Let’s call it the ‘fallacy of the vicious cycle.’ It’s a tune sung by Eliot Seide, executive director of AFSCME, the state employees union, and it goes like this:
“The governor’s proposal would cause 3,400 more public jobs to be cut. Every time a public job is cut, a consumer is lost on main street Minnesota. Particularly in Greater Minnesota, where public sector jobs are so critical to the local economy,” Seide said recently on KSTP, talking about Gov. Tim Pawlenty’s budget proposal. “Cutting consumption more is only going to increase the recession,” he added.
Paraphrasing the 19th-century French economist Frederic Bastiat, “For God’s sake, Mr. Seide, at least have respect for arithmetic!” Public employees who perform “non-essential” services are a loss, not a gain, for the community. Continuing those services deepens the depression and delays economic recovery.
The fallacy of Seide’s argument is one this column has made before, but it bears the exposure: The benefit to public employees of collecting a salary is easily seen. The benefit of their spending to local economies also is easily seen. But the great burden weighing on Minnesotans like a sodden cotton coat is not seen. The salary the non-essential public employee spends on himself is money a taxpayer no longer has to spend on himself; the money the public employee spends supporting local businesses is money not spent by the taxpayer supporting other local businesses.
Governments do provide necessary services — a court system, police protection, essential infrastructure and the like. For such services, the taxpayer receives a reasonably equal value exchange for his tax dollar. Any government activity (assuming it has constitutional authority) and the employees providing it can be justified only by actual value to the community. Seide’s argument for keeping a public employee on the payroll simply because such benevolence makes the public employee a consumer is economically absurd.
When a taxpayer surrenders $1,000 in taxes to the government and receives $1,000 in value, that is a fair exchange. But when the taxpayer surrenders $1,000 and receives no service and perhaps is inconvenienced and his ambitions are thwarted, it is, as Bastiat notes, the same as handing over money to a thief. The thief also makes purchases from local businesses. It makes no sense to say that spending by the non-essential public employee provides a greater economic good than that of the thief.
Consider the hypothetical Prudent family planning a $10,000 kitchen upgrade. Before the family hires a remodeler, however, the Legislature increases taxes in the family’s bracket by $10,000. This sobering news makes the Prudent family reconsider; it does not hire a remodeler, it does not upgrade its kitchen.
Now, the $10,000 in additional taxes might well save the non-essential job of one of Seide’s union members. That is seen. Unseen but equally real is that families like the Prudents lose the enjoyment of those things they might have purchased with that $10,000. Vendors they support, like the remodeler the Prudent family would have hired, lose revenue. Taxpayers like the Prudents surrender $10,000 and get no value in return.
Also consider this about the Prudent family’s coerced charity to the public sector employee. The Prudent family earned its $10,000, whether by its direct labor or by investing its capital in the labor of others. It created wealth. The public employee providing a “service” for which consumers aren’t willing to pay only consumes wealth. Consequently, the state is not merely better off if it eliminates unnecessary government jobs — it is much better off.
Again, I am not referring to government employees who provide essential and constitutionally authorized services. But irrespective of how hard or conscientiously a public employee works, if he is performing a service outside the scope of government authority or a service with little useful purpose, his salary is a net loss to the economy. However, cutting his position provides more purchasing power for families like the Prudents, who hire that remodeler and redo the kitchen.
More consumer purchasing power creates job opportunities for former public employees who can transfer their skills to occupations providing products and services consumers are willing to pay for. The redeemed public employee is now creating wealth, not simply consuming it.
That is a lot of explanation to arrive at the conclusion that two plus two must equal four: A dollar paid to a public employee must first be taken from a productive taxpayer. Keeping public employees on the payroll to preserve jobs irrespective of the value of those jobs, as Seide suggests, is a net loss for taxpayers and an aggregate loss for the state. The community is better off when non-essential jobs are cut and tax rates reduced. At least respect the arithmetic.
Craig Westover is a contributing columnist to the Pioneer Press Opinion Page and a senior policy fellow at the Minnesota Free Market Institute (mnfreemarketinstitute.com). His e-mail address is firstname.lastname@example.org.
This commentary originally appeared in the St. Paul Pioneer Press on March 12, 2009.