“I may not have a brain, but I’ve got an idea” – B.O.B., Monsters versus Aliens
Mike “Mish” Shedlock, who blogs over at globaleconomicanalysis.blogspot.com, has been hitting on the state and local budget crises for some time (and the federal budget crisis too, but the dynamics there are slightly different). He noted just the other day that incoming Illinois governor Pat Quinn has made a bad, but clearly politically motivated choice in dealing with the budget crisis in that state.
The situation in Illinois is as bad as any state in the union; the possible exception being California. The state has been described by its own comptroller as a “deadbeat.” Deficits are high, unfunded pension liabilities for public unions are through the roof, and the state is perilously close to not being able to borrow more money once the bond market slaps them down. How do you address such deep budget issues? Well, you have to cut spending or raise taxes, or some combination of the two.
These options obviously affect different people differently. Private sector workers, by and large, will prefer spending cuts to tax increases. Public unions, on the other hand, will prefer tax hikes so they can maintain their lush benefits packages. Public unions also do a pretty good job of turning out the vote. So, Pat Quinn made a deal with the unions, got the votes to become governor, and agreed to raise taxes.
Now, so far this is fair operation in a democracy. (We live in a republic, supposedly, so there are aspects of the deal that I don’t like – but as far as direct democracies go, it is within the rules.) A group of citizens, the public unions, cobbled together a majority (including other liberals and traditional democratic voters) and demanded to be paid significant amounts at the expense of the rest of the citizenry.
We’ve noted in times past that freedom, in a broad economic sense which includes freedom in the marketplace, will win out so long as there is freedom to choose. Conversely, socialist, collectivist economic ideologies only succeed in the absence of competition; they only work when people don’t have any other choice. In America, people still have a choice.
John Tillman notes that the tax hikes give Illinois one of the highest corporate income tax rates in the world. Naturally, businesses will not be opening more locations in Illinois. Manufacturing operations from across America are already relocating from union states to “right to work” states. The net result will be fewer jobs in Illinois. One wonders what the unions will demand in terms of taxes when there are no other jobs left.
As long as people are still free to vote with their feet, vote with their free economic choices, then nonsense like this will correct itself. States like Illinois and California will crumble, and ultimately be forced to change their decisions. New Jersey has already made a step in the right direction with the election of Chris Christie (though I’m still upset about the gift card issue, governor).
So carry on, Illinois. Drawing a stark contrast between governing philosophies is the best way to move everyone else in the right direction. Having many different states choosing many different approaches and seeing which one works is a pretty good search algorithm at this point. (That’s right, I said algorithm.) The sooner these lessons are learned, possibly with the clarity brought by retired state employees who won’t be getting a pension check, the sooner we’ll see states and politicians behave responsibly.