Deficits

One of the tasks facing those of us who teach public policy is getting students to recognize that there are issues that people of good will see differently—that even when people agree upon ends, they may have good-faith debates over means.

For example, a majority of Americans think of themselves as fiscal conservatives, but that doesn’t mean they necessarily agree about which policies are fiscally responsible. Depending upon their understanding of economics, some people will argue that now is the time to cut back spending to concentrate on deficit reduction; others will insist that cuts now would just delay economic recovery and reduce tax receipts–that we should spend to stimulate the economy and create jobs, because more jobs will both reduce government expenditures and generate more tax revenues with which to pay down the deficit. Both groups want to reduce the deficit; it’s an honest disagreement over the best way to do so.

Other disagreements are harder to understand—and much harder to explain to students.

The Zadroga 9/11 Health and Compensation Act would pay health care costs for 9/11 first responders who were sickened by toxic fumes and debris when the Twin Towers fell.  I don’t use the word “hero” very often, but that’s what these firefighters, police officers and medics were. They braved the inferno in order to rescue those inside, and they are now suffering from injuries and illnesses caused by that desperate effort. It passed the House with 90% of Republicans opposed. Then Senate Republicans refused to allow a vote on it, because “it would add to the deficit.”

Why in the world would Republicans oppose this bill? Concern for the deficit would be more believable had GOP Senators not been holding this and other measures hostage to their insistence that the richest 2% of Americans retain the favorable tax rates they received from George W. Bush.

Extending those rates would cost many billions more than providing much-needed medical care for first responders. Marginal rates are at historic lows: in 1945, the rate was 91% of every dollar earned over 200,000; in 1982, 50% of everything over 106,000; in 1993, 39.6% of earnings over 250,000.  It is now 35% of everything over 357,700. If the Bush tax cuts expire, rates will revert to 1993 levels. Those levels would remain very low by historical standards, but even so, expiration would generate billions to reduce the deficit.

Republicans argue that low taxes on the wealthy spur job creation. The evidence for that assertion is mixed, to put it mildly. If we really want to encourage job creation, we’d be better served giving businesses tax credits for new jobs.

The income gap between rich and poor in this country is wider than it has been since the gilded age. Joblessness is at its highest point since the Depression. These indicators are warning signs, not just for our economic health, but for our civic well-being.

Denying first responders desperately needed medical treatment so that millionaires won’t have to endure a 4.6% marginal tax rate increase cannot be excused as a good-faith policy dispute, and it can’t be explained to students in those terms. Whatever the actual motive, it is, quite simply, disgraceful.

Perhaps what we need to tell our students is that Americans are facing two kinds of deficits right now: monetary and moral. Ultimately, our fiscal problems—difficult as they seem—may be easier to resolve.

 

 

 

 

 

 

 

Managers versus Leaders

A local civic leader I admire believes there is an important distinction between leadership and management: as he notes, cities must operate in a businesslike fashion, but they aren’t simply businesses requiring managers.  Leaders are those who understand that, those who realize that a city is the sum of the human values that make it up, the values that give cities their character, their “soul.”

For those who believe that there is no such thing as a city soul, or an identifiable civic culture, who think that this is all soft-headed romanticism, Neal Peirce has news for you: Civic culture drives economic development and fiscal health.

“We know the old and familiar way—grant tax subsidies or other special favors to nail down new office or factory prospects. Local tax bases take a hit and all taxpayers end up subsidizing the favored businesses. But to draw both investment and talented individuals—demonstrably the base of strong economies in today’s globalizing world—cities might focus more intensely on the qualities that most prominently build residents’ attachments to their communities.”

Peirce cites a key finding from three years of Gallup polling: what drives attachment to a community is not “the usual suspects” like jobs, the economy or even public safety.  While these things are important, “soft” quality of life factors—social offerings, openness, aesthetics and education (especially the presence of colleges and universities) drive civic pride and loyalty.

Communities scoring well in these categories also have higher rates of economic growth. The theory is that when people feel more attached to their communities, they spend time and money there, are more productive, and tend to be more entrepreneurial.

Such communities develop when people elect leaders concerned with the greater good, rather than managers interested in delivering services at the least cost.

The Best of Times, the Worst of Times

Dickens’ classic book “A Tale of Two Cities” begins, “It was the best of times; it was the worst of times.” That’s a pretty apt description of the world Americans inhabit right now.
On the plus side, advances in transportation and communication allow us to travel the globe and connect with others in ways our parents could never have imagined. Medical science has given us longer, more comfortable lives. Technology has improved our productivity, and brought education, books, and the arts to millions who otherwise would lack access to them.

The best of times.

And then there is our experiment with self-government, which isn’t going so well.

It’s partly the economy, of course. During times of economic distress, people get testy. Prejudices emerge. (Attacks on immigrants and Muslims, especially, are getting ugly.)
But it’s not just the economy. We also seem to be in the throes of a massive cultural backlash, driven primarily—although certainly not exclusively—by old, angry white guys. Most of these angry folks cannot articulate what it is that makes them so furious—probably because they really don’t know themselves. They just know that the world they were born into (or think they were born into—that “leave it to Beaver” world that existed, if at all, for a very few families) has changed.

If you listen to Tea Party activists for even a few minutes, you cannot help but be struck by the fact that they cannot describe policies they support, although they can certainly identify what they are against—much like a cranky two-year-old, or that character from “Broadcast News” who was “mad as hell and not going to take it anymore.”
Conventional wisdom tells us this rage will translate into the election of several of the crazier candidates who have emerged from the primaries. We are a week away from an election where a lot of irrational folks are energized and large numbers of reasonable citizens are dispirited.

If, as many of our pundits predict, this angry electorate votes indiscriminately against moderates and incumbents, opting for extremists who display little or no recognition of the complexities of the issues (or even basic understanding of the world we inhabit), we will all suffer the consequences. If we turn the apparatus of government over to the “simple answer” ideologues—the creationists and climate-change deniers, the folks who want to repeal Social Security and the Civil Rights Act, the conspiracy-theorists who have convinced themselves that President Obama is a Muslim who wasn’t born in the United States—the consequences will be grim.

We have never needed sane and steady public servants more than we need them today.

Which brings me to another quote that seems apt right now: “All that is necessary for evil to triumph is for good people to do nothing.”

If reasonable people don’t vote in large numbers, and the ideologues and crazies and know-nothings take the reins of power, “the best of times” will become “the worst of times” in no time.

Hard Cases, Bad Policies

Lawyers have a saying: “hard cases make bad law.”  That is equally the case when hard-pressed city administrations look for ways to generate revenue. There is an excellent example in Indianapolis, where the Mayor has recently proposed to privatize the city’s parking infrastructure by entering into a fifty-year lease with a private company.

The proposal raises a number of issues particularly pertinent to those of us who teach local government policy.

1)      Why would any city turn over an important part of its infrastructure to any private company for fifty years? Even if the deal were less one-sided fiscally than this one appears to be, decisions about where to place meters, how to price them, optimum lengths of time to allow and so on have an enormous impact on local businesses and residential neighborhoods. They are decisions requiring flexibility in the face of changing circumstances; they are most definitely not decisions that should be held hostage to contracting provisions aimed at protecting a vendor’s profits.

2)      Why would a city enter into a contract that will add significantly to the costs of downtown development? Indianapolis, like many cities, has worked hard to encourage construction of hotels, retail establishments and residential units in our urban core. Often, that construction has interrupted adjacent parking. When the city manages its own parking, it can choose to ignore that loss of parking revenue, or to charge the developer, based upon the city’s best interests. Privatization will require payments to the contractor whenever such interruptions occur, adding significantly to the costs of development in the urban core.

3)      Will the proposed contract provide incentives for mischief? Much has been written about the problems with Chicago’s parking privatization, but far less about problems in places like Washington, D.C., where an audit documented mismanagement, overcharging, over-counting of meters, and the issuance of bogus tickets—the latter because the agreement provided that the contractor got all of the revenue for tickets.

Why would a city choose to enter into a contract having the potential to create so many problems down the road? In Indiana—and probably elsewhere—the answer is obvious: we are starving local governments. Mayors do not have the resources needed to provide even essential services. As the urban blogger Aaron Renn (the Urbanophile) has noted, they are vulnerable to seduction by the municipal equivalent of payday loans.

When Will We Ever Learn?

There was an anti-war song from the sixties that I always loved, titled “Where Have All the Flowers Gone?” The refrain was “oh, when will they ever learn? When will they ever learn?”

I’ve thought about that refrain a lot lately, as America has increasingly retreated into one of the ugliest nativist episodes in a history dotted with them. It’s ironic, in a way, that just as we seem poised to accept the justice of GLBT claims for equality—a recent CNN poll actually found a slim majority in favor of same-sex marriage for the first time ever!—hostility to immigrants and Muslim-Americans has become vicious. And make no mistake, this mindless lashing-out at those considered “other” threatens all of us who come from groups that have been or could be demonized, because it strikes at the very heart of what it means to be an American.

As I emphasize in my classes, what makes Americans out of our diverse and disparate population is fidelity to a certain set of social/legal principles; a particular approach to the age-old question “how should people live together?” The very heart of that approach is our belief in judging people on the basis of who they are and what they do—on the basis of their behavior rather than their identity.

The arguments against the community center/Mosque a few blocks from Ground Zero are based on just the same sort of anti-American stereotyping that we recognize as pernicious in other contexts. Treating all Muslims as if they are terrorists is no different than treating all Germans as Nazis, all Catholics as pedophiles, all Irish as drunks, all women as weak and emotional, all gays as promiscuous. Every community that has fought for the right to have its members treated as individuals rather than as part of some monolithic whole, and every American who believes in our constitutional principles, should be standing up for our peaceful Muslim neighbors.

I know we’ve been through times like this before, but I can’t help worrying that the internet has dramatically increased the reach and immediacy of the craziness. It has never been easier to disseminate outright lies: Obama is a Muslim who wasn’t born in the U.S., the proposed Mosque is funded by Saudi Terrorists, illegal immigrants are having “anchor babies” who will be raised as terrorists and sent back into the country to attack us…Tansparently false as these and similar claims are, there is a cohort that really does believe them—in large part, because they want to believe them. And in today’s media environment, it is so easy to create a “bubble” where you hear only those things you want to hear, listen only to those who will feed your paranoia.

My friends and family are tired of hearing me say this, but here’s my (thoroughly unscientific) theory of what is driving the current unreasoning backlash. A group of old, pissed-off white guys (and they are disproportionately old and guys—the average age of Fox’s audience is 65 and it’s largely male) woke up one morning and looked around. There was a black man in the White House, a woman running Congress, gay people getting married, brown people speaking Spanish. That wasn’t the way it was supposed to be, and they are throwing a world-class tantrum. They want “their” country back: the country that privileged white, heterosexual, Protestant males over the rest of us.

I hope and believe that this is a final eruption—a last gasp of spleen and bigotry—before we regain our collective senses. But right now, it is making life in a diverse polity exceedingly difficult.   

When will we ever learn?

Tax Policy

Anti-tax fervor has become a defining aspect of American politics. (So much so, that here in Indiana we are getting ready to enshrine a so-called “property tax cap” in the state’s Constitution.)  Those of us who question the wisdom of such a measure are often accused of being “for” taxes—a clearly incomprehensible position.

 As I often ask my students: what is a tax? Do we know one when we see one?

The answer begins with the simple premise that there is no such thing as a free lunch. Goods and services cost money, and that money has to come from somewhere. If the city picks up your garbage, payment comes from your taxes; if you employ a private scavenger service, you pay for pickup directly. There may be economies of scale that make the city service cheaper or there may not, but however the service is provided, it has to be paid for.

Policymakers inevitably face a series of questions. The first, and most important, is whether a service needs to be provided at all. What is the benefit to a community of garbage collection, or bus service, or libraries? Do we require police and fire services? A sports arena?

 In some cases, the public benefit is obvious. If we don’t collect the garbage, we risk the public health; if we don’t provide fire protection, public safety suffers.  Of course, we could simply require that property owners buy these services on the open market; in fact, many communities used to do just that. These and other public services were “socialized”—that is, they were provided communally—because it was cheaper and more efficient to have government provide them. They didn’t suddenly become “free”—we just paid for them differently.

If we want services, we have to pay for them. Calling that payment a “user fee” or a “utility bill” doesn’t change that reality. We can certainly debate whether we really need a particular service—some people would be perfectly happy to dispense with massive sports stadiums, others would cheerfully do without libraries. But if we do want them—and our streets paved, our neighborhoods policed and our parks mowed—we have to pay for them somehow.

 Transparency in government is considered a good thing because it allows voters to see what their elected officials are doing, and where their money is actually going. The real problem with the current anti-tax fervor is that it penalizes transparency and rewards official game-playing.  Voters’ hostility to paying taxes—coupled with their insistence on continuing to receive services—sends elected officials a clear message: lie to us.

 “Cap” our taxes and find “nontax revenue sources.” Shift expenses from operating to capital budgets, so you can borrow the  money to cover operating expenses (the bill won’t come due until after you are out of office). Blame the federal government for service cuts. Sell off public assets.

Of course, it’s more costly when we do things that way—but the payments aren’t called taxes, and evidently that’s all that counts.

That Old Political Game

As the nation heads into a volatile midterm election season, the only certainty is a depressing one: we will be inundated with incessant political ads premised on the notion that we are children.  Every candidate for every office will promise to protect our perks while cutting our taxes.

Those of us who work in, or teach about, government know—and voters should know—that there is no such thing as a free lunch. If we want government services, we have to pay for them, and that actually might mean paying taxes.

On the other hand, perhaps the candidates are right. Perhaps we are children.

In my city right now, six libraries are closing.  Our bus system—already one of the country’s most inadequate—is cutting additional routes. My own neighborhood, a central-city historic district, is working with other downtown neighborhoods on a plan to hire private police to supplement our stretched-way-too-thin police force. In many neighborhoods, the streets and sidewalks are disintegrating. And I try not to look at the condition of our parks.

Thirty years ago, when I worked for city government, there was a recognition that city services had to be paid for, and that there were better and worse ways to do that. Sinking funds (savings accounts) were preferable to bonds (borrowing from future taxpayers) for operating costs. Ongoing maintenance of infrastructure was more cost-effective than cycles of neglect and repair.

The Administration I served in wasn’t perfect, but it was the last in my city to operate on a pay-as-you-go basis. It was succeeded by mayors of both parties who got elected by convincing people that they could deliver government on the cheap. “Privatization” initiatives were used to shift costs from the operating to the capital budget; debt was refinanced over longer periods; infrastructure maintenance was skimped or deferred. Even very modest tax increases were resisted until the cuts in service delivery became too politically damaging to ignore.

The money to fix our decaying infrastructure and deliver necessary municipal services has to come from somewhere, and our childish belief that we can expect something for nothing—a belief nurtured by years of dishonest political rhetoric—means politicians will no longer raise taxes directly. Instead, they employ increasingly “creative” mechanisms to raise desperately needed funds—mechanisms that frequently are much more arbitrary and regressive than property or income taxes, and far less transparent.

Shouldn’t we all just grow up?

Taxes and Patriotism

Increasingly, those of us who teach public administration are confronted with questions about the various movements—most prominently, the so-called “Tea Party” movement—that are challenging not just particular policies, but the legitimacy of government itself.  Much of that angry rhetoric is constructed around one dubious claim that we need to help students deconstruct: (1) taxes are unjust, because my money is the result of my own hard work.

 Ian Welsh points out some “inconvenient truths” about that claim. He compares the average American to the average citizen of Bangladesh. The average American makes $43,740 annually; the average Bangladeshi, $470.

Why the difference? American children are less likely to suffer from malnutrition, which adversely affects intellect later in life. American children are far more likely to get good educations. When a Bengali child grows up, there are fewer available jobs. If he starts a business, the market will be much smaller than the equivalent American market. As Welsh says,

“The vast majority of money that an American earns is due to being born American. Certainly, the qualities that make America a good place to live and a good place to make money are things that were created by Americans, but mostly, they were created by Americans long dead or by Americans working together. ..Since the majority of the money any American earns is a function of being American, not of their own individual virtues, government has the moral right to tax.”

Welsh isn’t the first to come to this conclusion. A student recently pointed me to this quotation by Thomas Paine, who expressed similar sentiments in his pamphlet “Agrarian Justice.”

“Separate an individual from society, and give him an island or a continent to possess, and he cannot acquire personal property. He cannot be rich. So inseparably are the means connected with the end, in all cases, that where the former do not exist the latter cannot be obtained. All accumulation, therefore, of personal property, beyond what a man’s own hands produce, is derived to him by living in society; and he owes on every principle of justice, of gratitude, and of civilization, a part of that accumulation back again to society from whence the whole came.”

We need to remind students that patriotism is more than being willing to die for your country. It’s also about being willing to pay your fair share to maintain the social infrastructure that makes life more pleasant—and more profitable—for us all.

By: Sheila Kennedy

A Healthy Economy

This month’s conventional wisdom—the seeming consensus of the pundits and other self-important folks who make their livings by pontificating on such matters—is that the Obama Administration should forget about reforming health insurance and concentrate on jobs and the deficit.

The problem is, these issues are related. You can’t reduce the deficit unless you create jobs, and you can’t create jobs unless you fix health insurance.

Job creation reduces government spending, because we pay less for unemployment and other social welfare costs. It also increases government income, because more people pay taxes. 

The cost of health insurance is the single largest drag on new job creation. The difference between what it costs an employer to create a new position and the amount the employee actually receives is the employment “wedge.” As health insurance premiums escalate, the wedge grows larger, and inhibits hiring additional workers. In good economic times, that is troubling; in times like these, it can be catastrophic.

Our costly, patchwork approach to healthcare distorts the operation of markets and inhibits the economic development needed for deficit reduction. For example, not too long ago, Toyota was looking for a site for a new factory in North America. Several southern states were offering tax abatements, infrastructure improvements and other incentives worth millions. Toyota went to Canada, which wasn’t offering anything. The company explained that in Canada, they didn’t need to provide healthcare. Smaller companies—the real engines of economic growth and job creation—are increasingly unable to offer health insurance, putting them at a competitive disadvantage when they try to hire good employees. Over fifty percent of personal bankruptcies are attributable to medical bills, and those bankruptcies cost businesses and taxpayers millions.

Opponents evidently believe reform will add to the deficit because they think taxpayers will bear more of the costs of care. They don’t believe Congressional Budget Office projections that reform will actually reduce the deficit. But governments at all levels currently expend huge amounts for healthcare, through Medicaid, Medicare and other federally required programs, through health care research grants,  through insurance for public employees (Universities, police, public school teachers, state and municipal workers, etc.), and through support for public hospitals.

By most estimates, American taxpayers already foot the bill for over 60% of American health care. We just do it in the least efficient, most wasteful way imaginable. (In single-payer countries, by contrast, governments pay an average of 70% of all health costs.) The brutal truth is, America already has “socialized” medicine. We have socialized our medical care through the private, for-profit insurance industry. As a result, we have the worst of both worlds. We pay more than twice as much per capita as any other country for a system that is regularly ranked thirty-sixth or thirty-seventh in the world.

The bill that is pending in Congress is far from ideal. If it passes, it will need plenty of tweaking and amending in the future. But it’s a start. And make no mistake: we cannot tame the deficit or create jobs until we fix healthcare.

Happily Ever After

The last time I babysat my younger grandchildren, we watched one of those age-appropriate Hollywood fairy tales where the good guy defeats the bad guy and then the story ends because—it is understood by all, even five-year olds—that everyone will now live happily ever after.

Too many students enter our classes believing a version of that simple fantasy: in order to make good public policy, we just need to elect the “good guy.” Once that happens—once the candidate with the good ideas wins—the story’s over. (If we elect the “bad guy,” the story’s still over, but with an unhappy ending.) This childlike belief explains much irrationality on both the right and left, and it complicates a public administration professor’s efforts to explain how a bill really becomes a law.  

 As I write this, tea party “patriots” and others on the right are screaming that health-care reform is a Nazi plot and Obama will single-handedly destroy America. At the same time, their left-wing counterparts are charging Obama with “selling out” to the power structure, and threatening to sit out the next election.

Our students are not immune to this superficial, bipolar approach to America’s policy processes.

Our job in the classroom is to explain that changing the course of institutions—particular large, entrenched ones—is extremely difficult. Systems matter, and they can favor or smother efforts to change direction for good or ill.  Constitutional constraints on government power are important in a nation that values the rule of law. As the old saying goes, one person’s accountability is another’s red tape. Achieving a workable balance is an ongoing challenge. But political systems also create roadblocks that are neither constitutionally required nor democratically sound.

 Let me offer a very few examples.

•  Gerrymandering frustrates efforts to create a more competitive political playing field, and protects incumbents from constituents who want to retire them.
• In the Senate, filibusters—as we have seen—allow legislative minorities to frustrate the efforts of majorities, even when those majorities represent overwhelming percentages of the population. Our system gives every state, no matter how thinly or densely populated, two Senators. You can argue the pros and cons of such a system, but love it or hate it, it’s the system we have. As a result, a couple hundred voters from Montana have the power to frustrate a million from California or Texas.
• The Senate also observes quaint and arguably indefensible “traditions” like the one that allows any Senator to put a hold on any Presidential nomination for any reason. Recently, Senate Minority Whip Jon Kyl decided to show his displeasure with a delay in the enforcement of internet gambling prohibitions. So he put a hold on six of the Administration’s pending nominations to fill positions in the Treasury Department. No one has a problem with the people who’ve been nominated, mind you. But because Jon Kyl wants action on internet gambling, the Treasury Department is operating without needed management personnel during a global economic meltdown.

The moral of this story? Systems matter, and many of ours are broken.

Our job is to teach students how to fix those systems, without telling them fairy tales, or leading them to believe that the election of one or two “good guys” will usher in a future in which Americans live happily ever after.