States and Cities Face Great Fiscal Problems

One of the most destructive tools of Wealth Alchemist is the ability create doubly negative productivity shocks on the economy.  For example, they take from the productive through taxes and then send that money to the nonproductive.  Social Security is the classic example.  Current workers (the productive) pay payroll taxes on wages and salaries and payments are sent to the retired (nonproductive).  Another such scheme is the retirement system for government workers.  The end result is that the productive work less and the nonproductive, well, still don’t work at all.

The bigger these schemes become, then the more they eat away at the productive sectors of the economyNobel Laureate Gary Becker recently took a look at state and local pensions and retiree healthcare systems.  He concludes on a rather downbeat note:

One way or another, cities and all states with the most serious unfunded liability problems would eventually be forced to either lower their spending or raise their taxes. Either way that would reduce their competitiveness against other states. It is hard to come away with much optimism for the economic futures of the states and cities with the greatest fiscal problems.

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