ve got to get this deficit and debt under control in Madison.”

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Intermediate Macro Exercise: How to Construct a Maximally Contractionary Budget Deficit Reduction

Consider an economy called Käseland, with gross output equal to approximately $475 billion, and unemployment rate of 7.5%, so considerable underemployment of factors of production exists; consistent with this interpretation, the general nonfarm wage rate has been relatively constant, growing at only 1.2% on a 12 month basis through 2010, and the price level has risen by about 1.5% from the second half of 2009 to second half of 2010.

 

Suppose there is a budget deficit, that you wish to close. How do you maximize the negative impact on output?

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