Democrats In A Debt Trap

The electoral fortunes of the Democratic Party are now at a low ebb, and leaders of the party are seeking a path that will allow them to begin winning back the governorships and state legislatures they have lost to the Republican “Red Wave” in recent elections. On the federal level, the loss of all three branches of government—the election of Donald Trump to the Presidency being the most galling loss of all to many—has led to a great deal of soul-searching that has yet to produce a solid strategy for success beyond continuing to paint the Republicans now firmly in power as heartless plutocrats out to enslave America.

Only time will tell whether simply bad-mouthing Republicans will ultimately turn into a winning electoral strategy (Hint: It didn’t work for Hillary Clinton). However, I wonder if there is a much bigger electoral problem facing Democrats that is not being sufficiently discussed: trends in the American labor market over the past half century—particularly those regarding union membership—that could ultimately serve to lock Democrats out of power for many years to come.

The support of the Democratic Party for the American labor movement during the glory years of the Roosevelt presidency, the industrial boom due to rearmament around World War II, and our manufacturing hegemony in the period immediately after the war while the rest of the world’s factories still lay in ruins likely hit its high point in 1954, when roughly 35% of all American workers were unionized. Our heavily unionized private sector employees in key America industries such an automobile and truck manufacturing, steel, coal, and transportation helped create national wealth on a scale never before seen in world history, and many Americans enjoyed a lifestyle as a result that was previously unimaginable.

The precipitous decline of many formerly dominant U.S. industries is well-known to all, and today a scant 6.5% of private sector workers are members of unions, which would seem to signal the death of the American labor movement—but this is not the case. Although total union membership has certainly declined, and now only 11% of all workers are unionized, labor unions have become a dominant player in one part of our job market—public sector (read: government) employees, where roughly 35% of workers are now unionized.

During the decades following World War II—and most particularly during the decades following the “Great Society” progressive politics of the 1960’s—government employment as a percentage of the workforce exploded, and today roughly 1 in 5 American non-military workers is drawing a municipal, state, or federal paycheck. At the local government level union membership among workers hovers between 40-45% because of the inclusion of heavily unionized police, firefighters, and public school teachers in the totals. This is a transformation that has changed both the American labor movement and its relationship to our citizens.

In a galaxy a long, long time ago—and now far, far away—unions largely represented the downtrodden industrial proletariat battling the evil capitalists for a fair share of the wealth, in the form of profits, their labor was creating. However, the demands of workers were always constrained by the profits that were available to share; unions certainly did not want to kill the goose that laid the golden egg. This near-magical balance was, of course, destroyed by foolish free trade agreements that allowed companies to simply relocate their operations to countries where labor was much, much cheaper. However, I hope—and I know I am not the only one who feels this way—that a rejection of the illusory benefits of globalization will bring much needed manufacturing jobs back to America and reinvigorate our private sector unions.

However, when it comes to public sector unions, there is no balance between worker demands and available revenues/profits that constrains negotiations; taxes are simply raised or costs deferred to pay for contract agreements, and any dollars and cents reality is largely absent from the equation. Those long gone battles between industrial workers and greedy capitalists that still inform our collective understanding of labor-management relations are misleading models for today’s labor market; the negotiations between public sector unions and craven politicians who often lack all business sense are one-sided affairs that have become, to be blunt, a fiscal disaster for the taxpayers of our country.

Unconstrained by the realities of profit and loss, public sector workers now typically enjoy salaries, job protections, and benefits (particularly as regards healthcare and retirement) that the average private sector worker no longer even dreams of possessing. We now often encounter the rather perverse situation of relatively less affluent private sector employees being taxed to pay for the comfortable lifestyles of those who work for government, and these pressures are reaching the boiling point as the costs of public pensions and retiree healthcare agreements—that were negotiated decades ago with absolutely no thought as to how they eventually would be funded—are now blowing gaping holes in local, state, and federal budgets. Estimates of the cumulative shortfalls in public sector retirement plans, which are still built around defined benefit models that have largely disappeared from the private sector, range between $3-5 trillion. This is going to get real ugly real soon, and taxpayers—unsurprisingly—will be caught in the middle.

All of this leaves the Democratic Party in one heck of a bad spot. Given that many millions of dollars of union contributions to the Democratic Party and Democratic politicians are major sources of funds to support political and electoral operations, Democrats cannot back away from their traditional support for these unions and their demands their contracts be honored in full. However, given that this will essentially boil down to requesting steep, escalating tax increases to cover the costs of fiscally unsound pension and healthcare plans for decades to come, Democrats are going to find themselves in the very unpopular position of squeezing money—and lots of it—out of the struggling many to pay for the comfy lifestyles of the few. Citizens will certainly push back hard—as has already happened where bailouts have been sought after municipal public sector plans have failed—and their demands that retiree benefits be reduced to levels that can be sustained with the tax dollars now available will certainly grow louder and angrier.

The bottom line is that, in the difficult years ahead, the Democratic Party will be in a perfect position to make a lot of enemies. Members of public sector unions will feel betrayed by the Democratic politicians they have so lavishly supported with political contributions, and taxpayers will be likewise angered about being asked to foot the bill for financially irresponsible employee contracts. Republicans, who have historically advocated for small government and (at least in words) for fiscal restraint will simply sit back and watch these battles while positioning themselves as the protectors of working class taxpayers—unlike those danged crazy Democrats who just want to raise everyone’s taxes and spend, spend, spend.

Unless the Democratic Party can find a way to convince their allies in public sector unions to voluntarily reduce their salaries and benefits in order to forestall a fiscal supernova, it is going to be a very rough go at the ballot box for their candidates, which will push them even further into the political wilderness and leave our nation with de facto one-party rule. This would be a real shame because a vibrant two-party system provides tremendous benefits to our nation and its people, but I wonder whether this fiscal trap is one the Democratic Party has any hope of escaping unscathed.

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