Let Us All Now Bail Out the States?

Ross Mackenzie
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Posted: Jan 14, 2010 9:05 AM
Let Us All Now Bail Out the States?

The foremost dictum of arguably the 20th Century's foremost economist holds, "There's no such thing as a free lunch." Nobel economist Milton Friedman meant that somewhere along the line somebody pays for everything. Government and pols tend to resist Friedman's dictum; the feds treat it with particular disdain. But right now the states are confronting it -- bigtime.

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Most states must balance their budgets by constitutional stipulation -- a concept also viewed with a federal sneer. In the depression year of 2009, the feds bailed out the states to the tune of $87 billion. In the current fiscal year, state budget shortfalls are expected to total about $180 billion, with a like amount (or more) anticipated for fiscal 2011.

States are no different from families. In tough times, if income does not increase, spending must be cut. Otherwise there will be a lot of explaining to creditors, rating agencies, enforcers, and judges.

SO CALIFORNIA, first out the door in so much wacky stuff, is the first to have said it needs more federal cash to make ends meet.

Last year, California uneasily closed a $60 billion deficit largely through accounting gimmicks, IOUs, and $8 billion in federal "stimulus" money. Now it faces a $20 billion shortfall, and wants another $7 billion federal handout.

Gov. Arnold Schwarzenegger, a Republican, outlined the situation days ago -- saying serious spending cuts (including cuts in "social" programs) will be necessary, as will more federal cash.

The Democrats who run the California legislature want few spending cuts but hefty corporate tax increases. California's leading representatives in Washington -- Mesdames Nancy Pelosi, Barbara Boxer, and Dianne Feinstein -- are telling California to expect little more in the form of federal bailout monies, and to sort out its mess itself. One California college professor said sweetly that legislative Democrats will approve significant spending cuts when "pigs fly."

And again, California likely is but the first of a flood. Thirty-six states are on track to cut $56 billion from their budgets this year. At least two others (Maine and New Mexico) already are including additional federal funds in their early budget assumptions. How badly off are the states -- really? Hawaii is too poor to pay for an election to fill a congressional vacancy. Even a vote-by-mail special election would cost nearly $1 million it can't afford.

SCHWARZENEGGER pleads that California needs at least a partly federal solution to a largely federal problem. He says (a) the feds owe California because Californians send more money to Washington than they receive from it. And (b) federal mandates (for e.g. Medicaid) require California to spend money it doesn't have. He adds that the federal effort to socialize medicine will only make the situation worse, given that what began as a "noble" health reform effort has become a "trough of special bribes, deals, and loopholes."

Socialize -- isn't that a harsh word? No indeed, and never mind lefty objections to its use. For we are speaking here of two fundamental things: (1) the tendency of government to enter where it has no legitimate business (such as the nation's hospitals and doctors' offices), and (2) the failure of government to make hard choices on spending cuts to balance their budgets.

Only government can practice socialism, and when it does its record is awful.

SO WE NOW have bankrupt states such as California asking a bankrupt federal government (President Obama, Madam Pelosi, et al. have tripled the deficit while increasing domestic discretionary spending 24 percent since the last full-year Bush administration budget in fiscal 2008) to underwrite them in their spendthrift ways.

We don't want to make the necessary cuts, the states are saying, and to raise taxes to necessary budget-balancing levels would make the taxpayer-voters mad -- and have us soon flipping burgers. So to keep on keeping on (and to retain our jobs and power and perks), we need more federal handouts from the nation's single entity that does not have to balance its budget.

Such reasoning defines a dependent socialism that has no defensible role in a land of self-reliant liberty. I'll make the choices, it says, denying Friedman's dictum, and someone else will fund them -- someone else will pay for my lunch so it still will be free to me. Oh, and that someone had better leave a big tip.

The liberal, leftist, socialist -- whatever -- is notably efficient at but one thing: giving away things that are not his (or hers). Yet Britain's former Prime Minister Margaret Thatcher saw through it all with Friedmanesque clarity: The trouble with socialism, she said, is that sooner or later you run out of other people's money.

The bare and deficit-infested federal cupboard may be the fundamental reality the states just now are beginning to confront.