And Why Shouldn’t Federal Workers Live Paycheck To Paycheck – They Can Borrow, Can’t They?


Jared Bernstein is performing his usual useful function here, providing us with his analysis so that we know what not to believe. Here it’s about how horrible it is that Federal workers live, often enough, paycheck to paycheck and therefore cannot survive a shutdown and the missing of one of those paychecks. Except they can borrow, can’t they? As Wilbur Ross has pointed out they can indeed borrow and there’s an ecosystem of people only too delighted to lend to them too. So, we’ve no problem here, do we?

Hundreds of banks and credit unions have offered low- or no-interest loans against back pay to federal workers who will not be paid until the shutdown ends.

Bernstein wants to insist that this is a problem, which it isn’t:

More than 800,000 federal employees and about 4 million contractors have now missed their second paycheck since the government shutdown began and will continue to miss more if the shutdown continues. Most of these affected workers cannot afford to miss even one paycheck, let alone several. Research on the 2013 shutdown found that nearly two-thirds of government workers do not have enough savings to cover expenses for even two weeks. That study also found that “about 20 percent just made it paycheck to paycheck; they had less than a typical day’s worth of spending in their accounts on the day before payday.”

Well, people should spend the heck out of their paycheck, that’s what they’re for after all.

Except, well, no, perhaps not quite. There are two things which savings are needed for. Even, actually, just the one. So, what are you going to do when you finish work and then still have another couple of decades? You’d presumably like something to live upon in those two decades. And sure we all would, we usually call that a pension.

So, Federal workers, do they have a pension? They most assuredly do. A darn good one too. So, we can say that they don’t need to save for that retirement, or equally we can say that they already are so saving. For a pension is just deferred wages, savings are just deferred consumption, they are deferring some of their pay to consume later by having that pension.

The other thing we might need to save for – and note that might – is the slings and arrows that come with outrageous fortune. Bumps in the road of financial life. Like, say, a paycheck not turning up. We can indeed deal with this – or the heating boiler blowing up, the car engine falling out – by having savings put aside. But there’s no economic difference between our having money in the bank to pay for this, having deferred consumption, and being able to borrow from the bank and deferring consumption later.

So, in the presence of a reasonable financial system able to lend and a decent enough credit rating there’s no need for those emergency savings is there? And with the pension sorted out, no need to save for that.

At which point people should be living paycheck to paycheck. They don’t need to save so they don’t, they’re maximising the use of their incomes.