There is a long and tragic tradition that runs through American politics in which politicians spend themselves into a fiscal crisis during good economic times and then raise taxes to bail themselves out when a recession hits and revenues plummet. This is precisely what's going on today in Alabama and California.
In both states between 1997 and 2000, state spending increased more than three times faster than the combined rate of inflation and population growth. Not only does government continuously get bigger and more intrusive, politicians on the left forever manipulate the tax system as a mechanism of income redistribution and social engineering in a counterproductive cycle that makes government an ever-growing impediment to economic growth and entrepreneurial risk-taking.
The jury is still out in California whether voters will accept the populist scam this time around or throw liberal Gov. Gray Davis out and replace him with a candidate who understands the need to break the tax-and-spend cycle. In Alabama, it is a conservative Republican governor, former Congressman Bob Riley, who is proposing such massive spending increases, tax hikes and redistribution of the tax burden that Alabama Republican Party Chairman Marty Connors was moved to exclaim, "If a Democrat had proposed this, we would be burning down cities."
Arnold Schwarzenegger is one among three other serious candidates for the California governorship - Sen. Tom McClintock, businessman Bill Simon and former baseball commissioner Peter Ueberroth - who has a chance to reverse this harmful cycle if he wins the California statehouse. But Schwarzenegger will never succeed if he insists on listening to billionaire investor Warren Buffett, whom he recently appointed his economic adviser. He should instead listen to former Treasury Secretary George Schultz, Milton Friedman and Art Laffer.
Buffett is in a long tradition of self-made rich guys who forget how the dynamics of capitalism allowed them to accumulate their money. Secure in their wealth, they recommend policies in the name of "fiscal responsibility" and "fairness" that prevent the poor and middle class from getting rich.
For example, Buffett completely misunderstands the important role employee stock options play in giving workers an ownership interest in up-and-coming companies. He would change the rules by which stock options are accounted for on financial statements in a way that would reserve them for top executives and make it virtually impossible for entrepreneurs to continue giving their workers a piece of the company in exchange for their sweat equity.
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