Saturday, November 17, 2012

Greece, Twinkies, and the Fiscal Cliff

By now Hostess, as a company, no longer exists. The upper management of that company ran it into the ground and drove it into bankruptcy. A bankruptcy judge created a plan that would make Hostess sustainable for the near term, and it involved cutting the pay of the workers. One of the two unions balked at that, and Hostess, unable to continue operating, has closed down.

There is plenty of blame to go around, but once the impartial bankruptcy judge made his decision the union really had a Hobson’s choice, a "take it or leave it." And they decided to leave it. They decided it is better to not receive a bigger paycheck than it is to actually receive a smaller one, and they got exactly what they asked for.

Meanwhile, in the bankrupt country of Greece, every time there is an attempt to balance the national budget, or at least make it less unbalanced, the result is riots in the streets and a change in the national government. The fact that the money simply isn’t there does not deter the Greek people from demanding that they receive the benefits promised to them.

This demand for entitlement has reached a peculiar stage. It doesn't matter if the money isn't there, those making demands still want their checks anyway. Where the money comes from isn't a concern, that the money isn't there in the first place isn't a concern, that the checks are written against an account that does not exist isn't a concern. Explaining the math to those making the demands does not work. Apologists for the Bakers Union are left saying that it is the responsibility of Hostess to provide a job whether it can be afforded or not.

It is a situation analogous to the later parts of Atlas Shrugged. Hank Rearden had just been introduced to the Steal Unification plan, and when he points out that the plan cannot work, the response from everyone in the room is that he can make it work somehow. They do not know how, and they do not care to hear his explanations of how it cannot work.

The United States is heading down that road. So many people have their tiny portion of the Federal Budget as their subsidy, and they do not want it cut. They each have allies that do not want their own parts cut, and they work together to protect the whole. The politicians know that something needs to be done to avoid national bankruptcy (either by default or by inflation) but cannot work together to solve the problem.

There is little reason to worry about the Fiscal Cliff. If one still believes in government, those currently in office are too afraid of the cliff to happen. They will find the way to kick the can down the road for a few more months until it finally becomes impossible to do so any farther. Then those who scream every time there is a threat of cuts will discover that the money really isn’t there, and their choice to not receive a larger check instead of actually receiving a smaller check will be granted. If one doesn't believe in government then it is apparent that it is nothing more than a minor adjustment that won't have any real effect except to kick the can down the road for a few more months.

And eventually, like Greece and like Hostess, those screaming "all or nothing" will find out just how much "nothing" really is. Austerity doesn't come because it is chosen, it comes because the money is no longer there.

No comments: