R>G Revisited

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The Washington Post chose July 4 — a holiday kicking off a three-day weekend — to bury an interesting article, and it’s not hard to see why. Check out Zachary Goldfarb's lede:

After making fighting income inequality an early focus of his second term, President Obama has largely abandoned talk of the subject this election year in a move that highlights the emerging debate within the Democratic Party over economic populism and its limits.

During the first half of this year, Obama shifted from income inequality to the more politically palatable theme of lifting the middle class, focusing on issues such as the minimum wage and the gender pay gap that are thought to resonate with a broader group of voters.

The pivot is striking for a president who identified inequality as one of his top concerns after his reelection, calling it “a fundamental threat to the American Dream, our way of life and what we stand for around the globe.”

The Post is the quintessential establishment newspaper, as in tune with everything DC and its satellite suburbs as it is out of tune with everything else. Generally, the Post house style is to provide justifications for the actions of the powerful and connected, because they must be, on average, wiser and better than the populace — if they weren’t, then how would they have obtained their power and connections?

Imagine a “tax” on power — every year, those in whose hands so much is gathered must surrender a small percentage of it, to be distributed among those who have so little.

With few exceptions, then (notably, the articles on Edward Snowden and national security) you shouldn’t read the Washington Post for intellectual stimulation. Rather, read it for insights into the cramped and contorted psyche of the ruling class — there’s really no better way to place yourself into the sort of mental confines occupied by those who hold federal office.

For instance, to read the paragraphs above, it might seem as if the president is being called out for waffling on a core principle, or worse, betraying a group of people to whom he successfully pandered in the last election. The piece might even be interpreted as a lament for what is “politically palatable” in this country, or for the voters who would put the concerns of the middle class over those of the truly destitute. But the Post would never run even mild criticism without outweighing it with rationalizations or outright praise: thus the focus here is not on the president’s shortcomings, but rather his shrewdness, softening his rhetoric in time for the midterm elections. Where once the president had been determined to bring up inequality, not caring “whether that was a good economic message” (according to that ultimate Beltway insider, the mysterious “person familiar with the process, who spoke on the condition of anonymity in order to discuss private conversations”), he has caved to political reality, and shifted his rhetorical course.

Of course, it must just be a coincidence that this new tack steers the president toward the interests of the DC establishment — and toward Wall Street, to boot. If one thought otherwise, why, there are employees at a whole range of DC-based thinktanks, from the Center for Equitable Grown on the left, to the Heritage Foundation on the right, and plenty more in between, all waiting to give soundbites about how one set of words is so much better than another for this thing called the “American middle class,” which we never actually see in the story, but which must exist given how often these important people discuss it. And of course, even the more radical of Obama’s supporters can delude themselves into thinking that such strategery is necessary so that Obama can devote himself to truly egalitarian reforms in his final two years.

It would be unthinkably gauche for the Post to suggest that Obama’s rhetoric on inequality was never sincere, or to point out that Wall Street has overwhelmingly backed Obama from the start — that’s left for journalists such as Tim Carney and unfavored papers such as the Washington Examiner to do. But all in all, the performance in this article isn’t entirely convincing, as if even the Post was tiring of repeating the talking points of K Street thinktankers and anonymous apparatchiks. Maybe it’s the Snowden files, or maybe it’s the shift to a new generation, or maybe it’s just the unstable position of newspapers with our digital present, but the Post is a little uneasy about just how much the people at the top control. And that means at least some portion of the establishment is uneasy about that as well.

The president might have to stop ordering people locked up or killed without some pretense of due process.

All of this made me revisit the discussion in these pages of Thomas Piketty’s book Capital. Piketty’s massive tome oversimplifies to a single principle, given as r>g, meaning that the rate of return on wealth exceeds the rate of economic growth, at least in Western industrialized nations. Were this true, then income inequality would inexorably increase, and wealth would be concentrated in ever greater amounts in ever fewer hands. Of course, as Mark Skousen and Leland Yeager showed, Piketty’s principle rests on several unsustainable assumptions about the permanence of capital and the assumption of risk.

However, Piketty’s principle makes a lot of sense when viewed as a statement not about wealth, but about political power. Yes, the two are related; in the present day, perhaps fatally so. But that sort of crony capitalism would be impossible without the power consolidation represented by Washington DC — the very arrangement that ensures that power will continue accruing to those already neck deep in it.

Piketty’s preferred solution for his perceived economic problem, a wealth tax, would only increase the flow of money going into, and much more rarely out of, our imperial metropolis. Imagine, however, an equivalent “tax” on power — every year, those in whose hands so much is gathered must surrender a small percentage of it, to be distributed among those who have so little. There are benefits straight off: everyone in office would have to list off all the political powers and assets they think they possess, and these could then be compared to the Constitution to get an idea of how deep the cuts would have to be.

Ideally, the tax would be progressive, so that those with comparatively little scope of power, such as first-year podunk-state congressmen with bottom-tier committee assignments, would only give up, say, a sugar subsidy that helps out a campaign donor. Those at the top, meanwhile, would be expected to turn over much more for the commonweal: the president, for instance, might have to stop ordering people locked up or killed without some pretense of due process.

It would take a while. And realistically, it would never come close to evening things out. But if we had such a mechanism that put power back in the hands of the people — as in, actual control over their own lives, not just as some weak metaphor for voting blocs — we could nonetheless do a great deal to reduce political inequality in the United States. And that would go much farther toward protecting The American Dream, our way of life, and what we stand for around the globe than anything else Obama or any other DC denizen might choose to do.



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The Passing Paradigm

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The latest much-ado-about-nothing crisis passed, with a result that should seem familiar. In 2008, Americans were told that if the TARP bill (a $787 billion taxpayer-funded welfare handout to large banking institutions) wasn’t passed, the stock market would crash and massive unemployment would follow. After an unsuccessful first attempt to pass the bill amid angry opposition from constituents, the bill passed on a second vote. Subsequently, there was a stock market crash followed by massive unemployment.

This time, our political-media cabal told us that if Congress was unable to pass a bill to raise the debt ceiling, the government would not be able to meet its short term obligations, including rolling over short term bonds with new debt. US debt would be downgraded from its AAA status, and a default would be imminent. After the melodrama, Congress passed the bill raising the debt ceiling. Standard and Poor’s subsequently downgraded US Treasury debt anyway, and deep down everyone knows that a default is coming as well, one way or another.

We are seeing the end of a paradigm. Thomas Kuhn argued in The Structure of Scientific Revolutions (1962) that anomalies eventually lead to revolutions in scientific paradigms. His argument holds equally true for political paradigms.

A paradigm is a framework within which a society bases its beliefs. For example, people at one time believed that the forces of nature were the work of a pantheon of gods. Sunlight came from one god, rain from another. The earth was a god, as was the moon. With nothing to disprove the premises of the paradigm, it persisted. People went on believing that sunlight and rain were the work of sunlight and rain gods because there was no compelling reason for them to believe otherwise.

However, within any paradigm there are anomalies. Anomalies are contradictions — phenomena that cannot be explained within the framework of the paradigm. People have a startling capacity to ignore or rationalize away these anomalies. While it may defy logic to continue to believe that rain comes from a rain god even after evaporation and condensation has been discovered and proven, people would rather ignore the anomalies and cling to the paradigm than face the fact that the paradigm is false.

There is at least one thing that will be quite obvious: centralized government is insane.

But once there are too many anomalies, the paradigm fails, and a new one must take its place. This new paradigm renders the old one absurd, even crazy. At some point in the future, people will look back on the political paradigm of the 20th and early 21st centuries. There is at least one thing that will be quite obvious to them: centralized government is insane.

Consider the premises upon which this present paradigm relies: all facets of society must be planned and managed by experts. The judgment of the experts trumps the rights or choices of any individual. The choices made by the experts will result in a more orderly society and greater happiness for the individuals who compose it. There will be better results from one small group of experts controlling everyone than multiple groups of experts controlling smaller subgroups of society.

Of course, libertarians reject every one of these assumptions on its face. A free society does not tolerate “planning” or “management” by anyone. All choices are left to the individual, as any attempt to plan or manage his affairs amounts to either violation of his liberty, looting of his property, or both. However, let’s assume that the first three assumptions of the present paradigm are valid and merely examine the last. Even that does not hold up to scrutiny.

Suppose an entrepreneur starts a business. At first, his market is local. He opens retail outlets that are overseen by store managers. The entrepreneur is the CEO of the company and manages the store managers. Even at this point, the CEO must trust day-to-day decisions to his managers. He has no time to make everyday decisions as he tries to expand his business. The managers do this for him and he concentrates on strategic goals.

His business is successful and soon he begins opening outlets outside of the original market. He now has a need for regional managers to manage the store managers. He manages the regional managers and leaves the details of how they operate within their regions to them.

The business continues to expand. With retail outlets in every state, there are now too many regions for the CEO to manage directly. The CEO appoints executive directors to manage larger regions, each composed of several smaller ones. There is an executive director for the West Coast, another for the Midwest, and another for the East Coast. Of course, the CEO has the assistance of his corporate vice presidents who manage sales, operations, human resources, and other company-wide functions from the corporate office.

Now, suppose that one day the CEO decides to fire the executive directors, the regional managers, and the store managers. He will now have the salespeople, stock clerks, and cashiers for thousands of retail outlets report directly to him and his corporate vice presidents. Would anyone view this decision as anything but insane?

As silly as this proposition sounds, this is a perfect analogy for how we have chosen to organize society for the past century. The paradigm rests on the assumption that every social problem can be better solved if the CEO and his corporate staff manage the cashiers and the salespeople directly. As in all failed paradigms, anomalies are piling up that refute its basic assumptions.

This paradigm assumes that centralized government can provide a comfortable retirement with medical benefits for average Americans, yet Social Security and Medicare are bankrupt. It assumes that a central bank can ensure full employment and a stable currency, yet the value of the dollar is plummeting and unemployment approaches record highs (especially when the same measuring stick is used as when the old records were set). It assumes that the national government’s military establishment can police the world, yet the most powerful military in history cannot even defeat guerrilla fighters in third-world nations. It assumes that the central government can win a war on drugs, yet drug use is higher than at any time in history. It assumes that experts in Washington can regulate commerce, medicine, and industry, yet we get Bernie Madoff, drug recalls, and massive oil spills.

Hundreds of years ago, the prevailing medical science paradigm assumed that illnesses were caused by “bad humors” in the blood. Operating with that assumption, doctors practiced the now-discredited procedure known as “bleeding.” They would cut open a patient’s vein in an attempt to bleed out the bad humors. As we now know, this treatment often killed the patient. Most rational people today view the practice of bleeding as nothing short of lunacy.

Ironically, this is a perfect analogy for the paradigm of centralized government. The very act of a small group of experts attempting to manage all of society drains its lifeblood. It is the uncoerced decisions of millions of individuals that create all the blessings of civilized society. It is the attempt by a small group of people to override those decisions that is killing society before our very eyes. Someday, people will look back on our foolishness and laugh as we do now at the misguided physicians who bled their patients to death. The present paradigm is dying. The revolution has begun.




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Toward Prohibition’s End

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Marijuana prohibition is coming to an end. I see it in my neighborhood, as a storefront is vacated by an architect and occupied by a purveyor of medical cannabis. I see it politically. Legalization is coming, though exactly when and how is not yet clear.

Washington, my home state, is one of 16 medical-marijuana states (and one of the five that have allowed it since the 1990s, the others being California, Oregon, Alaska, and Maine). That leaves 34 non-medical-marijuana states. Still, the list of medical-marijuana states keeps growing: Arizona in 2010, as well as the District of Columbia, and Delaware in 2011.

The opponents of medical marijuana argue that it is a step toward full legalization, and they are right. Politically it is. But the next step is a tricky one.

The problem is the federal law. When California legalized medical cannabis in 1996, it set up a conflict of federalism. Under the Constitution, particularly the Ninth and Tenth Amendments, there ought not to be any federal law about marijuana, but there is. The Controlled Substances Act exists, and the courts uphold it.

In 2005, the US Supreme Court ruled on the federal claim of power over marijuana as medicine. That was the Raich case. A prominent libertarian legal theorist, Randy Barnett, argued at the high court against the federal position, and he had a fine argument. But he lost. There were sharp dissents by justices Sandra Day O’Connor and Clarence Thomas, but the court sided with the government.

Having pushed aside the Constitution, however, the Bush administration failed to press its advantage in the field — at least, not for a decisive victory. Then, in 2009 came the Obama administration. In October of that year, the Justice Department said there would be no federal prosecutions of doctors or patients who were following their state’s medical-cannabis laws.

That was taken as more of a favorable signal than it was. In California, storefront dispensaries were opened with big images of marijuana leaves and green crosses in their windows. But the memo had not made any promises to suppliers of marijuana. By 2011 dispensaries had opened in several states, and US attorneys drew the line. They sent letters warning that any business in marijuana would not be tolerated.

I can report what happened in Washington state. It had one of the earliest medical marijuana laws, but it was a law with holes in it. Some of the holes favored the users. For example, the law allowed a provider to serve only one patient. Dispensaries had opened, some of them serving hundreds of patients, on the bold assertion that they were serving one patient at a time. The state law was just vague enough to make this plausible.

No matter what the Obama people privately believe about marijuana, their priority is his reelection, which means not being branded as the Dope Smokers’ President.

The law had another hole that was dangerous for users. It allowed them to raise a medical defense at trial but said nothing about protection from arrest. There was a case about this: State v.Fry. In Colville, a small town in the state’s rural northeastern corner, the cops had come to the door of one Jason Fry, a man who had been kicked in the head three times by a horse. Fry had anxiety attacks and smoked marijuana to calm himself. The cops had heard about it, and at his doorstep they could smell it. Fry showed them his doctor’s letter giving him permission to use it, but they phoned a judge, got a warrant, searched his home, and busted him for having more plants than the state Department of Health allowed.

At the Washington Supreme Court, the question was whether the judge had probable cause to issue the warrant. Only one justice — libertarian Richard Sanders — sided with Fry, arguing that arrest protection was implicit in the measure passed by voters. The other eight sided with the state.

Under the regime of the past few years, in the liberal parts of Washington, particularly around Seattle, medical users have been mostly OK, and in rural counties they have had to take their chances.

The state senator from my Seattle district, one of the most liberal districts in the state, offered a bill to make sense of all this. It would have set up state licensing and regulation of growers, processors, and dispensers of medical marijuana, bringing them into the open. It also called for a voluntary state registry for medical users, to give them protection from arrest. The Democrat-controlled legislature passed the bill and sent to Democratic Gov. Christine Gregoire. Then the US attorneys in Seattle and Spokane, both of them long-time Democrats, wrote to the governor, warning that under federal law any state employee who licensed a marijuana business would be liable to federal prosecution.

Nowhere had the federal government prosecuted state employees for following state medical-marijuana law. It was possible, but it would be a direct federal-state confrontation. Was the Obama administration ready for that? The press noted that the governor, who previously was the state’s attorney general, might have a personal motive to comply with the Justice Department’s request: she is in her second term, is set to leave office at the end of 2012, and might like a law-related job in a second Obama administration. Whatever her motive, she cited the threat and vetoed the parts of the bill for licensing of marijuana suppliers.

After her veto, the US attorney in Spokane ordered all dispensaries closed, and joined with Spokane Police to raid the ones that defied him. As I write, he has not yet charged anyone with a crime. In liberal Seattle, where voters in 2003 had made simple possession of marijuana the lowest priority for police, the US attorney has so far stood aside while the Democratic city attorney and the Republican county prosecutor — both of them elected officials — work to keep the dispensaries open.

Parallel to the push for medical cannabis has been a drive for general legalization. It has begun in the early medical-marijuana states, and using the same tool as was used in those states: the voter initiative.

The voters of California, who were the first to approve medical marijuana by public vote, had another such vote in 2010. It was Proposition 19, a measure to allow people over 21 to cultivate, transport, and possess marijuana for personal use, and to allow cities to license commercial grows and dispensaries. Prop 19 garnered 46.5% of the vote. It failed, but not by much: a switch by fewer than 4% of the voters would have put it over the top.

What will state and local politicians do if their constituents vote for legalization and the feds oppose them?

In any complicated measure such as Prop 19, there are many arguments to convince people to vote no. There was the argument about protecting kids, though marijuana is available on the black market now and the measure wouldn’t have legalized it for them. Always there is the argument that the measure is flawed, whether the principle is right or not. In California, Mothers Against Drunk Driving opposed the measure on the ground that it didn’t define an illegal THC threshold for drivers. In California, several arguments were made by recipients of federal money. A school superintendent argued that legal marijuana would prevent the schools from meeting the requirements for federal grants. Business interests argued that they would lose federal contracts because they could no longer guarantee drug-free workplaces. Thus federal contracts and grants become weapons in political campaigns.

In any case it was close, and in the matter of social change, it is common to fail the first time. If you want to win, you try again.

Washington state was behind California, but not by much.

In 2010, two marijuana defense attorneys wrote a voter initiative that would have repealed all state marijuana law for adults over 18. The measure had no regulations in it. The organizers explained that if it had regulations in it, the federal government could challenge them in the courts under the doctrine of federal preemption, and have the regulations and the repeal thrown out. But a simple repeal would leave nothing for the feds to challenge.

One of the attorneys, Douglas Hiatt, said that was how New York and some other states had undermined liquor prohibition. It had worked, and the smart thing was to do it that way again.

The strategy made sense legally, but politically it didn’t work. The American Civil Liberties Union of Washington, which favors legalization, refused to back it because it included no regulations. The pro-legalization forces split. No prominent politicians stood up for the measure, the backers couldn’t raise any money to pay signature gatherers, and they fell short on signatures.

Also in 2010, a state representative from my district introduced a bill in the legislature to legalize and regulate marijuana. It died without a hearing.

In 2011, the two defense attorneys collected signatures for their initiative again, with the same result: they had too little money and fell short. My representative ran her bill again; this time it was endorsed by the state’s largest newspaper, the Seattle Times, which came out for full legalization. The bill failed once more, but it got a hearing, some respectable people testified in its favor, and they were covered in the press.

At the end of the legislative session, a well-connected group, including ACLU-WA, travel entrepreneur Rick Steves, and the former Republican US attorney in Seattle, John McKay, announced a legalization initiative aimed at the state ballot in November 2012. It has regulations in it, including a tight limit on THC in the bloodstream of drivers. But it is legalization for adults over 21 — and backing it are the names to attract money, and to assure wavering voters that it is OK to vote yes.

So it is in Washington state. According to NORML (National Organization for the Reform of Marijuana Laws), it appears that legalization measures will be on the ballot in 2012 in California and Colorado, and perhaps Oregon, Ohio, and Massachusetts.

These efforts are not welcomed by the Obama government. In the matter of civil liberties Obama has not led a liberal administration, and medical marijuana, or any marijuana, is not an issue he cares about. And no matter what the Obama people privately believe about marijuana, their priority is his reelection, which means not being branded as the Dope Smokers’ President.

So far, major politicians have mostly not supported legalization. California’s two Democratic senators, Dianne Feinstein and Barbara Boxer, opposed legalization, as did Republican Gov. Arnold Schwarzenegger and the Democrat who replaced him, Jerry Brown. Washington state’s two liberal Democratic senators, Maria Cantwell and Patty Murray, have given no support to legalization, nor has its Democratic governor. But what will politicians like this do if their people vote for legalization and the feds oppose them?

The smart ones will support their constituents. And that will start having an effect in Washington, D.C., where the endgame will play out.

This is now looking more and more likely. Voters in some state are going to pass a bill of legalization. And before that, the fight may come over state licensing of growers and dispensers of medical cannabis. Already the federal government is challenged by the dispensaries, and already it fights back, but cautiously and opportunistically. In the medical marijuana states it has been reluctant to haul in the proprietor of a storefront clinic, charge him with the federal crime of trafficking in forbidden drugs, and ask a jury to convict him and a judge to imprison him. If it is to win this battle, it will have to do that and make it the rule.

Generally the feds have acted where they have support from local politicians. But in some places, including where I live, they no longer have politicians’ support because they no longer have the public’s support. And where medical cannabis is legalized and used, support for prohibition erodes. It is gone among the young, and cannabis for people with cancer and back pain now erodes it among the old.

Expect fireworks ahead.




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Voting With Their Feet

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Two recent stories illustrate anew the advantages of our federal system, which allows states wide variance in governance, and also allows individual Americans who feel that they cannot pursue the happiness they seek in one state to move freely to any state they choose. The beauty of this is that it helps put real limits on just how badly a given state can treat its citizens.

The reports are about two of the highest tax, lousiest business-climate states, New York and California.

Let’s start with New York. As a recent report notes, over the past decade and a half, the Empire State has led the nation in outmigration, with two people leaving for every person who moves in. But a new Marist poll indicates that the worst may just be starting.

The poll revealed that 36% of young New Yorkers — those under 30, to be exact — plan to leave the state within five years. Thirty-six percent! The primary reasons cited (by 62% of those planning to leave) are economic. Thirty percent cite the high cost of living, 19% the high taxes, and 10% the lack of decent job opportunities.

Regarding this lack of opportunity, well, suffice it to say that a recent survey done by Chief Executive Magazine shows that only California has a worse business climate than New York. And regarding the cost of living, a recent study by the Center for an Urban Future says that someone would have to earn more than $123,000 yearly to live as well in New York City as someone lives in Houston on an income of $50,000.

The second story is a posting about the aforementioned California. It reports an accelerating exodus of businesses from that dysfunctional state. It notes that California is rated by the Tax Foundation as no. 49 for business tax climate and no. 48, by the Mercatus Center, for economic freedom among the states. Not surprisingly, while in 2009 California averaged one “disinvestment event” per week (typically, a business relocating an existing facility to, or opening a new facility in, another state), by last year the average had jumped to 3.9 per week. This year, it has jumped again, to an astounding 5.4 per week.

California is already hemorrhaging people — specifically, middle-class working people. It is rapidly becoming a socioeconomically bifurcated state like Mexico, where you have the desperately poor and the ultra-rich, with little in between. The rapid movement of business investment to other states will only accelerate the Californian middle-class diaspora.

This is how federalism punishes statism: the socialist state loses its jobs and its middle-class citizens.

And that is only morally just. All forms of socialism — including the soft neosocialism of which modern liberals are so fond — are based on the twin vices of envy and sloth, both of which have been characterized, very accurately, as cardinal sins.




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Federalism in Action

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The greatly imperiled traditional view of federalism has it that among the other mechanisms for the balancing (and hence constraining) of powers in our government, the states require substantial power to balance that of the federal government.

One of the benefits of federalism is that it allows the various states to experiment. If Texas wants to try fiscal discipline while California engages in fiscal incontinence, the rest of the states can watch and judge which fiscal policy is most productive of wealth and happiness for citizens generally.

We see this happening now before our very eyes, as most of the states grapple with budget deficits. Different states are pursuing different policies.

We see, for example, Illinois jamming through a two-thirds hike in personal income taxes and a nearly 50% rise in state corporate taxes to deal with its budget deficit. But in Georgia, a bipartisan tax commission has recommended to the state legislature that it cut its personal and corporate tax rates from the present 6% down to only 4%. As one of the commission members — economist Christine Ries of Georgia Tech — put it, “Our over-riding goal was to get the income tax rate down as low as possible, because the evidence is so clear that this is the biggest driver of growth and jobs.” The commission proposes to cover the tax loss by expanding the application of Georgia’s 4% sales tax to many purchases (such as groceries) now exempt from it.

Shifting corporate and personal income tax to consumption tax seems like an economic no-brainer if you want to encourage the creation of jobs, although as the Wall Street Journal notes,the logical thing would be for Georgia to eliminate the income tax altogether (as nearby Florida and Texas have done).

Again, it is nice to be able to contrast the behavior of, say, California with Utah. Newly-installed California Jerry Brown, the aging Moonbeam whose original decision (1978) to let public employees unionize and collectively bargain was a major reason for the state’s massive overspending today, and who owes his election to massive spending by those same unions, has proposed a plan to deal with the state’s budget deficit. It calls for dramatic increases in taxes and some cuts in spending, but does nothing to address the ridiculously bloated salaries and pensions that state employees receive. He intends to use the prospect of cuts in services to cow the citizens into raising taxes.

This is the typical statist ploy: threaten cuts in public service to get what you really want, which is always more taxes, while leaving the underlying problem (ballooning compensation and pensions for government workers) untouched. At least the miserable Governor Schwarzenegger tried, at the beginning of his regime, to address the public employee pension problem, by floating an initiative that would have put all new hires on defined contribution plans (such as 401k), before being whipped into a girly-liberal by the public employee unions.

Illinois is another case of the statist response to the pension crisis. Governor Pat Quinn, just a month before the November election and in the face of a huge state budget deficit, gave the public employee unions a guaranteed two years of no layoffs and even cost of living increases. With their support he squeaked through to reelection. After winning, he jammed through massive tax increases.

Now, Utah has taken a different tack. The state pension plan was fully funded back in 2007, but suddenly, by 2009, it fell to only 70% funded, meaning that the state faced a pension funding gap of $6.5 billion. This gap was one and a half times the debt allowed by the state constitution. But the constitution makes changing the pension plans of current workers virtually impossible.

So the Utah legislature made a reasonable choice, under the circumstances. It set up a defined contribution plan for all hires, starting this year, the state donating a generous 10% of the employee’s salary. The plan allows employees a defined benefit option — but again, the state’s contribution is capped at 10%.

For workers, the nice thing about the plan is that they have a fully portable plan, and one whose assets they own personally, so they can’t be “borrowed” by government and used to buy votes in the way that Social Security funds are, or appropriated by a union and used to buy politicians.

The nice thing for taxpayers is that this plan will eventually cost them only about half what the old system would. It shields them from having to cover the costs of any future stock market declines.

Legislatures in Montana and a dozen other states are looking at this model.

That, dear reader, is truly federalism in action.




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