The Establishment's False Solution to Public Debt

Ronald Brownstein argues that Wisconsin Gov. Scott Walker fought an unnecessary 1 1/2 year battle by responding to the state’s budget crisis “with a sharply ideological plan that targeted its pain almost entirely at Democratic constituencies.” He claims that it would have been better purse the “balanced approach” taken in the Nutmeg State:

In Connecticut, Gov. Dannel Malloy, also elected in 2010, closed a deficit as large as Wisconsin’s with $1 billion in spending reductions, $1.5 billion in tax increases, and $1.6 billion in union concessions. It wasn’t easy, but the plan ultimately drew support from public-employee unions (after initial resistance) and the chief executives of the major insurance companies that anchor the state’s business community. The fact that Malloy pursued tax increases and spending cuts made it easier to seek union concessions—and vice versa. “It was a balanced approach, and that made it easier to do that big ask of labor,” said Roy Occhiogrosso, Malloy’s senior adviser. “It was a big ask. But it was also a big ask of taxpayers and people who depend on the social safety net.”

An impressive story, if you rely on the governor’s adviser as your source of information. However, here’s what right-wing extremists from the New York Times reported on Connecticut in February:

Not everyone is so impressed. The rating agency Moody’s, which speaks a language familiar to Connecticut’s many financially inclined residents, downgraded the state’s debt last month, citing the high debt accumulated over years of borrowing as well as the depletion of the state’s “rainy day fund.”

The General Assembly’s nonpartisan Office of Fiscal Analysis reported the state had a $145 million deficit in January, when the Malloy administration was projecting surpluses. And critics, not limited to Republican lawmakers, have raised questions about how real his projected cost savings, including from his agreement with the unions, really are.

Oops. And this month, the Connecticut Mirror reports that the state continues to tap into its capital project accounts to pay its operating bills. In May, Gov. Malloy’s won approval of a plan to divert more than $200 million originally dedicated to pay off 2009 operating debt to instead close the current deficit. According to Connecticut Deputy House Minority Leader Vincent J. Candelora, despite more than $1.5 billion in state tax and fee increases ordered in May 2010, “revenues are not coming in at the pace that was anticipated and we are failing to achieve the budget (savings) that we were counting on.”

Apparently, this would be news to Brownstein and other establishmentarians who keep demanding “Grand Bargains” involving a “balanced approach” of “shared sacrifice” to public debt problems. The establishment continues to ignore that a history of fiscal consolidations in 21 countries of the Organization for Economic Cooperation and Development over 37 years shows successful attempts to balance budgets rely almost entirely on reduced government expenditures, while unsuccessful ones rely heavily on tax increases. They continue to ignore that the Tea Party extremists at the International Monetary Fund advise that a prolonged period of weak growth and high unemployment be addressed by spending cuts and temporary tax cuts, not tax increases. They ignore successful examples including New Zealand, Canada, and the post-WWII United States. They ignore that the “balanced approach” is failing where tried in Europe. In comparison, Estonia, Lithuania and Latvia have bounced back strongly after adopting strict austerity measures and vastly reducing government indebtedness. Indeed, Estonia is just starting to get good coverage in America, causing Paul Krugman to mislead his readers about it.

The establishment ignores all of this because to do otherwise would force them to confront the importance of public-sector unionism to the Democrats and thus center-left governance. The Cheesehead Days of Rage were fueled by Gov. Walker’s reform of some public-sector collective-bargaining rights and compulsory public-sector unionism (unions were willing to increase the employees’ contributions to their medical and pension plans), yet Brownstein treats it as a secondary or tertiary concern. As Jay Cost details in his new book, Spoiled Rotten, Democrats legitimized public-sector unions as private-sector unionism began to decline. However, private-sector unions depend on a growing private-sector, while public-sector unions depend on ever Bigger Government. The differences between the private-sector and public-sector bargaining almost inevitably produce the budgetary problems faced by Wisconsin and other states.

Establishmentarians like Brownstein want to avoid the ugly reality that the Wisconsin budget battle was about reforming a system in which: (1) government unions forcibly extract dues from employees; (2) government union officials enrich themselves; (3) government unions kick back donations and in-kind contributions to Democrat pols who defend them and promise substantial pension and medical benefits; and (4) legislatures fail to adequately contribute to public pensions and medical plans, while looking the other way at public pension accounting that would be criminal in the private-sector. Progressives will complain that public-sector union-busting harms women and African-Americans, who make up a disproportionate share of the public-sector workforce. They rarely mention that the establishment has been effectively defrauding the public-sector workforce for decades, let alone protest the Democrats and moderate Republicans most responsible.

The common thread is the establishment’s ideologically extreme insistence on center-left compromises. Center-left government is at the heart of most of the crises America currently faces; it is at the heart of the budgetary crises here and in Europe. People like Brownstein see them as a virtue, despite their track record of failure.