Things seem to have changed.
State capitals are rife with conflict over public employees. Washington is braced for a government shutdown. Courts are opining on the legality of payment freezes. The political rhetoric repeatedly invokes Charlie Brown and that football. What’s going on?
For one thing, the budgets sure seem important. Historically, government shutdowns are rare. In a shutdown, the government furloughs non-essential workers like regulators and analysts, while the military, police, and other essential workers remain on the job. A shutdown points to a failure of the budget process. Why?
Budgets have become contentious because politics has become so important. Since the financial crisis the centers of global finance have moved from New York to Washington, from Frankfurt to Berlin, from Canary Wharf to Downing Street. The financial crisis put politicians in charge of the engines of finance around the world. The numbers are so big and the stakes are so high that politics—always important—has become central to the global financial infrastructure. And there is disagreement about whether and how long this should be the case.
So conversations about funding firefighter pensions take on new significance. Teacher salaries aren’t going to determine the solvency of Citibank. On the face of it, the flak over NPR or public pensions seems to have little in common with financial reform. But the key issue is this: how big should governments be. That’s a question that’s been around for over 300 years. The current budget battles are just the latest skirmish.
Douglas R. Tengdin, CFA
Chief Investment Officer
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