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Wednesday, March 02, 2011

STATE DEBT AND THE SEA CHANGE

Steve Cole comments:

I am going to try to do this as a straight analysis, and show both sides. There is a LOT going on, and it will change America in profound ways. What's happening in Wisconsin (and other states) is just the first row of robots to march off the cliff. All of the states are in the same financial mess; it's just a matter of degree. Some states are closer to the edge of the cliff than others. The current recession and the impending massive bills for the new health care law have just turned "getting close to the edge of the cliff" into "standing on the edge of the cliff."

States are in financial trouble for numerous reasons, but all of it comes down to spending too much money compared to income, and making promises that have proven hard to keep. Starting continuous spending programs in good times turns into programs too expensive to sustain during bad times. Kicking the can down the road has been going on for decades and that can is going to explode one day, and guess what, for some states, that day is today.

It's great to spend money to make people have better lives. It's tricky when you are spending money you don't have, or take on obligations you cannot pay. If the situation is one-time (buying a new house) or temporary (a period of unemployment or illness) then you can make it work. If it's a matter of "continuous spending even for worthy reasons" then you get into trouble. Every year, you borrow money to pay your bills and support your lifestyle, and sooner or later something breaks. Maybe you cannot borrow any more money, and/or have a sudden drop in income or increase in expenses, or the cost of interest exceeds money you can get your hands on. In any case, deficit spending for more than a few years is simply not sustainable. Sooner or later, you cannot pay the money you owe. Raising taxes is no longer an option, as taxes are so high that businesses are fleeing high-tax states while liberals decry "tax breaks for business" and pretend that such things have no real impact on creating new jobs.

States are in trouble for numeorus reasons, and all of those reasons add up. Providing more services is widely supported so let's just let that one pass. That leaves the three strikes:

1. Government employee unions. Collective bargaining with people (legislators) who don't actually have to pay the money is never going to end well. (Private sector unions bargaining with ownership that is taking the money out of their own profit to pay the demands is very different.) Not to put too fine a point on it, public employee unions bargain with Democrat-controlled legislatures for more money, then kick back support (contributions, rent-a-crowds, and campaign tactics of dubious legality) to those same Democrats. You may not want to hear that (or want anyone to say that) but it is true. There is no "fundamental right" to public employee unions; even labor icons President FDR and AFL-CIO President George Meany said so.

2. Cost of Medicaid: It is nice to take care of people who cannot take care of themselves but it is very expensive. The new health care law is making that MUCH more expensive, in some states doubling the cost. Those states that held Medicaid to minimum levels are now facing massive unfunded mandates to spend a lot more and bring millions of new people onto the rolls.

3. Illegal aliens, who consume services (often without paying taxes if they live on the cash economy) and fill jails and so forth. This varies from state to state and by itself isn't that much, but some states are demanding that the Feds pay for illegal alien healthcare and illegal aliens in jail because the Feds won't control the borders. (THAT failure is the part of BOTH parties. The new Tea Party holds controlling the border as an article of faith, further proof that the Tea Party is not a wing of the Republicans, but a force very different from them.)

One way to balance state budgets is to put an end to government employee unions bargaining for more money, or at least requiring a referendum of the voters (the people paying the bills) to approve increases. This varies state to state, but we've all seen the reports of unionized government employees retiring at full pay at age 50, getting free healthcare for life, getting "defined benefit" retirements (you get what you want no matter what it costs the state and no matter what the stock market is doing), and other things. The government employee unions also bargain for "working conditions" that translate into higher costs. (Teachers unions demanded that class size be cut from 32 to 23 students so they could teach better, but this also means more teachers on the payroll. By the way, test scores have steadily declined. Get rid of teacher union collective bargaining and a school board can decide that 32 is not that bad, fire a lot of teachers and administrators, and save a ton of money. Even better, school boards should be able to fire incompetent teachers, but unions make this an expensive multi-year court battle.) What's happening in Wisconsin is multifold and complex. The governor's plan (which the voters knew they were voting for) is to break the union. (That IS his plan and the voters DID know, whether you think it's a good plan or an evil plan.) One element is a 10% pay cut, disguised as making them pay for their healthcare and retirement like most of us do. One part is to end collective bargaining meaning that every city, county, and school board can set whatever work rules and whatever number of jobs, number of hours, retirement age and benefits, and health benefits they want to, without the unions forcing them to pay more and more. (A few such entities, controlled by Democrats, have loudly announced that they do not want this new freedom.) Say what you want, but Wisconsin teachers are better paid than any other teachers and way better than the official US average of all people. The governor also wants to end "payroll deduction for union dues" which means a lot of people will stop (voluntarily) paying those dues. The unions say the governor won't sit down and discuss things (but those same unions have refused to discuss anything with anyone for years, and have said they would rather than the governor lay off tens of thousands of union workers than cut union power) and that he's pushing this through too fast. (He allowed two weeks of debate and hours of hearings, while the previous Democrat-controlled legislature pushed through massive tax hikes in one day with no hearings.)

What's really going on (for good or evil) is a war for control over the entire nation. The Democratic Party would be seriously hurt if public employee unions lost members and money and clout. If what is happening in Wisconsin happens two dozen more times, you can expect the Republicans to dominate things for the next 20 years. (Some of you think that's awful, and some of you think it's peachy. Some of you will, now that you understand this, think that it's the right/wrong thing being done for the right/wrong reason.) I hope you now understand why this is such a battle. My joke about teacher's unions breaking into National Guard armories and driving the tanks onto the capital lawn doesn't seem quite so far fetched as it did last week.