The Virtue of a Big Bang

If you are in the leadership of a municipality, or even a state, I have some advice for you, and it is worth many times more than you will pay to get this advice.  This is no time for half measures.  If you are just shaving here and there, and looking for the magic bullet that offends no one, let me say, “Sorry, that won’t work.  Better you should try ‘Steady as she goes for another year, borrow more, and see if the economy turns around for you.'”

But better still is to take charge, and deliver a Big Bang of pain everywhere.  If the pain hits everyone, and you put it in the language of shared sacrifice, where no one is really happy with the results, most of the electorate will respect it, and accept the reductions in services.  But make it deep, and challenge the municipal unions, whose pension plans have in the past gained exorbitant pension promises.  Don’t let anyone escape the cuts.  If everyone in the government is not hollering at you, you did not do it right.

Case in point: New Jersey.  Governor Chris Christie made draconian cuts to bring the budget into balance, and has gained respect for it.  Out of 378 possible reductions in the budget, he implemented 375 of them.  Everything got touched, and there was/is a lot of screaming.  Truth is, the government can work with fewer people, and with them paid less.  Services can be curtailed considerably.  Tell the schools they are getting less from the state/county/city.  Let them figure out what is least valuable in the system, and eliminate it.

But don’t count on help from governments above you.  They are strapped as well.  They will deliver “tough love” to those under them, much as Germany is doing to Greece.  What, you are surprised?  They are governments as well as you, and know that if they got aid, they would merely postpone action.  So they know it would do the same for you.  If you get extra aid, be grateful, but I would not count on it.

Then, there is the other side of this, for those that can legally do it: Chapter 9 bankruptcy.  More cities are considering it.  And, muni bond holders are beginning to fear it.  Those that lead municipalities are best off with a bold course.  If you are going for Chapter 9, then plan hard for how you will get compromises out of it and do it.  Otherwise, go for the draconian cuts.  These are not ordinary times where half measures will do.  The electorate will listen to the story that spending was way too high in the past, and we need to cut back for the survival of our municipalities.

Now, the same applies to the Federal Government, but the logic is trickier, because they will have to cut defense and entitlements, along with everything else.  But who aside from Paul Ryan (from my home state Wisconsin) would suggest such an idea?

We need to recognize that survival of our governments is more important than all of the programs within the governments.  Let the pain come as a “Big Bang,” and reduce funding everywhere.  The municipalities that do this will find that their funding costs will be far less than those who don’t.