Blue state bailout vs. Boehner’s jobs plan.
The design of Obama’s latest “jobs” bill is not only to send money to his favored supporters, but to make more states reliant, and therefore compliant, on and to the federal government. This is a stark departure from the way things have been done in the United States over the past 200 years. The states have always served as places to experiment with different ways of addressing problems, allowing the best ideas to rise to the top to be copied by other states. Now, with Obama and the Dems in charge – they want “too big to fail” to apply to their blue states, which have been run poorly. This is from Paul E. Peterson and Daniel Nadler in the Wall Street Journal.
Last Thursday, the president urged Congress to pony up roughly $200 billion in taxpayer money to “provide more jobs for teachers [and] more jobs for construction workers” and more money to carry out other state and local activities. He urges Congress to spend this money even after handing out hundreds of billions of dollars for similar purposes as part of the 2009 stimulus package, as well as a score and more billion dollars again in 2010.
These vast contributions to the coffers of state and local governments, though pitched as a jobs bill, are in reality the latest in a series of bailouts for debt-ridden state and local governments. They are of special benefit to states in the blue regions of the country where the president’s most fervent supporters reside.
In many blue states, legislators have copied the politicians in Washington by running up state debts to extraordinary levels. Nationwide, state debt is running around $3 trillion. If unfunded pension liabilities are factored in, estimated liabilities leap forward by another $1 trillion to $3 trillion, depending on the optimism of the assumptions made.
The bond market has taken notice. Before the 2008 financial crisis, state sovereign debt was just about the safest place to invest. Because investors did not pay taxes on the interest, states were able to borrow money at rates below those paid for federal securities. With the onset of the financial crisis, not only did borrowing costs rise across the board, but differences in interest rates among states widened dramatically. Bond holders concluded that some states, like Greece, had been extraordinarily profligate and, even worse, lacked the will to rein in their expenditures.
In a new study at Harvard’s Program on Education Policy and Governance, we discovered why the Obama administration is so interested in helping out the states. States with a bluish hue—that is, states with legislatures that are heavily Democratic and have a highly unionized public-sector work force—must pay interest rates that are often an extra half a percentage point higher than states with a reddish coloring.
Specifically, a 20 percentage-point increment in either the Democratic share of the state legislature or a comparable increase in the share of the public work force that is unionized drives up interest rates by nearly a half a percentage point on a five-year security note. That amount is nontrivial. In Obama’s home state of Illinois, it is costing governments over $700 million annually.
The impact of these political factors on interest rates is in addition to the impact of standard economic factors, such as a state’s unemployment rate, its gross domestic product growth, and its debt-to-GDP ratio, all of which are themselves shaped in part by the state’s political climate.
In short, the bond market has concluded that the more unionized the state and the bluer its political coloring, the riskier it is to hold bonds marketed by that state. Snip –
…federal fiscal bailouts put our federal system at risk. In essence, the national government is acting as if states are too big to fail. In the next financial crisis, the federal government may decide that states need to be treated like General Motors or, at least, be given ever bigger handouts of the kind the Obama administration seems committed to making.
But if the federal government is going to tacitly assume responsibility for state debts, then those $3 trillion in sovereign state debt must be added to the $14 trillion national debt that has already caused grave concern, pushing the current U.S. debt into the danger zone. Even if pension liabilities are ignored, the combined federal-state-local debt runs in excess of 120% of GDP.
The costs go beyond dollars and cents. The more often the federal government bails out the states, the more Washington bureaucrats will insist on regulating state and local affairs. At some point the United States will see the end of state fiscal sovereignty and the demise our federal system of government.
Please read it all. They also go into the history of the relationship between the federal and state governments and why it is so important to our country to maintain those separations. It’s insidious things like this jobs bill that make Democrats so untrustworthy. They keep trying their best to tear down what has always made this country great – our federalist system.
We can contrast this thinking, assuming more debt for the country’s taxpayers by bailing out the states, with Speaker of the House John Boehner’s thinking in his speech before the Economic Club of Washington, D.C. yesterday. Three things topped his list for job creation in the country: roll back regulation, trim and simplify the tax code, and cut spending. Basically, get out of the way, government. He actually said, “Job creators in America are essentially on strike.” Atlas Shrugged, anyone?
National Review Online has an excellent symposium of economy and political watchers who give their own takes on Boehner’s speech. Here’s John Berlau, director of the Center for Investors and Entrepreneurs at the Competitive Enterprise Institute’s reaction:
…since coming back from Labor Day, the regulatory state has moved to the front burner for Republicans. “Job creation in America is facing what I would call a triple threat from government; the first [emphasis added] aspect of this threat is excessive regulation,” Boehner said.
And today in Boehner’s speech, overregulation was first — from the opening that brought up the National Labor Relations Board’s blocking Boeing’s plant in right-to-work South Carolina, to the Fish and Wildlife Service’s raid of the Gibson guitar factory in Tennessee, to the speech’s title of “Liberating America’s Economy.”…
Two things have propelled regulation to the top of the GOP agenda. One is the simply outrageous abuses of the regulatory state such as the Gibson raid and the NLRB’s many unprecedented actions.
The other is recent polling data that shows that while spending and taxes are important base issues — as well as issues important to the future of our country — overregulation resonates much more with independents and even sometimes Democrats. A recent Public Notice poll found that 74 percent of independents and 58 percent of Democrats think businesses and consumers are overregulated.
The GOP — and to some extent President Obama — finally seems to be getting that overregulation is a kitchen-table issue that hits home. From shelling out ten times more for light bulbs due to environmental mandates to losing free checking and debit-card rewards due to Dodd-Frank price controls, Americans are paying dearly for overregulation. Connecting overregulation to jobs and the cost of living is a winning strategy.
Americans still believe in freedom, and with that belief comes a strong belief in the free enterprise system – economic freedom. Americans can’t stand the intrusion of government into every single solitary decision they make. If we wanted to live under the thumb of excessive government we’d move to Cuba. Luckily, this burning desire to be left the heck alone has not dimmed. It is incumbent upon the Republican Party to understand that and understand it well. Good government is limited government. Read all of the contributors to this symposium here:
You can read John Boehner’s speech in its entirety here: