By Malcolm Berko
Dear Mr. Berko:
When you spoke in Punta Gorda recently, you said that the recession is over, but that it would take a long time for our retirement plans that are mostly in annuities and mutual funds to recover. I would think if the recession is over that the Dow Jones and similar equities would recover nicely with the stock market. I don’t think you explained your thoughts clearly enough for me to understand why it will take a long time. I’m 81 and don’t have a long time for my annuities and mutual fund to recover to what I paid for them a dozen or more years ago. Should I sell them and buy others? Please help me understand.
N.R., Punta Gorda, Fla.
Dear N.R.:
Toward the end of Bill Clinton’s second term, America was at peak tide, and ebb has been running ever since. We embraced a high-speed, get-me, buy-me culture, consuming our prosperity of the last 20 years like hordes of locusts. Yesterday, we participated in an era of government handouts; we drank from the government trough and spooned gravy from the train.
Today, we are entering an era of citizen givebacks, from companions-fly-free and senior discounts to paying for each piece of luggage and charging full price.
Investors are not fully mindful of this change. And while the recession is over, the market’s return to the 14,500 level is going to be a much slower journey than the previous ride.
This new math emerging in the current cycle is putting a damper on traditional growth. The new math is the enormous imbalance between revenues and spending at the state and local levels. And unlike all other recoveries, municipal employment roles and services may be slashed to the marrow.
The breakdown in local government finances will reduce government services, force onerous layoffs and truncate domestic growth. Municipal bosses would do well to remember Parkinson’s law that “Work expands to fill the time available,” and Berko’s corollary: “Unemployment expands to fill the money available.”
Would you believe that the city of St. Petersburg employs one manager for every 4.7 employees? Considering the thousands of people it takes to run the city, many obscenely paid and incompetent managers will be canned. Now the city wants to usurp taxes to complete an art museum.
Kansas City is closing 28 of its 58 school campuses, eliminating 700 jobs, including 285 teachers. Baltimore, Columbus, Atlanta, Los Angeles, Boston, Seattle, Phoenix, Philadelphia, Miami and other large cities have been sucker-punched by lower tax revenues and will reduce work forces that have been fashionably over-bloated for a dozen or more years.
All over America, municipalities are being cratered by budget shortfalls brought on by the financial crisis, the recession, falling real estate values, plus lower property and sales taxes.
Meanwhile, declining revenues, serious pension fund shortfalls, decreased state aid, rising health care and insurance premiums are forcing municipal officials to make very hard choices.
Philadelphia is considering a seriously big tax hike, and New York will implement a major increase in property and sales taxes. Detroit, Kansas City, St. Louis and other municipalities are also looking at ugly tax increases. And because new tax hikes are generally difficult to enact due to ballot initiatives, municipalities should have the stones to tell unions to “stuff it” and ignore demands for wage and benefit concessions and costly workforce restrictions.
And while employment gains will be made among some of the larger corporations, a large portion of those gains will be offset by higher unemployment in the municipal sector.
As a result, the recovery won’t be V-shaped, U-shaped or W-shaped. Rather, the new math suggests recovery that will look like a square root symbol. A recovery nonetheless, but a slow recovery that will inch up a few steps, then inch down a step or two. But don’t sell your “stuff” because whatever it’s replaced with will be subject to the same economic forces.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate Web site at www.creators.com. © 2010 Creators Syndicate Inc.
