If one could classify most of the missteps by our Democrat Congress and the Obama administration into one group, “promoting moral hazard” would be the title for that category. “Moral hazard” centers around the idea of protecting people from the consequences of their own bad behavior, and it is arguable that we’ve never had a government more dedicated to doing so than this one. From insulating the United Auto Workers and its car-company destroying contracts, to protecting deadbeat homeowners from ill-advised purchases and everything in between, Obama and company have seriously undermined the moral fabric of the country. Yet all of their machinations to date pale in comparison to what might be coming in 2011: federal bailouts for profligate state governments.
Bloomberg.com spells out the grim reality:
“The longest recession since the Great Depression has left states facing budget gaps of $72 billion next fiscal year, according to a July report by the National Conference on State Legislatures. State pension funds face deficits of more than $1 trillion, according to the Pew Center on the States. The amount of municipal debt outstanding has increased about 90 percent in the last decade, according to Federal Reserve data.”
Bloomberg.com is far too kind blaming it on the recession. Several states have been piling up debt long before 2008, and it is no secret that much of that debt can be directly traced to soaring costs for public worker health care and pension benefits. It is also no secret that some states are far more profligate than others. For example, New York and Florida have almost the same number of people – 19.5 million and 18.5 million respectively. Yet New York’s state budget of $139 billion dollars more than doubles Florida’s budget of $67 billion. Why? Political ideology, plain and simple.
New York is a state, like many of the most financially precarious states in the union, which embraces the socialist utopian, ever-expanding bureaucratic ambitions of the progressive agenda. As a result, spending other people’s money, without a shred of anything resembling fiscal responsibility, has gone unchecked for decades. The epicenter of progressivism, California, is facing a $19 billion budget deficit and has resorted to giving state workers furloughs and issuing IOUs in lieu of payment as a means of avoiding default on their bonds. Illinois and New Jersey are two more states on the fiscal respirator, as progressive profligacy has wreaked havoc there as well.
Yet unlike the other aforementioned states, New Jersey has begun to reconcile itself with reality. The election of Governor Chris Christie, who ran on fiscal responsibility, has demonstrated that the voters in that state have rejected the business-as-usual fiscal dereliction perpetrated by former Governor John Corzine, who lost the election despite outspending Christie by a factor of five-to-one in a state where registered Democrats outnumber Republicans by over seven hundred thousand.
On November 2nd, it is likely that some states may jump on the Jersey bandwagon, and voters will toss progressives out of office in what now appears to be record-breaking numbers.
Yet what about the states that don’t? Unless something miraculous occurs, New York will elect Andrew Cuomo, the leftist son of a leftist governor, to office. It is also likely that Democrat Kirsten Gillibrand another echo-chamber for the progressive agenda, will also be sent back to Washington, D.C. In California, Democrat incumbent Barbara Boxer maintains a 3.7% lead over challenger Carly Fiorina, and Democrat Jerry Brown maintains a 5.4% edge over challenger Meg Whitman. Both Boxer and Brown are staunch progressives, neither of whom demonstrate the slightest comprehension of the destruction wreaked by liberal policies on the once great Golden State.
For a Floridian, who voters in New York and California, etc. decide to elect to office should be of marginal concern. If the electorate in those states is myopic enough to continue condoning their own fiscal destruction, so be it–as long as what happens in New York and California stays in New York and California.
Enter the possibility of state bailouts and everything changes. Because states are not legally allowed to declare bankruptcy, there is no doubt that some of their representatives will head to Washington D.C., hat in hand, begging the feds to underwrite their irresponsible behavior. In other words, they will be asking taxpayers in every state to take on the obligations for individual states. States in which they had no vote to shape policy and for which they have no reasonable responsibility.
A federal bailout of states would be the promotion of moral hazard on steroids, but not merely because the people of a fiscally responsible state such as Texas would be forced to come to the aid of their ne’er-do-well counterparts in California. Such redistributive schemes are the least of the problem.
The biggest and most pernicious part of the problem would be the effect it has on states which make sound fiscal policy part of their overall agenda. If the feds are going to confiscate money from responsible state A and hand it over to profligate state B, what’s the point in state A making the tough choices that accrue to responsible behavior?
There is none–which is precisely why such a possibility would inflict dire and possibly irreversible damage on a nation which would quickly become a confederation of fifty separate constituencies determined to outdo each other in a race to the bottom of the fiscally irresponsible barrel.
If states like California want to run themselves into the ground, so be it. Municipalities can legally declare bankruptcy and perhaps a tidal wave of towns and cities doing so will snap the people of that state, and others like it, out of their progressive torpor. But keeping such a tidal wave contained inside a state’s borders is critical. We are long past the point where voters can mindlessly elect people without taking responsibility for their choices. I suspect the very same Americans outraged at paying “other people’s mortgages” would be far angrier at the thought of subsidizing thirty eight million Californians’.
Nothing would disunite the United States more effectively. Americans should make it crystal clear that the mother of all moral hazards is a non-starter. Vote for whomever you want to, my fellow Americans–but be prepared to live with the consequences of your choices.
Arnold Ahlert is a contributing columnist to the politically conservative website JewishWorldReview.com.
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