How Economic Distress Works

News Type: Opinion — Seeded on Sun Jun 22, 2008 1:23 PM EDT

Article Source: Of Two Minds

business, recession, taxes, depression, tax, economic-crisis, economic-collapse, tax-revenue

Every city, university, transit agency, school district and local government entity which has promised public union employees (labor and labor overhead is typically about 75% of their budgets) full healthcare insurance and plummy pensions in "good times" is now facing the unhappy fact that these labor benefits are completely unaffordable in an era of falling revenues and shrinking pension fund earnings.

With revenues plummeting from all sources--state and Federal grants, property taxes, building permit fees, real estate transaction fees, sales taxes, business taxes based on gross receipts, fees and on and on--the unsustainability of the promised benefits is starkly revealed.

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3.9

{"commentId":2023469,"authorDomain":"gumwars"}

Gumwars

And this is how it works:

Gas prices increase, which diminish you're disposable income. You spend less at retail stores which reduces tax revenue for the local/state/federal governments. The local/state/federal governments cut benefits, reduce working hours, layoff personnel, and provide less services which put a greater burden on the populace. The populace responds by...spending even less. Wash, rinse, repeat until...

People start defaulting on loans, credit cards, medical bills, utility bills, ad nauseam. Eventually defaults lead to foreclosures and lawsuits which further reduce disposable income creating even more feedback.

Now, what the heck is going to stop this cycle? I'd love to hear input on this one.

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1 vote

#1 - Sun Jun 22, 2008 1:29 PM EDT

{"commentId":2071284,"authorDomain":"profwork"}

profwork

Alas, gumwars, you got it right, a vicious cycle. Sorry to have to tell you.

{"commentId":2071284,"threadId":"296193","contentId":"1599937","authorDomain":"profwork"}

1 vote

#1.1 - Sat Jun 28, 2008 3:25 AM EDT

{"commentId":2071456,"authorDomain":"gumwars"}

Gumwars

I guess we just hold on for dear life, right?

{"commentId":2071456,"threadId":"296193","contentId":"1599937","authorDomain":"gumwars"}

1 vote

#1.2 - Sat Jun 28, 2008 4:54 AM EDT

{"commentId":2073781,"authorDomain":"profwork"}

profwork

The question is how to reverse the cycle. I would invest in sustainability. Actually, a recession might be the ideal time to break bad habits and introduce a new dynamic. Worth a thought.

{"commentId":2073781,"threadId":"296193","contentId":"1599937","authorDomain":"profwork"}

2 votes

#1.3 - Sat Jun 28, 2008 3:03 PM EDT

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GUMWARS

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How Economic Distress Works

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