Some talk as though financial crises are entirely avoidable events caused only by misfeasance or stupidity. But in an imperfect world of imperfect human beings, such things will always happen. We would be living in a stagnant, undynamic world if we did not have periodic crises. They are akin to a “cost of doing business;” the price we pay for the far greater benefits of the kind of civilization we have.
Now, the federal government’s financial pickle is obvious, what with ballooning entitlement spending and the impossibility of taxing enough. The recently mooted proposals of the Bowles-Simpson Commission – higher retirement age, reduced Medicare allowances, reforming the tax structure, etc. – no-brainers, really, mainly curbing “welfare for the rich” – met with the depressingly predictable and irresponsible ideological responses from both left and right. Sacred cows remain sacred. But at least Washington is not close to maxing out its borrowing ability. And it can also literally print money.
Not so the states.
They face the same fiscal pincers, but their borrowing ability is much restricted, often by constitutional balanced-budget requirements. They’ve been bailed out temporarily by the 2009 stimulus bill, giving them massive hand-outs, but that’s not going to be repeated.
Take New York (please). It’s deeply in hock to retired employees (like me), whose unions negotiated gold-plated pension deals when politicians had nothing to gain from resisting. (Greed is not restricted to Wall Street.) We have a “Cadillac” Medicaid program, with the nation’s highest costs. Our infrastructure of roads and bridges, etc., is crumbling because upkeep has continuously been sacrificed to pay current bills, and the backlog of must-do work grows impossibly huge. Meantime New York already has one of the nation’s highest tax burdens, and raising it would only serve to drive people and businesses out of the state, worsening the crunch.
In the face of all this, what did New York’s politicians do, in the latest fiscal year, with its $9+ billion deficit? Raised spending by 7%.
This fiscal cancer is metastasizing in most other states too. California is another poster boy, with notoriously extravagant pensions for prison guards, whose union keeps politicians in terror. Nationwide, underfunded pension liabilities are a ticking time-bomb. (Sorry for my over-use of metaphors.) State pension funds have been socked by Wall Street losses, and the formulas for funding them tend to reflect assumed future rates of return (typically 8%) which today are wildly unrealistic.
Moreover, future retiree pension and health costs are likely to be grossly underestimated, as longevity keeps rising. A lot of retirees are going to live practically forever, consuming ever more health care and merrily collecting their pensions. And while benefits for future public employees might conceivably be curbed, they’re securely locked in for existing workers and retirees.
This is the next financial crisis. Unlike the last one, it’s not going to blow up all at once. It will be slow torture.
Well (in keeping with my optimism remit), I do have one happy thought to offer. There’s no way lefties can blame this one on their bugbear, “capitalism.” Nope, the blame lies squarely with government – and, in particular, the expansive conception of government fostered by lefty thinking. Liberals keep nattering about how the greed of Wall Street has screwed us. Soon we will see how the liberality of liberalism has screwed us.