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NEW YORK (
) -- Wisconsin is ground zero in the struggle to restore fiscal sanity to government.
Budgets are spinning out of control, thanks to union contracts providing overly generous retirement and health care benefits and skyrocketing Medicaid costs. President Obama, instead of focusing on systemic problems, seeks political advantage and multiplies the difficulties confronting state governments.
Wisconsin Governor Scott Walker faces a $3.6 billion dollar shortfall over the biennium beginning July 1. He is asking state workers, who currently contribute little or nothing to pensions, to kick in 5.8% of wages, and to pay 12.6% of the cost of health insurance. In return, he promises no layoffs. Compared with private sector workers, those are great terms.
The rub: He wants to curtail, but not eliminate, collective bargaining rights. President Obama, mindful of who provides foot soldiers for Democratic campaigns, oversimplifies the issue by calling Walker's budget an attack on unions.
Worse, the president is interfering with the outcome of an election. By using his political machine to flood Madison with demonstrators, he encourages Democratic senators in the minority to flee the capital to deny the upper chamber a quorum and shut down the legislative branch of government.
Apparently, President Obama believes elections have consequences only when his side wins. The people of Wisconsin elected Scott Walker and a Republican Senate to reform state finances and curb union power; the President doesn't like their methods, so it's OK for Democrats to shut a branch of government.
Similarly, Americans elected a Republican House to curb spending in Washington, which jumped from $2.7 trillion to $3.8 trillion in four years with Nancy Pelosi as Speaker. The President threatens to veto a 2011 spending bill that imposes $60 billion in cuts, and then portray Republicans as shutting down the government and denying the elderly their social security checks.
In the private sector, unions represent less than 8% of workers, because an increasingly educated and professional labor force finds them irrelevant and simply won't vote yes for unions in representation elections. Hence, the President backs "Card Check," a proposal by the AFL-CIO to deny workers of union elections and permit organizers to strong-arm workers in restrooms and parking lots to sign cards.
Public sector unions enjoy a superior relevance to their members. If a private union negotiates wages and benefits that make its employer uncompetitive, the business fails and workers lose their benefits. Government workers and their employers face no similar competitive constraints, and they can organize politically to ensure their bosses -- governors and key legislators -- share Barack Obama's peculiar prounion bent, however out of step with popular sentiment.
Now that political strategy has backfired. In Wisconsin and several other states, voters have chosen governments that would rebalance the relationship between public employers and organized labor. The reforms proffered by Governor Walker are not as radical as the law limiting collective bargaining in Virginia.
On health care, the President rammed through an unpopular health care reform law that subsidizes a broken system too much and reforms too little.
Germany, with private insurance and health care systems similar to ours and comparable or better standards of care, spends 12% of GDP on health care, while the United States spends 18%. Simply, Germans pay less for drugs, hospital stays, administrative costs and malpractice than do Americans. President Obama's health reforms do little to address these issues and instead are driving up costs -- witness the numbers of small businesses dropping health benefits for employees, and states and unions seeking waivers from the more onerous requirements of the new legislation.
Bond markets are beginning to treat U.S. federal, state and municipal governments like bonds issued by Athens and Dublin. Rating agencies are downgrading state and municipal governments and considering the same for the federal debt. Investors are demanding higher risk premiums on long-term U.S. Treasuries.
Protecting unions and spending too much on a broken health care system may prove shrewd politics for the media-savvy and rhetorically gifted President Obama seeking re-election, but it is lousy economics. It goes a long way toward explaining why the federal deficit has jumped from $161 billion to $1.6 trillion in four years, state governments are teetering on fiscal ruin and investors around the world are increasingly nervous about Washington's ability to pay its bills.
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Professor Peter Morici, of the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Prior to joining the university, he served as director of the Office of Economics at the U.S. International Trade Commission. He is the author of 18 books and monographs and has published widely in leading public policy and business journals, including the Harvard Business Review and Foreign Policy. Morici has lectured and offered executive programs at more than 100 institutions, including Columbia University, the Harvard Business School and Oxford University. His views are frequently featured on CNN, CBS, BBC, FOX, ABC, CNBC, NPR, NPB and national broadcast networks around the world.