What Drives Me Crazy

A couple of days ago, I got my ever-thinner print version of Newsweek, and began leafing through it. I came to an article by one Niall Ferguson (“Niall Ferguson Solves the Debt Crisis”) I don’t know who Ferguson is, although I’ve seen his name here and there, but obviously, if he has a solution to the “debt crisis,” (the precise nature of which was conveniently undefined), I wanted to know what it was.

And what was it? Privatization, which–he blandly assured readers–“has been a huge success nearly everywhere it’s been tried.”

When I came to that sentence, my husband called from another room to ask me why I was making that strange noise.

Let me explain why Mr. Ferguson’s article made my head explode. I have spent a reasonable percent of my time in academia studying privatization, and have written a number of (peer reviewed) articles on the subject, and it is clear that Ferguson is, shall we say, confused. The first clue is his reference to Margaret Thatcher’s successes. I agree that much of Thatcher’s privatization effort was successful and sound, but what Thatcher called privatization was very different from what Americans mean when we use the term. Thatcher sold off assets (steel mills, for example) that most economists would agree should never have been owned by government in the first place. And she sold them, to private owners who were left to own and operate them, pay taxes on any profits, and go under if they failed. These assets were no longer on the British government’s balance sheets, for good or ill.

This is significantly different from the situation in the United States, for two reasons. First of all, we were never socialized to the extent that England and many European countries were, so our governmental units–with very few exceptions–do not own property that is extraneous to the mission of government. We don’t have publicly owned steel mills or coal mines or other assets more appropriate to private ownership to sell off. Ferguson cites Mitch Daniels’ “lease” of Indiana’s public highways with approval; I think many of us would argue that public roads are hardly in the same category as steel mills.

That allusion to Indiana’s Toll Road brings us to the second difference between British and American practices: what we call privatization in the U.S. isn’t really privatization. We use the term to mean “contracting out.” If we have potholes to fill (and right now, boy do we!) we ask private asphalt companies to bid on filling them–we don’t expect government to manufacture its own asphalt and use its own employees to do the job–but we don’t expect government to sell the streets and allow the market to determine which ones get paved, either.

I didn’t intend to turn this post into an academic lecture/rant, but I get so tired of pompous pundits who don’t bother to do any homework, who don’t bother to define their terms, blandly prescribing simple fixes for complicated issues they clearly do not understand.  If Ferguson is advocating that we sell off government assets, he needs to distinguish such outright sales from the “leases” and “contracts” that Americans are familiar with, and he needs to identify the assets that he believes should be privately rather than publicly owned. (I’d be quite willing to sell off sports stadiums, but I’d fight a proposed sale of libraries.) If we ever have that discussion, I think it is highly unlikely that we’d find enough stuff to sell to retire the national debt.

And just for Mr. Ferguson’s information, privatization (defined as contracting out) has not been a “success nearly everywhere.” I’d be happy to supply him with citations to multiple studies demonstrating quite the contrary–but somehow I doubt he’d be interested.

Who said “It ain’t what you don’t know that hurts you, it’s what you know that just ain’t so”?

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If You Can’t Say Something Nice…….

I’ve got to say, events of these last few months have really put a strain on my mother’s admonition that “If you can’t say something nice, then don’t say anything at all.”

Okay–let me try. The Indiana legislature did take a (hesitant) step toward rational policy-making by setting up a committee to study marijuana prohibition. It’s only a study committee, but it is implicit recognition of the fact that our drug war policies are costly and counterproductive. That’s a good thing.

Problem is, so far as I can tell, it’s the only good thing that has happened during this legislative session.

  • At a time when poll after poll finds job creation at the top of the list of voter concerns, the GOP majority has been fixated on restricting abortion,  prohibiting   same-sex marriage, union-busting and immigrant bashing.
  • Despite all the verbal hand-wringing about the state’s fiscal problems, the legislature refused once again to eliminate Indiana’s 1008 wasteful, unnecessary and expensive Townships.
  • The war on public education may be well-intentioned (to give lawmakers the benefit of the doubt), but it is anything but informed. One small example: the effort to link teacher pay to student achievement. Sounds reasonable–if you don’t understand the situation.  The likely result would be to discourage good teachers from teaching in schools with lots of poor kids, since available research links student performance to parental income. (There are ways of measuring achievement that control for socio-economic status, but somehow I don’t think that’s what our genius legislators intend.)

    I have a student who is interning at the State Senate. His account of the “discourse” (note quotes) in that august chamber are dispiriting, to say the least. To date, my favorite is the statement made by Senator Ron Alting during discussion of Delph’s anti-immigration bill. Alting began by saying that the legislation would damage Indiana’s reputation; he also recognized that it would hurt economic development and our convention business, saying “we will be impacted like Arizona.” His conclusion? “So be it. I’ll vote for it.”

    Just kill me now.

    State Workers Pay Taxes Too

    During a discussion the other day, a SPEA staff member made a point that seems to be lost in the contending, highly ideological arguments about the standoff in Wisconsin. She noted that public employees are also taxpayers, and that the Governor’s insistence that he is acting in the “interests of the taxpayers” didn’t seem to include the interests of that particular subset of taxpayers.

    Her observation has just been quantified and amplified by Robert Russell, a Wisconsin state economic analyst, who pointed out that state workers are not only taxpayers, but consumers.

    According to Russell, if public employee salaries are cut through increased withholdings as Walker is proposing, by an amount large enough to fill the $137 million budget gap, the resulting drop in consumer spending will lead to: 1) a loss of over 1,200 nongovernment jobs; 2) a loss of about $100 million in business sales statewide; 3) a loss of nearly $35 million in personal incomes of nongovernment employee households; and 4)  a loss of nearly $10 million in state tax revenues.

    This is not about economics. (Indeed,  Governor Walker seems blissfully ignorant of basic economics.) It’s about ideology, hubris, and political payback.

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    Debt and Taxes

    It doesn’t take long for my students to learn that “it depends” is almost always the right answer to policy questions. The world is complicated, and questions about how government should operate are rarely black or white.

    In an excellent column about debt and taxes, Morton Marcus makes precisely that point. Debt incurred in order to make investments in the future is good; borrowing in order to shift costs properly paid for with current tax dollars–is bad. Borrowing to invest in education, transportation and communications will make life better for our children and grandchildren, and will increase their ability to pay that debt. Borrowing in order to avoid raising taxes to pay for the wars in Iraq and Afghanistan does not make life better for future generations; it merely saddles those generations with bills that we didn’t want to pay.

    The issue isn’t whether debt is good or bad. It isn’t even whether it is too big. The issue is whether the borrowed dollars were used to make wise investments, or were used instead to allow current generations to say “charge it” to the future.

    With debt, as with so much else, it depends.

    Reaganism Triumphant

    This morning, I made my usual mistake, and listened to the news.

    The protests in Wisconsin–and to a lesser extent, Ohio–triggered by efforts to blame fiscal shortages on people who work for government. A story about a southern town that has stopped making pension payments to retired police officers and firefighters, because the town “ran out of money.” Various congresspersons of the Republican persuasion demanding ever-more draconian cuts in social programs we can no longer “afford” (while failing to explain why we can still afford all manner of military expenditures, including the Pentagon’s practice of sponsoring NASCAR races). You all know the drill–it’s drearily familiar.

    So here’s my question: why, in all of these discussions, do we never hear anyone suggest raising taxes?

    Now, I will grant that taxes can be a double-edged sword: depending upon who and what we tax, we can cause economic distortions. Tax policies can provide perverse incentives, or reduce incentives for behaviors we want to encourage. But that recognition hardly justifies taking taxes off the table, and that seems to be what we’ve done. Taxes have become a dirty word, rather than a revenue source.

    The result is that we are strangling government’s ability to invest in the future of the country. When governors refuse federal dollars to built high-speed rail, they are not only refusing to create temporary construction jobs, they are ensuring that America will be less competitive for a generation. When they choose to “balance” budgets on the backs of pensioners and public servants, they are opting to weaken government’s ability to provide services and undermining the public’s trust in that government.

    Ronald Reagan famously said that government is the problem, not the solution. Then he set in motion a political ideology that embraced a very selective version of Reagan’s Presidency and made that statement into a self-fulfilling prophecy.

    Those who subscribe to “Reaganism” conveniently forget that even the Gipper raised taxes when necessary.

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