The recent collapses of Silicon Valley Bank, Signature Bank, and Signature Bank are just the latest sign that Washington has passed the point where prudent debt accumulation is possible. President Biden had high hopes for his American Rescue Plan, and the misleadingly named Inflation Reduction Act. However, the inflation caused by these budget-busting bills as well as subsequent interest rate hikes have forced banks into adjusting their lending to devalued long term bonds that capitalize them. While most people will avoid the fate of Signature and Silicon Valley, the banks’ suddenly reduced lending capacity almost guarantees that there will be a recession later in the year.
Even progressives are aware that they need to be more specific in how they will fund their agenda. Jason Furman and Larry Summers, prominent Democratic economists, have predicted further financial harm from government spending. We are already hearing less about Modern Monetary Theory, the belief that a country can comfortably survive beyond its means over the long-term. There is also a lot more to be said about wealth and income redistribution plans, such as increasing the cap for capital gains taxes, imposing an annually wealth tax upon high-net-worth individuals and raising corporate taxes. Taxing a company’s stock buyback, eliminating the stepped up basis on inherited assets and treating capital gains as income.
The truth is, those on the left are still not accepting that these schemes will not produce the revenue they desire. Twelve European countries discovered that the highest-earning taxpayers move away from the government or decrease their investment activities after they increased a range of levies, fees and taxes in 1990. These countries lost so much money that almost all of the original wealth taxes were repealed by 2017.
It would be futile to try to impose higher taxes upon corporations. U.S. companies can always move their headquarters to more relaxed jurisdictions like Ireland, Eaton, Johnson Controls and many other have done. A number of countries tried to close this particular escape hatch last October by agreeing to a 15% minimum tax on corporate earnings, but too many other countries were not willing to comply.
The political left will soon have to accept the fact that funding new social programs requires efficiency. For example, public education is where budgets are not linked to student performance. The U.S. has the fifth-highest per pupil (612.7 billion USD) and yet its students consistently rank below-average to above-average on international math, science, reading tests.
Another area in which public money is being wasted is healthcare funded by the government. The former Louisiana Governor Bobby Jindal is now a member of the LifeMD board. He estimates that at least $150 billion per year is spent on unnecessary or excessive medical procedures. McKinsey and Company claim that Medicare and Medicaid could easily be raised another $150 billion if they used simple data management techniques to better identify fraud.
Although it may not be the most efficient way to finance new social programs, there are good reasons for Democrats to believe that this is what they will do. The left isn’t completely opposed to paying for new services through streamlining existing ones. Anthony Crosland, a British Labor Party politician, and many of Europe’s first social democrats demanded that public programs be subject to regular audits. They believed in consistent restructuring to ensure that their country’s bureaucracies were responsive to the citizens and provide cash-strapped governments with funds to fund new programs.
Second, left-leaning voters in America have a history responding positively to cost-effective reforms that can be interpreted as service improvement. Consider school choice programs. These programs subsidize families in education and offer a range of options with budgets that are fractions of local public schools per pupil. Polling shows that two-thirds (if not all) of Democrats support school choice, even though they are often enacted by Republican governors.
Surveys indicate similar support for efforts to shift Medicare/Medicaid-funded surgical procedures away from hospitals to outpatient services centers. While initially controversial, President Ronald Reagan adopted it as an experiment to save money. However, it has long been abandoned as a political issue.
Unfortunately, there is one group on the left that won’t take to Simon Heffer’s ” Great government Jobs Audit“: the government workers themselves, and especially their leaders. Not only would less qualified public employees be likely to be reassigned and paid less, demoted or dismissed, with this result leaving a significant reduction in the union dues.
Many public sector officials have grown attached to the political power that has been a result of decades of poor oversight. Although their power is often hidden behind jargon-laden procedures and rules, they are strong enough to keep U.S. schools closed during the pandemic. Anthony Fauci could also subsidize illegal genetic research at China’s Wuhan lab and then cover his tracks with a fake scientific study.
How will the public sector leaders attempt to protect their fiefdoms from the new era of cost-effective liberalism? Already, we see attempts to transform popular environmental legislation into schemes that preserve an unnecessarily big government sector. New York’s Twenty-two member Climate Action Council has published its Scope Plan. This would require the state to create 300,000 jobs in emissions control, regardless of which technologies are adopted.
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Public unions are not the only ones who support Critical Race Theory (CRT), also known as “woke” ideology. Although ostensibly doing so in the name of racial and gender equity, teachers unions are already using CRT’s moralistic denigration of objective standards–supposedly a tool of the white patriarchy–to resist having members judged by their students’ test scores, graduation rates, and other rigorous metrics.
Blue states and the federal government put off responsible budgeting for many decades. They have been able to squeeze out bloat from expensive public programs, eliminate ineffective practices and root out corruption by racking up larger deficits. Recent bank failures have shown that their ability to continue this without creating a financial crisis is over.
There will be a growing divide between the left and right, Democrats, Republicans, blue and red state, and within the left. This is also what we could call “Main Street Liberals”, which are everyday citizens who want government play a constructive part in running society. It’s not just those public sector unions, however, that have been pretending to prioritise this goal for over half a century.
