Balance of Economics
August 23, 2012
by Tim Kane
Sovereign entities are a collection of economic institutions which compete against others in a race for prosperity. A real-world collection of institutions can be thought of as an economic supermodel (in contrast with theoretical models). So when one nation prospers while another fails, we should pay close attention to that supermodel's features.
The same logic applies to the 50 "laboratories of democracy" known as states. Steve Malanga, in the Los Angeles Times, suggests that the Wisconsin supermodel has lessons for California:
Californians should understand those fiscal pressures. Average annual pay for a local government employee in the state rose by 60%, to $61,185 (excluding benefits), between 1999 and 2008, according to the Little Hoover Commission on California State Government Organization and Economy. That's about 70% more than the increase in private sector wages in the state over the same period. Average pay for cops and firefighters climbed 69%, to $89,056, again excluding benefits, in the same period. Benefit costs have soared even more than wages. The annual cost of funding pensions in California's 20 largest municipalities has grown from $1.3 billion in 1999 to $5.1 billion last year, according to a study by Stanford University professor Joe Nation. That's an annual growth rate of better than 11%.
Faced with such increases, municipalities in California haven't had nearly the flexibility to mend their budgets that officials in Wisconsin have.
Tim Kane is the Chief Economist at Hudson Institute.
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