- The Scylla and Charybdis of State Fiscal Reform

Here’s a pretty good piece on how the Democrat’s future is tied to the future of the public service unions. As you can imagine, that’s not where I’d want to be if I were them. As I’ve said a thousand times, the purpose of a union is to increase costs and lower accountability in spite of any economic realities. They also increase unemployment and lower productivity, and through it… GDP.

If you’re a political party and your stated agenda is to "put people back to work" that is not the agenda that you want your closest partner to have. I say partner – but "owner" would probably be a better adjective since the Democrat party costs the labor unions hundreds of millions every year – far more in a presidential election year. They spent 85 Million alone getting Obama elected, and for that kind of money, they have to be considered an owner.

And since the unions have come up, I’ve been thinking a lot about what the state collapse will look like. It isn’t a question of avoiding collapse anymore. Even the things that the most responsible politicians are doing are all stop-gap and won't prevent an ugly ending.

Across the scope of reactions, on the more delusional side you have Illinois, where they expect a 66% tax increase for businesses to inspire them to rush out and hire people. This isn't paying your mortgage with your credit card, it's paying your crack dealer with it, and leaving the mortgage (and for that matter the grocery bill) unpaid. A plan like that will decimate economic and job growth in the state, and won’t actually raise the money they need in their projections. It will also miss by more for every year as companies flee to more tax friendly environments.

On the other more "correct and ambitious but unlikely" end of the spectrum, we have our own Chris Christie. The path he's taking looks terrifying to politicians, but it's actually a better bet than the alternative. He’s trying to make meaningful reforms to the way government works in NJ across all segments - he's even going after tenure for teachers. But I’m beginning to think he’s doomed to failure. I’m a supporter, have no doubt. But he’s made so many enemies, and the voter demographics in NJ are such that a non-union candidate starts with a 17 point disadvantage at the polls.

He’s popular with taxpayers, but the unions so despise his that when it comes time for his reelection they’ll send mobs of pipe wielding thugs out to batter geriatrics before they let him remain in office. I expect obviously photo shopped pictures of him sodomizing horses on the front page of the Newark Star Ledger. As Election Day approaches there will be unexplained fires at polling places forcing them to be relocated to unannounced locations. And boxes full of votes will be disappearing (in Republican districts) and reappearing (in Democrat districts) with such speed and regularity that you’ll think the election is being held in a Harry Potter movie.

The upshot of all this is that Christie will have only one term to reform the state, and that’s a mean feat even for a miracle worker.

Then between the Scylla of NJ style reform and the Charybdis of the higher taxes we're seeing in Illinois, are the boy king of New York Andrew Cuomo, and the antiquarian hippie of California, Jerry Brown. I don’t think much of either man personally, and they both seem to be living up to my low expectations. Neither of them seems to be taking on the long term challenges in any way. Instead, they’re making stop gap measures that will hold the house of cards together a little longer in the hope that an opportunity to fix things will present itself somewhere down the road.

But things aren’t going to get better, they’re going to get worse, and the road is a dead end... with a cliff just past the barrier. So even with slashing current compensation and future benefits, the demographics of their unfunded pension liability is still going to put the states into receivership. Real reform enacted today might prevent the total collapse, but that's the direction Christie is trying to take, and there is no reason to believe the political situation in NY and CA will yield better results. In reality, the longer they wait the smaller the chances it can be resolved.

Eventually those pensions run out of money. When it does, the unions will insist that the issue goes to the courts and the state is presented with a bill to make up the gap in benefit outlays. That's the point at which Cuomo and Brown will say ‘we have no money to give you’. Then the fireworks begin.

The more I think about it, the more I think the issue of the default resolution will be settled politically. The Feds aren’t going to let some judge somewhere decide an issue with such long term consequences for the country. And I don’t think it will go well for the unions overall. To give them what they will want we’ll have to suspend reality. You cannot tax a free people at the levels that will be required in order for government to meet their demands. We'll be in full out financial crisis by then, complete with rioting and teargas. So I don't believe the pols will simply let a judge call all the shots.

2015 or so is the absolute drop dead date. There is no reason to believe the kind of tepid economic growth we're seeing will be nearly enough to avoid disaster. And that disaster will be all but certain sometime between now and then.