Posted by: Lisa Pampuch | February 3, 2009

Structural, not cyclical

Structural, not cyclical: I first heard that description of the current economic crisis in an editorial board meeting.

In the private sector, companies are announcing staggering numbers of layoffs. Approximately 200,000 layoffs were announced in January. On “Black Monday” of last week alone, companies representing a wide range of industries, including Sprint, Pfizer, Caterpillar, Texas Instruments and Home Depot, announced more than 65,000 job cuts.

My husband and I are both employed in the high-tech industry and have each experienced a layoff. We know how difficult it can be. But this time around, the layoffs feel different. It doesn’t feel like another boom is just around the corner.

Structural, not cyclical: I read that description from a business expert. “We are seeing very large layoffs — the kind you get when companies don’t expect to be re-employing any time soon,” Peter Morici, a professor at the Robert H. Smith School of Business at the University of Maryland, told Business Week. “They [represent] structural, not cyclical, changes to the economy. We’re looking at a permanently smaller economy with prolonged unemployment at an unacceptable level.”

Unfortunately, some folks are having difficulty grasping that our economy is changing in fundamental ways, especially as it relates to the public sector.

Despite this structural change, when it comes wage or benefit cuts or layoffs in the public-sector — or even less severe, unpaid furloughs like those that Gov. Arnold Schwarzenegger is imposing on many state employees — the protests are sadly predictable.

What many in the public sector fail to grasp is that our economy is restructuring and shrinking, meaning that local and state governments can’t afford to provide the services that we’ve been demanding from them.

Elected officials have three ways of dealing with the situation: Increase revenue, reduce services or reduce the cost of services.

It’s difficult to increase revenue in a shrinking economy. If you raise income or sales tax rates, but fewer people are employed and those who have jobs are spending very little, you don’t increase revenue much, if at all.

The largest portion of the cost of delivering services comes from personnel. If public employee unions block attempts to reduce costs by refusing to negotiate wage and benefit reductions — and that’s the position most public employee unions take — the only option left is to reduce the number of public employees.

When Schwarzenegger proposed furloughs that require many state employees to take two days a month off without pay, howls of protest, grievances and lawsuits erupted.

Whenever public-sector layoffs appear on a meeting agenda, kind-hearted but soft-headed taxpayers tell elected officials to protect jobs at all costs.

It’s important to remember — and apparently easy to forget — that government doesn’t exist to provide jobs. Government exists to deliver those services that taxpayers are willing and able to pay for.

What’s become clear in our shrinking, changing economy is that we don’t have enough money to pay for all the services to which we’ve become accustomed.

This leads us to a number of unpleasant choices, and that’s where the situation is exacerbated in California. We are one of three states requiring a two-thirds majority to pass a budget, a practice that essentially gives the minority party budget veto power. As I write, California legislators are still deadlocked over the $42 billion shortfall the state faces. As they dither, local governments and school districts wait to learn the fate of their state funding.

One positive result of the painful structural economic change that we’re experiencing would be a change to that practice in California. But even a simple-majority budget-passage rule won’t eliminate the difficult choices that we face.

Do we value art, music and sports programs in public schools more than prison terms for non-violent offenders?

Do we value sufficient water supply more than the continued existence various commissions and panels?

Do we value street lights more than green parks?

Do we value local control of dispatch and fire services more than recreation programs?

Do public-sector employees prefer no concessions on wages and benefits to layoffs?

They’re not easy choices, but they must be made.

Structural, not cyclical: The sooner we come to terms with the new reality, the better off we’ll be.

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