States are victims as much as they are perpetrators. When times are good, states like to spend money. And why not? It’s popular back home, and it helps with reelection. The problem is rosy revenue projections by the state that often turn sour. In addition the downturn in the national economy, thanks to bad fiscal policy by the federal government has caused state and local government revenues to drop sharply. Sales tax collections are down and property tax collections due to lower property values have also decreased. And that is why so many states and local governments are in a fiscal crisis too.
Take a look at Wisconsin. A projected deficit of $137 million for the remainder of this year, and a deficit of $3.6 billion over the next two years. Substantial. And real. Governor Scott Walker (R) has proposed balancing the budget by stripping most of the states’ 170,000 public employees of some of their collective bargaining rights. A very unpopular move among union members as well as non-union workers.
The issue is not benefit cuts. The issue is affordability. Can the state of Wisconsin and its local governments and counties afford to pay the bills it has obligated itself to pay to union workers? Government never should have agreed to pay such exorbitant benefits. The governor says it cannot. Wisconsin Democrats say yes. What are citizens and voters to think if their elected leaders are playing politics with such an important issue?
Government is just like any household or business. If it spends more than it makes, it will go broke. Economists talk about leading economic indicators and other fancy statistics such as GDP, CPI, FCI, and PPI; but this is not complicated stuff. If expenses exceed income the house of cards will tumble down. Period. End of story. And impressive sounding statistics don’t make the outcome any different.
Such is the case of the federal government. A deficit of nearly $15 trillion and it seems that President Obama and most Democrats don’t think it’s a problem. Republicans have put forth plans to reduce the deficit and certainly have the votes in the House of Representatives to pass it. But the Senate is different where Democrats hold the upper hand. Today the House passed and sent to the Senate a short-term spending bill with $4 billion in cuts. Let’s see what happens.
In Wisconsin it’s the same thing, yet different. Although Republicans control both houses of the legislature, Democrats in the Senate hold the upper hand because they can deny that body a quorum to do business. And with that power the Wisconsin Senate Democrats have skipped town, indeed the state, to deny the upper chamber a quorum and the ability to debate and vote on Gov. Walker’s plan to bring state spending under control. It’s hard for Democrats to urge their own plan when they won’t show up for work.
Every American should be disturbed by those legislators who have shirked their duty and left the state of Wisconsin and brought democracy to a halt. This tactic could easily give members of other legislatures the same idea. But Americans should be more bothered by the lack or sense of urgency that deficit spending receives in most cases from the very people who brought us the deficits to begin with. And maybe that is the real problem. The people who don’t know how to properly budget taxpayer money are now the ones who are required to straighten out the mess they created. If they couldn’t spend it right in the beginning what confidence should we have that they will spend it responsibly in the future?
We are at a cross roads that if not addressed quickly could result in serious economic problems for this country. Rapid inflation. The shrinking dollar. Huge trade imbalances. And the inability to pay the interest on our outstanding debt. Indeed the ability of the federal government to retire its debt could be in jeopardy. Imagine paying your house note and never paying it off even after thirty years.
Both the federal government and the states must tackle the issue of deficit spending and realistic balanced budgets. No longer should the federal government spend more than it takes in. No more should states paint rosy fiscal projections that don’t make sense. If the money isn’t there, it should not be spent.
Instead, voters must insist that politicians spend taxpayer money wisely, conservatively, and smart. The old days of buying votes with new bridges, new highways, and new monuments to politicians are over. We cannot afford it. It’s making us broke.
More columns by Lawrence Chehardy