[A] dry cleaner in Pendleton doesn’t have two cash registers, one for the folks who work at the state prison and one for everyone else.

True enough. But part of the money that comes in from folks who work at the state prison came out of the till originally in the form of the taxes that the dry cleaner paid, which in turn paid the salaries of those state workers.

In other words, government spending shuffles the money around in the economy, without necessarily adding to the economy.

Now, those who claim that government spending just takes money out of the economy don't quite have it right, as you say.

But implying that government spending, in particular PERS benefits, is actually good for the economy as a whole is also not quite right. Yes, there is a real economic impact in smaller communities with relatively weaker local economies -- but that impact is purchased at the expense of taxpayers in other parts of the state.

That's not to say that PERS is evil, or that state government spending is a bad thing. Just that it's not necessarily a good thing, either. Taxes come out of the private sector to fund the public sector, which then spends the money in the private sector so that the cycle can begin again. It's simple income redistribution, which depending on the efficiency of the system may provide a net drain or a net gain to the economy as a whole. Individual programs need to be evaluated on a case-by-case basis. Many state programs help improve the productivity of the private sector in one way or another. Many state programs do not.

My point is that defending state spending in general by pointing to the economic impact of the spending itself is just as weak as attacking state spending in general by pointing to the economic impact of the taxes that fund that spending.

Quick example using your logic -- the tremendous increases in the cost of health care are really good for the economy, because all those doctors, nurses, insurance company stockholders, big pharma executives, etc. are just going to turn around and spend that money elsewhere. See, they spent that money that they received, therefore it's all good, right? ;-)

All well and good IF PERS were from government employee contributions instead of forced contributions by the taxpayer. The day the employees of government in Oregon contibute as much, or more than the taxpayers is the day I read claptrap such as this seriously.

IMO when only a few people get benefits and many others dont get the chance because of limited positions then I have to say we need some term limits or a system so that ALL people are able to work for the goverment and recieve PERS.

But what really pisses me off are govt employees that dont shut down illeagal immagrants that lower my wage and make the wage/pension in my industry notta......

When I hear a democrat or republican cry about there state/fed benefits and there are so many people without out there working in the private sector it makes the PERS people look like little bitches.... leaching of the private sector......

[QUOTE]but someone tell me how great capitalism is working these days. bring lots of justice and prosperity is it?[/QUOTE]

Not to state the obvious, but--judging by the history of the human race--yes? I really have a hard time understanding how this is disputable. Sure, we have a craptastic society, but a craptastic society that VERY FEW of us would voluntarily trade for any other. There's a reason for that.

TA, huge props for quoting Adams, who did indeed die far too soon. Explaining how his excellent social satire/commentary makes for pretty poor economic commentary, however, would take a very long time and get us way off topic. ;-)

And yes, when you get down to it most of the economy is about shuffling money around. The private sector is mostly one big income redistribution system as well. And yes, it has its own inefficiencies and problems. However, two points:

1) The redistribution in the private sector is far more voluntary (though not entirely so) than the public sector. There is inherently more freedom of participation built-in to the private sector.

2) The actual creation of wealth -- not all of the economy is just moving a dollar from point A to point B -- is entirely within the private sector. Actual increases in prosperity are really only possible with the creation of wealth/value, which the government does not do.

As I said before, some government spending actually does help private sector productivity; the private sector can't do it alone. I would never argue that we don't need government spending at all, I'm certainly not one of those "drown it in the bathtub" types.

But I would challenge you (or anyone else) to name a single government program that directly creates wealth in the economy. Many of them facilitate wealth creation in the private sector, no question. And that's not to say that any government program that doesn't help to create wealth is bad. Just that they don't really provide a net gain to the economy unless they somehow help private productivity.

BTW, regarding PERS specifically -- unless I'm mistaken, the money that is paid out in PERS benefits today was money that had been contributed into the fund in the past; i.e., tax money for PERS is taken out of the economy today so that it can be put back in the economy (with interest) tomorrow.

Of course, it's not that simple either, since when the money is put into the fund, it's invested -- putting it back into the economy of the day -- and when it's paid out presumably it's taken out of those investments -- taking it back out of the economy before putting it back in.

Kinda makes your head spin, don't it? :-D

And speaking of benefits to local economies -- since 1/7th of the current PERS retirees live in other states according to the article cited above, the money that came out of the private sector economy here to pay for those benefits is not being put back into Oregon's economy (or at least, some significant portion of it is not).

Again, I don't want to come across as attacking PERS, that's not my point. My point is that defending PERS by the use of these selective facts is very weak. There are many positive things to say about PERS, but the net economic gain from the program to the state economy doesn't seem to be one of them.

So much talk over so narrow a point. Government spending is a tool of fiscal policy. Ask any congressperson whether he/she would be happy to do without government "defense" contracts in their district. Government spending (like consumer spending) is a major force for economic expansion. Editorial: I'd rather have spending on state services (PERS) than defense contractors. And which provides greater long-term benefits to the economy? I could venture a guess.

Oregon is a relatively high exporting state. We make lots of products here and ship them to other places, creating wealth for the economy and contributing to public services. These products range from secondary wood products to microprocessors and photovoltaic inverters.

To the degree that government spending helps us create an environment condusive to the growth of this "traded sector," it can be very beneficial to the economy. In my mind, this is much more signficant than any direct spending by retirees--not that it isn't important but it isn't the driver of long-term economic growth or prosperity.

I think a more interesting question would be if we have the right public sector compensation system to supports maximum growth of the traded sector in Oregon. Does our current mix of benefits and salary attract the right people to the state workforce? Are the pay increases based structured to attract the most talented people?

I don't know the answer and I don't know if a study such as this has ever been done but it would sure be interesting.

btw...certainly the goal of state government is much broader than growing the traded sector.

The study that should be conducted should determine how the state's pay structure helps acheieve all of the state's goals--including economic, environmental and community goals.

My guess would be that in some areas, compensation structure has little effect on the state's ability to meet its strategic goals and in other areas it may have a much greater effect.

One of the difficulties in discussing economics is the separation of macroeconomic issues from very specific individual examples.

Dick Cheney's comment was just flat-out wrong, as you noted. And if you re-read my comments, you'll see that I absolutely believe that government can facilitate the creation of wealth. What I said was that government doesn't directly create wealth itself. It can, of course, direct wealth one way or another but that is not the same as actually creating wealth.

Yes, government favoritism can have a major impact on whether an individual company is prosperous. But again, it's kind of a shell game -- if I give my private sector business to a company with the imprimatur of government approval, that doesn't mean that the government has actually created wealth. It means that I gave my business to the government-favored company instead of to a different company, so the net impact to the economy as a whole is unchanged. Certainly there will be winners and losers with any government action, but the implication of the original article was that government spending is good for the economy, and is not a drain on the economy, and that arguments against government spending on economic grounds should be dismissed.

And that, I submit, is a very weak and overbroad argument. Not all government spending helps the economy as a whole, and criticisms of specific government programs on economic grounds may be perfectly valid on a case-by-case basis.

Looking over the average payout figures throughout the maps, the annual payout to retirees seems to be just about the same as someone would get from Social Security over a lifetime of work.

I thought that PERS was created in order to beat Social Security returns for retirees. That doesn't seem to be happening, at least not to any significant degree. I'd like to see a chart to show how much the retirees and their employers paid into the PERS system, as compared to how much they would have paid into the Social Security system. Are PERS retirees getting any better of a deal than if they were in Social Security?

I am not saying that I think Social Security is necessarily a good deal, but PERS should at least be comparing itself with Social Security to see if PERS is a better deal for retirees (and their employers) than SS.

Thanks to David Wright for his spot-on economic critique of this post.

Chuck, the problem is that you're looking at the present, which ignores all that went before. Starting right now, you're correct that a hypothetical PERS retiree will consume goods with his pension and put cash into the registers of hundreds of private businesses. But that pension is being paid by taxes that were already taken out of the economy years ago. How would that money have been spent were it left in the hands of the taxpayer? Of course it's impossible to know for sure. But whether we think PERS is a good idea or not (and I think it's a good idea), it's hard to argue that it's an essential government function. Even after PERS reform, public employees in Oregon have one of the best pensions in the country. I wouldn't want to argue with a conservative economist about whether that money would produce more economic value in the hands of middle-class taxpayers, or the hands of PERS retirees. Even if they spent their money on exactly the same things, the administrative cost of collecting and redistributing it makes for a net loss.

All of this is separate from your point about the value of government and the idiocy of the kicker. Government is absolutely essential in creating the infrastructure that allows the private sector to create wealth, and of course the kicker is pure lunacy.

PS to David G.: PERS retirees get their pensions PLUS Social Security. It's not an either/or system except for some police officers and firemen who have a separate system outside of Social Security and PERS.

Miles, thanks for the clarification that most retirees get both pensions. I think it still would be enlightening to compare the costs and returns of PERS with Social Security, to see which system has the better return for retirees and their employers.

The annual payouts look about the same. But how do the costs compare?

As Oregon prepares to send over $1 billion back to taxpayers, with about two-thirds going to the wealthiest twenty percent, I stand behind my original claim. The bulk of the money is going to people who earn more than they spend so will likely go into savings and investments anywhere in the world - when prudent fiscal policy would have led Oregon to save the unanticipated revenues in a rainy day fund.

Sorry, Chuck, but since you didn't mention a rainy day fund at all in your original post, I'm not sure which "original claim" you are talking about. I don't disagree with you on the rainy day fund. But to quote from your OP:

Unfortunately, we still have too many Oregonians – of all political stripes – who still talk about tax dollars taking money from the economy and that tax cuts are better for the economy than spending on public structures.

Tax dollars do take money from the economy, before giving them back elsewhere. Is that a bad thing? Not always. Is it a good thing? Not always. There is no question in my mind that some tax cuts are better for the economy than some spending on public structures. And vice versa. Your OP doesn't seem to indicate any gray area there, though. Again from the OP:

So, the next time you hear someone complain about PERS spending or other spending on public structures, just tell them “It is the economy, stupid.”

Yes, it is part of the economy... and it was paid for out of the economy in the first place... so I guess I'm completely confused as to your actual point?

Retirees with pensions have more wealth than retirees without pensions. Public employees in Oregon have pensions.

Yes, and good for each of them individually. But you're offering up the distribution of wealth by the government (as it pays those pensions) as somehow demonstrating that wealth has been created by government? Those PERS payments didn't fall out of the sky, they came from somewhere -- namely, from taxes that paid to fund the public employer contributions to PERS, and from investment gains derived from those contributions. So whatever wealth was "created" for an individual retiree was paid for essentially by wealth taken from others in the form of taxes.

Let me ask a simple question -- if you give your child a $20 weekly allowance, have you created any net wealth? Your child may be $20 richer for the week, but where did that $20 come from?

Your point about federal matching funds for some state spending is interesting, if also expanding the discussion beyond your original scope of state expenditures. But where do those federal matching dollars come from? Federal taxes, of course. Which also come out of the economy before being circulated back into it.

And, just out of curiosity since I'm sure you must have these figures, how much of every federal tax dollar (of all kinds, not just income taxes) paid by Oregonians comes back in the form of federal spending in Oregon? I seem to recall that Oregon sends more money to the feds than it gets back, but I don't have the exact numbers. If that's true, then the federal matching funds you cited would be an even less efficient use of monies pulled from the economy than if the state had taken that money directly. Of course, if I'm wrong about that and Oregon actually receives more federal money back than it pays out, then matching funds would be a net gain locally. Offset by a net loss in some other locality in the country. Good for Oregon, sucks to be the other guy, whoever that might be.

Again, I'm not arguing against state spending. Of course state spending is important. I've said repeatedly in this thread that state spending helps to facilitate the prosperity of the private sector and is absolutely essential.

I'm saying that if someone complains about state spending on any specific program, and as you suggest you simply say, "But that is the economy, stupid," then you have not remotely addressed their complaint.

Oh, T.A., you kill me, man, with your assertion that taxes are

[T]he generous gift of private citizens in the hopes that life will be improved

Gift rather implies optional, yeah? "Generous gift" especially so.

Glad that if I'm not feeling so generous in the future, I can simply stop giving gifts to the government... :-D

i have 1 choice for cable, and if i don't like it, i either do without or pay a fee i feel is extortionate.

You may have only one choice for cable (would that have anything to do with government regulation of telecommunications?) but you should have at least 2 alternative satellite options, thanks to private industry. Or, as you say, you can do without. But you have a choice.

If you decide not to make a generous gift to the cable company in the hopes that your TV reception will be improved, there aren't any IRS agents who are gonna beat down your door and make you pay the cable bill.

Anyhow, thanks for the smile, T.A. ;-)

We could always try to live without the government, and see what happens to the economy THEN. Government doesn't provide a service? How about security and stability? Law and order? Prevent the bullies from beating up on the weak, defenseless, and the poor?

Because otherwise, we'd be like apartheid South Africa: a few rich people hire private 'security companies' (mercenaries) to murder any who get in your way, and take 99.5% of the money. If you don't like they way things are, your body winds up in the river.

I much prefer socialism, thankyouverymuch.

It would appear that nobody here has asked the folks at any city hall what they think about PERS and its continual drain on local governments.

That's an illustration of the state building itself up on the backs of cities and counties, who are able to provide fewer services to citizens at the local level due to this unfunded state mandate.

I would have stayed out of this thread, but I didn't see anybody bringing this up...

Chris, I stand corrected. Saying that government does not create wealth is overbroad. I should have said that business creates wealth. When government is running a business (as in the examples you cite) then certainly the government can be involved in the creation of wealth. Note also there's a difference between pure public sector functions which are paid exclusively from tax revenues, and quasi-public utilities which are paid through direct billing for actual products/services rendered.

Please note as well that I never said the private sector always produces wealth, either. Much of the private sector is just about shuffling money around without actually adding anything to the economy.

Your examples regarding infrastructure are also interesting. When government invests in building a road, something of value is created that did not exist before. However, has government directly created wealth in that case? The company that literally built the road under government contract certainly created wealth, as they took a certain amount of capital (the cost of the construction) and created the road for which they were compensated more than the cost to build it. Government paid that higher cost -- not what it literally cost to build, but the inflated cost that the business charged, reflecting the value that was created by the business -- out of taxes. If you pay $1 million for something that's got an economic value of $1 million, how have you created wealth? You've made it possible for somebody else to create wealth (or, potentially destroy wealth as you point out) but you've not actually added any value to anything. Of course, in the case of a road, others will be able to take advantage of what you bought in order to improve their own productivity -- which is an example of what I mean by government facilitating wealth creation.

However, I can see that it's a bit more complicated than that. I'm still working through the net economic impact of capital investment by government... but alas I've got to get to work, so I'll try to post a follow-up later.

In any event, you've given me much to think about. Thanks, Chris.

The thing about the PERS system that is totally ignored by many is that it was the result of negotiations. Government workers traded immediate wage and salary increments for future retirement benefits. Recently the state has unilaterally reneged those agreements.

Well, let's be honest about the reforms. Some of the fixes were to correct errors made by the PERS board (e.g., using outdated mortality tables that inappropriately increased people's pensions). Some were to fix the systemic flaw in the old system (i.e., the state matched workers' accounts AFTER investment gains but didn't invest as aggressively as workers did, so at the end of a 30-year career the workers had far more than the state did, requiring a subsidy). Finally, some reforms were to reign in the system in the future (the creation of OPSRP for new employees). In the few places where the reforms inappropriately reneged on past promises, the courts have invalidated those changes and ordered restitution. Even under OPSRP, public employees have a far better pension than most private sector employees. The PERS reforms were both necessary and good.

As to the original post, however, the example is that the PERS program creates wealth. As noted above, it doesn't create wealth, it simply redistributes it from taxpayers to public employees. That's good policy for any number of reasons, but not for the reason Chuck cites in his original post.

My sincere thanks to almost everybody who contributed to this debate. It's the kind of conversation that makes me really glad I moved here (Sorry, T.A.) from California.

OK, explain to my why the fastest growing economies in SE Asia have the lowest tax burden?

Money sent to govt is the least efficient way to use it in addition to being the most inflationary. By inflationary, I mean for every tax dollar spent on bombs or govt benefits there is zero product created. So we get more dollars and no prodcut to buy it with - not good.

A conservative economist would most likely argue that PERS is unnecessary since there are many other pension plans that could easily be used. So the net result of PERS is a waste of money for duplicate services that are unnecessary. PERS is just a relic left over from some earlier point in time where someone felt a need to duplicate services that other states had. Rather than joining together to make a more efficient system, somebody decided to do their own thing. We all have been paying for that stupid mistake every since.

You've got to be kidding. Well, might as well give ME $40,000 in tax dollars each year and watch me spend it to "help the economy".

Bob T

Chris... sorry for not posting earlier, this week's been a bit hectic.

If you're still interested in continuing the discussion, drop me a line at "blogs (at) davidbwright (dot) com".