State of the Union, Austerity, and Palm Bay

If you had tuned into President Barack Obama’s 2011 State of the Union, you may have some mixed feelings about the speech and setting. The “Reagan-esque” speech and the appearance of unity of both Republicans and Democrats sitting together were uplifting and hopeful.

But for some of us who understand the history of the rise and fall of nations are able to clearly see the stitches on the fastball. First there is the false claim of higher wages:

“Thanks to the tax cuts we passed, Americans' paychecks are a little bigger today.”

Laughable but not really funny; especially after many hard-working moms and dads have lost their jobs, or after months (and in some cases years) some are still looking for jobs. The most recent “average wage per job” numbers by the U.S. Department of Commerce’s Bureau of Economic Analysis does illustrate a $453.00 increase from 2008 to 2009. However, the same years show us a significant drop in “wage and salary employment” by 494,623 jobs. (See graphs below).

What this means is most low wage workers (i.e. the middle-class and poor) lost their jobs and the high wage workers (i.e. the upper-middle class and affluent) maintained employment. In some cases, some high wage workers lost their jobs while some of their responsibilities were piled on to low wage workers for a couple of bucks more in their paycheck (i.e. attrition and reorganization). These are some measures taken in corporate America to deal with declining business that makes overall wages seem stable (or increasing a little) but only at the cost of more jobs being lost.          

Nevertheless, tucked away within the good feelings and positive talk of the State of Union, I was able to find the most relevant excerpt of the speech that will help me determine the future of my City (as well as my Country). In case you missed it, here it is (I’ve emboldened certain words to emphasize its significance):

“Now, the final critical step in winning the future is to make sure we aren't buried under a mountain of debt… we have to confront the fact that our government spends more than it takes in. That is not sustainable. Every day, families sacrifice to live within their means. They deserve a government that does the same. So tonight, I am proposing that starting this year, we freeze annual domestic spending for the next five years… reduce the deficit by more than $400 billion over the next decade, and will bring discretionary spending to the lowest share of our economy since Dwight Eisenhower was President. This freeze will require painful cuts. Already, we've frozen the salaries of hardworking federal employees for the next two years. I've proposed cuts to things I care deeply about, like community action programs. The Secretary of Defense has also agreed to cut tens of billions of dollars in spending that he and his generals believe our military can do without.”

The words you should especially take note of are: “not sustainable” and “... frozen the salaries of... federal employees...” This is called “austerity” and Americans for the first time will experience this very soon.

It is unlike the “Great Depression” of the 1930’s, when Americans experienced a collapsed economy due to the stock market crashing as a result of margin calls; thus causing businesses to shut down due to a lack of investments and credit. Many Americans were not living in major cities and dependant on government for jobs, and many citizens were not receiving a pension, either. Most people were still living off the land, and they knew how to skin and gut a buck or at least catch a fish. However, FDR’s “New Deal” policies and World War II - assisted by President Woodrow Wilson’s Sixteenth Amendment and the Federal Reserve Act (of 1913) - brought about the growth of the federal government in ways that were unimaginable to most Americans. More federal government jobs and programs were created over the years. Soon, the State and local governments would follow suit at the pressure of its constituency who, after decades of seeing the feds hand out jobs with ease, thought they can mimic the unconstitutional beast from Washington. However, as I explained in my last blog and best said by Governor Chris Christie of New Jersey, “We are not the federal government; we can’t print money out of thin air.”

To better explain this in layman terms, imagine a couple and their baby boy. These parents make good money and have great credit. As the baby grows up to become a toddler, then a big boy, then a teenager, then a young man, the parents never weaned their child off of being dependant on them. They never taught the child how to be independent and self-sufficient; always providing everything the child ever wanted, which only progressed and became more expensive as the child grew older: it begins with toys, video games, eating out every night, the latest fashion outfits, tuition to the best ivy-league school in the State, the flashiest sports car, and even rent money for his decked-out bachelor pad. Then life happens, one of the parents is laid off from a high-paying job, and the once affluent life style enjoyed by this couple and their spoiled child comes to an abrupt end. They try to hide the situation and make it seem everything is fine. The bills keep coming in and they start paying off debt with debt, in the hopes that a miracle will happen with the prospect of a high-paying job, and everything will go back to normal. But reality sets in, and they break the news to their precious boy. Needless to say, their college educated dependent doesn’t understand what’s happening. He still expects the checks to come in, the car note as well as the rent to be paid. After all, he is entitled to it, right? Finally, the bank account is cleaned out, the credit cards maxed out, and the bank refuses to lend anymore money to the well-meaning parents. They only have enough income for the essentials like food and mortgage. Realizing their spending habits are unsustainable (there’s that word again); they are forced to readjust and stop paying for their son’s luxury. Unbeknownst to their young stud, living on cloud nine, he wakes up one day and find the sports car gone after being repossessed by the bank, then to make matters worst, he goes to his apartment one night after partying all evening and finds an eviction notice posted on his front door. The young man takes a bus back to his parents’ house with the few dollars he has in his pocket, and walks in to an almost empty home – since most of the furniture was sold in a garage sale – and for the first time in his life he hear words coming from his parents that seem foreign to him, “son,” Dad says with a cold look in his eyes, “if you want to stay in college, drive your own car, and live in your own place, then you’ll just have to work and make your own way.” A reality that always has been, but never experienced due to the false sense of security the lad was living.

Sadly, most of us having lived like the young man in the story above, will experience the same kind of austerity, as well. Simply put, when there isn’t anymore money… there just isn’t anymore money.

Merriam-Webster Dictionary Online defines “austerity” as “enforced or extreme economy.” Currently, several nations are imposing austerity measures in countries like Cuba and Ireland; firing hundreds of thousands of government workers and even telling them to create their own businesses, as well. Municipalities, here in the United States, are shutting down services and cutting pensions. U.S. legislators are considering passing laws to allow States go through bankruptcy. Whether it happens or not is irrelevant, what is relevant is that both the feds and the States are broke; and many local governments enjoying relatively low taxes, big government, and exorbitant pensions, with the caveat of federal and State handouts to meet budgets, will be shocked when they simply don’t come, at all.

Then… as I mentioned in my last blog, “The biggest test for our City Council Members is about to face them, and their decision can mean more money in our wallets or more money out of our wallets.”