The Wisconsin Union Smackdown, Coming to a Town Near You

We're just at the beginning of a widespread revolt against wealth transfers.

By + More
FE_12-6-4_unionprotest.jpg
Melissa Conrad, center, of Atlanta, cheers during a labor rally in solidarity with union workers in Wisconsin's current labor dispute Wednesday, Feb. 23, 2011 outside the State Capitol in Atlanta.

Recent election outcomes in Wisconsin and California are being hailed as victories for Republicans and setbacks for unions. But there's a much broader message in these elections that has less to do with politics and more to do with the fading fortunes of the middle class: Government can no longer help you.

[See photos of Wisconsin voters heading to the polls.]

Wisconsin Gov. Scott Walker, a Republican, coasted to victory in an unusual recall election by a wider margin than he first won office in 2010. That's seen as a repudiation of the unions that fought Walker's move to end collective bargaining for state employees.

In California, meanwhile, voters in San Diego and San Jose approved measures to cut promised retirement benefits for city workers—another grim bit of news for organized workers.

Unions are a convenient target for anxious voters these days. New Jersey Gov. Chris Christie routinely attacks the teachers' unions, which boosts his popularity. Few Americans seemed to shed tears for the auto workers' unions when they made huge concessions during the bankruptcies of General Motors and Chrysler. Tea Party activists and even some members of Congress repeatedly bash the unionized civil servants who keep the federal government in business.

The animosity against unions, however, merely reflects the wider decline in living standards that afflicts the entire middle class. People who have no protection against layoffs, pay cuts, and dialed-back benefits—arguably a majority of the U.S. workforce—are reacting in a rational way against people who have more entitlements but don't seem to have done anything in particular to earn them.

[See how Washington is blowing a chance to lead.]

The situation in Wisconsin reflects what is going on or soon will go on in many other states and municipalities. Walker wasn't able to cut back a cherished union prerogative, the right to collective bargaining, simply because he felt like it.

He took office facing a $3.6 billion shortfall in the state budget, and had to come up with the money somewhere. Walker chose to take on public unions in lieu of cutting other services or raising taxes. Something had to give, and a majority of Wisconsinites apparently agreed with the way Walker handled the problem.

The same dynamic is at work in San Diego, San Jose, and many other cities. City hall is running out of money, and the only way to preserve generous pay and retirement promises made to many public workers is to cut services for the public or raise taxes. With millions of middle-class taxpayers under financial stress, elected leaders aren't likely to get very far by asking citizens to give up more so public servants can give up less.

The resulting cutbacks don't represent as much antipathy toward unions as some commentators think. They're really just a kind of rebalancing that needs to happen, since it's inherently unfair when taxpayers are funding pay and benefits for public workers that trump what many taxpayers themselves get.

[See 6 reasons America will rebound.]

Anti-union stalwarts should avoid gloating, because this trend is just beginning, and it's going to sweep up a lot more people than simply union members. The common thread, in fact, isn't unions—it's anybody who receives pay or benefits funded by other taxpayers.

Wealth transfers, in other words. By some measures, more than half of the entire adult population depend on the government for a meaningful part of their livelihood—think teachers, soldiers, and veterans, and of course the recipients of benefits through Medicare, Medicaid, Social Security, food stamps, and unemployment insurance.

The scary thing is that the federal government hasn't even started to balance its books the way Wisconsin, California, and most cities and states are required to. Meanwhile, there are enormous wealth transfers going on from young people to old, from the working to the unemployed, and from the healthy to the unhealthy. Simple math tells us this can't continue, because of Washington's massive debt load.

We're about to start having an uncomfortable and perhaps hostile debate about whether to raise taxes and cut services for some people so that others can continue to enjoy benefits and subsidies that probably won't be available to those who are funding them today.

Young and middle-aged workers, for example, probably won't get the same level of Medicare and Social Security benefits they're funding for older Americans through payroll taxes automatically deducted from their paychecks. What will their reaction be when somebody asks them to accept less take-home pay so that seniors don't have to?

My guess is that a lot of Americans will react the same way Wisconsin voters did. They'll say to those they consider overprivileged: Hey, nothing personal, but we've got to even out this system so it's more fair. Seniors and others who inordinately benefit from wealth transfers today will become the equivalent of Wisconsin's public-union workers. We'll respect them and express a degree of sympathy with them, but draw a line at forking over more of our own pay to help them out.

There's nothing wrong with unions when everybody feels like they're getting ahead. But there's a big problem when the people vulnerable to the cruel vicissitudes of a turbulent economy are funding benefits for others more insulated from them. That means there will probably be many more Wisconsins.

Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.