“We stand on the brink of a financial challenge of unprecedented magnitude in the history of this state,” he added. “This is a historic moment. We’re going to have to make historic decisions.”
This language could have come from the most of the leaders of state and/or local governments in this country. This quote comes from Governor David Patterson of NY state. The story is detailed in a NY Times article here.
What is going on in NY is going on in California and other governments around the country. The blunt fact is that governments at all levels are going to have to shrink. Government may be the last bubble of this economic cycle. It has grown faster than the general economy for multiple decades. It has done so in both good and bad times. It has raised taxes on its citizens when times were bad and good, making it harder for individuals to get by. Arguably, government has never had to sacrifice. It is conditioned to growth, regardless of economic realities. It does not comprehend the idea of real cuts. Even in the worst of past times, it has managed to make only pretend-cuts.
The stimulus package from the Federal government provided large sums to states. This funding was akin to giving a drink to an alcoholic. It temporarily made them feel better instead of the drying out that is required. Reality is starting to sink in. But it is a false or limited vision of reality. States and municipalities are raising taxes and fees on everything. What is not understood is that this behavior and the usual gerryrigging of the books will not be enough.
Here I am comfortable using the dreaded phrase: “This time is different.” These governments are bloated, and most had likely reached the limits of their growth even if the economy had remained healthy. Unfortunately, the economy is not healthy and probably will not be again for a decade or more. Cutbacks in the range of 15-20%, probably at a minimum, are going to be necessary to adjust to the shrinking economy of the future.
Political-rent beneficiaries will not let go easily. Hence representatives will be under constant pressure to not cut. Squealing at the mere suggestion of a program cut will be intense. Politicians are natural cowards which makes it seem impossible to do what is necessary. The message that we are all poorer now and will remain that way for the foreseeable future is one that is not believed or acceptable to either the populace or the politicians. Real cuts will eventually be made under the duress of conditions envisioned in Governor Patterson’s statement. But his statement reflects a return to normal and even these cuts will not be enough. We are going into the “New Abnormal,” and will not return for quite awhile.
It will be sad but fascinating to watch this play out for the next several years. Be prepared for Governor Patterson or his equivalents to be issuing statements like this at least yearly for the next three or four years. For young people interested in politics, run for office as a “turnaround specialist,” because that will soon be in demand. Better yet, stay in the private sector where you at least have a chance of maintaining your integrity and character.