Governors Against State Bailouts, for Ideological Purity

While around 40 governors met with President-elect Obama in Philadelphia to discuss states' growing budget woes, two governors took to the Wall Street Journal's op-ed page to argue against federal aid to states. Governor Rick Perry of Texas (which is not one of the 41 states facing budget shortfalls) and Governor Mark Sanford of South Carolina (which is) presented three doctrinally sound reasons to oppose "a free lunch" for states.

First, spending on states would increase the federal deficit. "We're crossing the Rubicon with regard to debt," they wrote. Certainly, the federal deficit is expanding and national debt is growing. But the governors offer no rationale for shutting off the spigot now. Aren't we just getting around to the moment when spending is absolutely necessary? As The Economist fretted this week about Britain's bailout, "Yes, fiscal discipline is important; but in times as dire as these stimulus is needed and stimulus, if it is to have any effect, has to be unfunded, at least in the short term."

Second, they argued, "the bailout mentality" is at odds with -- and, indeed, threatens -- Americans' sense of personal responsibility. Better to let the "others [that is, the non-winners] go back to the drawing board better prepared to try again." (My italics.) The governors lament government spending on "enterprises that in many cases need to reorganize their business model" and point to the Big Three CEOs' private plane boondoggle as an example. There might be sound arguments for refusing money to the auto industry, but are the governors really invoking corporate extravagance to oppose federal money that will prevent states from cutting health care services for low-income households? Will someone who loses his or her job and finds himself or herself without health insurance really be "better prepared" to try it again? Try what again? Isn't one of the arguments for "automatic stabilizers" like extended unemployment insurance (one of the proposals the National Association of Governors is seeking) that they ease the transition out of and then back into (unemployment benefits don't last forever) the labor force?

Third, Perry and Sanford call on the federal government "to stop believing it has all the answers." We have a system in which the federal government only steps in "for that which states cannot do themselves." Whether you believe that assertion or not, unfortunately, the "expansionist federal government" the governors criticize is the same one that has avoided doing what states cannot do for themselves (and the same one, in some important cases, that has prevented states from doing what they can do). One glaring example is President Bush's repeated veto of SCHIP. Indeed, in the same issue of the trusty Economist, the weekly writes an "e-mail" to Obama calling on him to "quickly increase the money given to states to pay for Medicaid and SCHIP (the scheme for children's health that W. hates so much). You can deflect skeptics by arguing that increased spending on health...will do more to stimulate the economy than issuing tax refunds..."

At the governors' meeting yesterday, Obama told the state executives: "one of the messages that Joe [Biden] and I want to continually send is that we are not going to be hampered by ideology in trying to get this country back on track."

Perry and Sanford, on the other hand, have maintained their ideological purity.

Crossposted from DMIBlog.

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Comments

[FreedomCorpse]

We can see where these governors have their priorities. Bail out bankrupt banks on Wall Street, let the states fall apart. Granted there is waste in state governments but not like Wall Street who wasted the US economy with a shotgun blast to the face using deregulation.

[Trebor1]

Businesses certainly don't pay too many taxes -- not in Ohio at least. Through the majic of tax abatements, the taxpayers of Ohio actually pays the business to hire its employees.

[cylindar]

The government should not bail out the states because most states have not even looked very much at all to cut the useless jobs and pork necesssary as a good faith gesture before coming to the handout table. I live in Vermont for instance and there is so much pork here and useless people in state jobs that the costs are unreasonable. Gov,. Jim Douglas is a do-nothing and prefers to wait for the stats before acting which means it all comes too late. We need state governers who are going to be proactive not inactive to make things happen right. Before the federal government gives any money to the states they should hold these governors hands to the coals of economic sanity for a test of eleigibility.

[Peter007]

It appears that there will be a bailout of state governments. Its all about politicians asking other politicians for money that neither of them have. Done deal. Why am I opposed?

There an old saying that says "Good Cases make bad law". It means that during times when emotions run high, mob rule seems to dominate the agenda. Or the time to make a decission is not when emotions are running high.
State governments are required to have balanced budgets and they rely on the profitability of business in their state to function within that budget. As businesses prosper , state government have a habit of seizing those profit margins away from private enterprise. If they take too much, the business can pack up their bags and leave. Business have to cut expenses when revenues dry up. Why shouldn't state governments, with their bloated pension and salary budgets, cut back on waste and live within their means.?

[cylindar]

Yes, and this is an important issue.

[Elizabeth Rigby - Huffpost Blogger]

I am really glad you blogged about this. I have been thinking about it all evening after hearing Gov. Sanford articulating these points on NPR as I drove home from work. He made a reference to his guiding principle that people should suffer consequences of poor decisions. This is a key conservative tenant; one that liberals do need to take seriously. However, I kept thinking of stories I have heard recently, like one of renters who paid their rent on time month after month but now are evicted with 24 hours notice after their delinquent landlords face foreclosure. Or a case I know of in which hourly workers are laid off after their boss took on too much debt. And the effects of lost health insurance on children whose parents lose their jobs.

It seems to me that government intervention (even bailouts) can actually help assign consequences to those who acted irresponsibly and buffer from undeserved consequences those who have been "playing by the rules." Why is the moral hazard and disincentive effect such a powerful argument against government intervention rather than one justifying government action?

[cylindar]

I think the government should do all it can to help people survive this downturn. The devil of course, is in the details. States need to realize that they cannot ask for money if there is waste in their own government. Part of this trimming is to take out useless jobs that are not needed. Yes, some people will lose their jobs but they should not have been in those jobs to begin with. Many state empoyees know that they are scamming the system and don't deserve the jobs they hold. This may sound harsh but hey, I am a liberal and I can see so much pork that you would think some states are pig farms. Michigan would like a bail out for instance, but we all know that they need to come to terms with the fact that the auto workers were way overpaid for many years with lots of creamy benefits. If states don't own up they will have to cut anyways because they will not have a choice. It seems that everyone from top to bottom has participated in a huge scam for whatever reason and in this sense it is almost biblical; there is no way to hide from what is coming.

[Peter007]

Auto workers may have been over paid but I don't begrudge them their money. If you can negotiate a higher pay, more power to you. People should look at the payrolls of their state and local government workers. Its sinful that working class people making under $50,000 / a year are supporting so many thousands of government workers making over $80,000 and upwards of $200,000 / year including benefits. Thousands and thousands. There would be plenty of money available to take care of societies neediest if all our tax dollars didn't go to state workers in the $100,000 salary range. ie. A patrolman working for the Port Authority in NYC took in $250,000 last year. Not bad if you can get it.

[mcantwell]

Does this mean they will no longer be attending the Governor's meeting with Obama?