A new year always brings a time for reflection, this year is no different. Well, perhaps it is very different, as for the first time in my political life Louisiana has a new governor. A new governor brings opportunities for change and re-direction. Out with the bad and in with the good, or so the old expression goes. If it were only that simple!
My long business and civic career has taught me many things but the one that stands out the most is that there are always fundamental economic laws that control human endeavors. Imagine that Louisiana is like a feather in the wind, a wind of politics, moving that feather all over. Despite the pressure of that wind, the feather will always slowly fall to earth under the constant strain of gravity. In this analogy gravity is those very economic principles that subtly, but irresistibly guide the end result of all political winds to a place over which man has only limited control.
And so it goes for Louisiana’s new governor. It will seem for a time that manmade politics will rule but, no matter what the governor hopes to accomplish, he cannot escape basic economic laws. Political actions will, by the force of economic reality, ultimately transform the best plans into end results that are beyond anyone’s expectations.
Raise taxes and employment will decrease. Change the new found emphasis upon education accountability and the old failed results return. Miss the opportunity to create a sound fiscal structure and be assured of ever growing budget shortfalls. Continue to shift financial burdens, such as the UAL, to future taxpayers and watch disposable income and bond ratings disappear. The list is of undesirable outcomes is endless. Failure to correct the mistakes that we have made in the past will be compounded if we continue to push off the hard decisions.
Economic principle number one – we cannot spend what we do not have. The state is not structured like the Federal Government, we cannot just print money. Our primary constitutional responsibility is that of a balanced budget, and yet we spend like drunken sailors on their first shore leave. The bitter medicine is contained in that constitutional provision; we either stop using voodoo economics to postpone the inevitable or we face financial ruin.
Economic principle number two – we cannot tax our way out of our deficit. Sadly, in political campaigns the practice of using jealousy and fear to divide people is a tool commonly used. But when campaign turns to governing there are huge, real world implications when a leader attempts to execute upon politically divisive campaign rhetoric. We have seen at the national level the result of such divisive practices, gridlock! Fortunately the rhetoric in Louisiana is of moderation and compromise but that could all change.
Fiscal populism was born in Louisiana a hundred years ago but, because of its failed outcomes as a philosophy of government’ it has slowly lost favor. If such a strategy were proposed today it would ignore the spending side of the ledger and place a huge new tax burden upon only a small portion of our people and businesses. In effect such a populist plan would be one in which there is an assumption that the government that we have is not sufficient for the needs of the people and that it deserves to be funded at much higher levels by shifting tax burdens onto a small segment of the productive. An old expression fits such a scenario, “Don’t tax you, don’t tax me, tax the man behind the tree”!
History screams at us that when exposed to economic fundamentals, populist tax and spend policy translates into a downward spiral in economic growth, a loss of business expansion and relocation, and the result is a loss of jobs and income for all citizens; the exact opposite path of what successful states today are following.
In practice economic principles have proven that despite the political appeal of fiscal populism, the only assured result is the ever expanding growth of government dependency. If the goal is to create an economy in which citizens can prosper then populism must be viewed with suspicion and great care must be taken to create a reasonable plan that all segments of society benefit from and help pay for in their fair measure. It also must define a reasonable expectation of government services.
Economic principle number 3 – crony capitalism isn’t sustainable. In order to overcome Louisiana’s many business climate shortfalls we have had to turn to crony capitalism to attract industry and jobs. Does it work? Sure, for so long as we are willing to drain our treasury, economics dictate that corporations will be willing recipients of our capital and of our depleting natural resources. Do the industries attracted by crony capitalism create a solid business climate? No, as long as the state’s largesse remains they remain, but as soon as the state stops the handouts these industries will depart.
Using state resources to attract business is actually not all bad. If there is a plan to create a critical mass of industry that will survive a planned period end of state subsidy, then that would be a measure of success. The fundamental rules for the state to enter into any subsidy should be that it be part of a strategic plan, that it meet defined metrics such as job creation, that it face a periodic sunset that mandates the state to actually measure the promised outcomes and reauthorize it only if it meets its promises, that it fulfill a criteria that subsidy will ultimately have a positive impact upon the state treasury, that any subsidy does not create unfair competition against existing business, and that there be an understanding that subsidy is time limited.
Economic principle number 4 – the budget process must be structured around the definition of state priorities and the unswerving commitment that these priorities be funded before anything else. We will never break the cycle of perpetual budget crisis unless such discipline is incorporated into our psyche.
A $1.6 billion shortfall in our operating budget, massive underfunding of high priority programs, a $12 billion backlog of infrastructure maintenance, a $20 or so billion UAL, and on and on and on; there is only one reason for these overwhelming problems, a bad budget process based upon bad political decisions.
This is not to say that we are funding, or even over funding, high priority programs at the proper levels. Frankly, in many cases, we just do not know and we cannot know because we simply have not defined what our priorities are and to what level priorities should be funded. Further, we have a number of massive sacred cows in the budget that are never subjected to serious review or scrutiny. Many of these involve the transfer of state funds to different forms of local government; is it any wonder that we cannot find the resources to properly do what the state should be doing?
There are more economic principles but if we really want to solve our fiscal crisis we must revert our fiscal planning to something akin to true zero based budgeting. It is also necessary that we stop funding local government, insist that departments spend in accordance with their approved budgets, and end political expedient funding of any programs before state priorities reach their funding needs.
It is a new year in Louisiana and we are at a cross roads. I fully acknowledge that the past few years have not lived up to expectation but now we can start again. In a perverse manner fortune smiles on us; our fiscal crisis is so broad and so deep that instead of just subtly directing outcomes, economic laws will supplant politics into a place of prominence. Either we abandon the failed populism of the past or else economic principles will drive us into the netherworld. Perhaps, under our new leadership, we will recognize the significance of economic principles and pay heed unto them. Failure to do so will only incur ever more pain.