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One of my greatest concerns about the current leadership in Washington and in many of the states of this union is the stunning absence of wisdom among our leaders. Over the last few months, one of the arguments I have posited on Issues is that if you wish to see where America as a nation will be in ten years, look at California. Indeed, columnist David Ignatius laments that within the US there is a “growing tendency of our political system to make promises in social spending programs that it isn’t prepared to pay for with tax increases.” Let’s think together about this trend.
- First, consider the situation in California. The state economy there is recovering to some degree but political dysfunction is rampant. In California, despite some serious bipartisan efforts, no decisions have been made to place the state on a sound financial footing. Ignatius comments that “the political forces that generate deficits are just too strong: a Democratic Party in hock to public-employee unions and a Republican Party in love with tax cuts.” Most states are in a similar situation. They are beginning to recover from the recession but overall they suffer from a chronic inability to resist the impulse to spend big and tax small. That same penchant is obvious in our nation’s capital: Democrats get elected by delivering massive entitlement programs that bind people to the state and Republicans get elected promising to cut taxes. The test case for the Californiazation of America is now health-care legislation. Democrats want to provide universal access to health care but have no real plan to pay for it. Had Scott Brown not been elected to the Senate from Massachusetts, the Party would be celebrating one of their entitlement victories that could lead to the bankruptcy of America. We remain bound to the dysfunctional nature of American politics—promise significant entitlement programs (e.g., health care) but do not take seriously the obligation to pay for it. The CBO just released a report that the deficit of the US this fiscal year (it ends 30 September 2010) will be $1.35 trillion, just slightly lower than last year’s deficit. That is a shocking number and yet the Congress and the White House are not taking this seriously. A 2011 freeze on spending for 17% of the national government as the president proposed in his State of the Union is hardly fiscal discipline! In addition, it is imperative to remember that the future liabilities of the US government for its entitlement programs (government pensions, Medicare, Social Security, Medicaid, etc.) now total over $53 trillion!! Where is the wisdom in governing to try and add a universal health care access program funded all or in part by the US government? California is the laboratory for liberalism in the US and it is spiraling downward at an accelerating rate, all driven by a huge budget deficit. Can the United States government be far behind?
- Second, why is California’s liberalism so lethal? Here is the situation: California has a 12.3% unemployment rate and a budget $20 billion in the red. Productive Californians are leaving for states with less-punishing regulatory and tax regimes. But as Steven Greenhut, director of the Pacific Research Institute’s journalism center, has argued, “so far there isn’t broad consensus to do much about those who have prodded the state into its current position: public employee unions that drive up costs and fight to block spending cuts.” At some point, California will need to take on its public employee unions. Here is why: Approximately 85% of the state’s 235,000 employees (not including higher education employees) are unionized. As governor Schwarzenegger has noted, over the past decade pension costs for public employees have increased 2,000%. State revenues increased only 24% over the same period. There are now more than 15,000 government retirees statewide who receive pensions that exceed $100,000 a year. The pensions for these (and other retirees) increase each year with inflation and are guaranteed by taxpayers forever—regardless of what happens in the economy or whether the state’s pension funds have been fully funded. As Greenhut reports, a 2008 California commission pegged California’s unfunded pension liability at $63.5 billion, which will be amortized over several decades. Such entitlements are strangling the California economy, its state government and its citizens. Similar entitlement obligations are and will continue to have the same effect on the national government, its economy and its citizens. We are making promises on social spending (i.e., all entitlement programs) without increasing taxes, seeking other sources of revenue or considering seriously how we will pay for these programs. This is the future of America. And amazingly, the Congress and the White House are still promoting universal, health-care access legislation.
See Greenhut’s essay in the Wall Street Journal (23-24 December 2009); George Will in the Washington Post (10 January 2010); David Ignatius in the Washington Post (3 January 2010); and “Breakpoint” (20 January 2010). |
