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.

5 Comments

  • IF says:

    Krugman hates you, I know for sure. But the problem with cutting first is called “Ireland”. If Greece is managing to get a bail out, the Irish will bite themselves hard. Still a poker game. So why is New Jersey folding now? Is it going to live to fight another day? California is staying in the game and upping the ante. Would be more fun to watch if I didn’t live in CA.

  • Jeff says:

    “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.”

    David — I wonder if you have ever had some experience with this. I have served for several years on a citizens committee advising our school district. It consists of business people with broad experience and a commitment to cost cutting.

    Illinois has plenty of financial problems. It is late in paying schools for the current year and future payments are uncertain. When you start looking at the actual decisions, it is a lot tougher than speaking in generalities about sharing the pain. In the case of education, it could mean much larger class sizes, for example, and reduced course offerings. Some might see this as cutting back on a crucial investment.

    Since I do not have direct expertise with other services, I’ll stick to what I know about. I have observed that cuts are even occurring in police protection. Just a thought….

  • maynardGkeynes says:

    Maybe you should focus on Christine Todd Whitney. She used outrageous accounting tricks during the boom to underfund municipal pensions so she could cut taxes, so all those wonderful New Jersey suburbanites could buy new SUVs and add decks to their overpriced homes. .Sure, cut school budgets for your kids, and break your contractual obligations to municipal workers and bondholders. That’s today’s morality.

  • dlr says:

    FYI, on Illinois schools. Average funding is over 12,000 per year per child. That does not include capital spending, it is operating expenses only.

    Multiply that by 25 kids, and you get, $300,000 PER CLASSROOM. Obviously most of that money isn’t being spent in the classroom. Administrators, bureaucrats, and overhead are eating up most of it. Government bureaucracies are like cancer. The more you feed them, the more they grow.

    If you want more facts, here is an interesting link that discusses the bloat and waste in Government funded education, with an emphasis on Illinois. http://www.illinoisloop.org/spending.html