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Bill Maher Explains the Problem of Fiscal Irresponsibility

May 23rd, 2009 . by economistmom

bill-maher

Parts of comedian Bill Maher’s LA Times op-ed are a little inappropriate for EconomistMom’s website, but there’s enough I can quote here that shows Bill’s perspective is not really that different from mine.  (Thanks, Brooks, for pointing this out to me.)  Bill’s focus and motivation for the column begins with California’s fiscal woes, but he’s really explaining, more generally, his principle of why “superheroes can’t save” us and how we are all the “villains”:

You see, our state is designed to be ungovernable because we govern by ballot initiative, and we only write two kinds of them: “Spend money on things I like” and “Don’t raise my taxes.” More money for teachers and firefighters? Check “yes”! High-speed rail? “Cooool!” Drug treatment for former child actors? “Sure, why not?” But don’t even think of taxing me for any of it.

That’s not an answer! Newt Gingrich had it right when he said, “People don’t elect presidents who tell them to sacrifice. They elect presidents who solve problems for them so they don’t have to sacrifice.”

Right, like Obama should solve global warming by working a little harder in his secret White House lab and coming up with a car that runs on seawater and emits gold doubloons. Someone who magically gives you everything and asks nothing in return? Bernie Madoff tried that plan; it didn’t work.

This is why our founders wanted a representative democracy, because they knew that if you give the average guy the chance, he’ll vote for a fantasy world with no taxes and free beer.

California used to be like the rest of the country, following the instructions in the Constitution and everything. But then we chucked that, and now our state is governed not by elected representatives but by special-interest people standing in front of the supermarket with clipboards asking, “Would you like to sign a petition to cut your taxes?” And then that becomes law. Proposition 14C: Two weeks paid leave for hangovers and universal teeth whitening, paid for by Central Valley cow gas. “Vote ‘yes’ on gain, ‘no’ on pain.”

So the state will probably go bankrupt. It’s sad that we’ll be closing the schools, but you’ll want to keep the kids at home anyway, because we’re closing all the prisons and letting all the rapists out.

That’s a lot more entertaining than how I usually put it.  Bill would probably agree with me that what we really need for fiscal responsibility is a benevolent dictatorship–forget this representative democracy stuff.  (Of course, Bill would probably suggest he should be anointed that benevolent dictator.)


7 Responses to “Bill Maher Explains the Problem of Fiscal Irresponsibility”

  1. comment number 1 by: B Davis

    You see, our state is designed to be ungovernable because we govern by ballot initiative, and we only write two kinds of them: “Spend money on things I like” and “Don’t raise my taxes.”

    That statement would be funny if it weren’t so true. California’s ballot initiative allows the electorate to vote for propositions that don’t add up. In addition, the secret ballot means that they never have to answer for their votes. For example, the majority can vote for a tax on a minority (such as on smokers) but, unlike legislators, they never have to answer to those who are effected. In addition, I’ve long thought that propositions should be limited to about 100 words. Most voters will not read more than that. For all of these reasons, I think that propositions would best be used as advisories or polls.

    Bill would probably agree with me that what we really need for fiscal responsibility is a benevolent dictatorship–forget this representative democracy stuff.

    It does seem that fiscal responsibility requires that we answer to future taxpayers. But since they are also future voters, it seems that even legislators can shirk this responsibility.

  2. comment number 2 by: Jason Seligman

    I think the most remarkable thing about Bill Maher is how strong his understanding of policy process and incentives are. Bill sometimes gets in trouble however with some of the arcane detail of fiscal and financial economics. This creates awkward moments for those in the profession, but I think his willingness to try, and his ability to carry on, regardless of how badly he has flubbed a particular point signal that he really could use a bit of help, and that he’s not afraid to take the risks required to learn to wield a more complete set of tools.

    His instincts on the fundamentals, coupled with his understanding of the political process are truly rare. I would hope that in the near future Bill would engage some of the people in our world to tune his intuition to the landscapes of economic policy.

    As for the California item (which plays to Bill’s strengths), I have been reading about the budget dynamics in California with great interest from Ohio as I teach Public Budgeting this spring. Last week I had the ballot propositions on my door here, and we used them in a discussion section. I think we all probably internally handicap this sort of thing. As a result of my own handicap I was shocked to read of the outcome in Friday’s paper—I had not expected quite so many of the proposals to fail.

    But see, that is what many of us in the profession lack relative to a guy like Bill Mahr, is the broader perspective re: feasibility of process to get us responsible fiscal policy and sustainable economic policy be it on the local, state, national, or increasingly international canvas.

    The warming of the globe, the manifestation of a floating island of trash in the pacific, the increasing instability of private financial markets and public social insurance, the lack of a developed coordinated long term investments in peacekeeping, nation, and institution building capital, the 21.3 billion dollar deficit in California, they are to some extent manifestations of the same set of problems Bill is highlighting, allowing people to vote gain, sans pain.

  3. comment number 3 by: Anandakos

    Diane,

    Few dictators are “benevolent” for long. That said, Plato yearned for a “philosopher king” (same thing by a different name), so you’re certainly in good company. But both you and the P-man are hoping for something that human nature just won’t support: a person who wants authority with no accountability but who has a high enough “MQ” (moral quotient) to avoid the corruption that comes with it.

    There may very well be people out there who have the MQ and the ability to “rule” wisely. But how would you find them? Anyone who would suggest him or herself for a such a post — or even accept it — is almost by definition disqualified by narcissism.

    It’s a real problem.

    The only solution is the make elections radically democratic while retaining the republican nature of indirect governance. Instant Run-Off Voting coupled with largely publicly funded elections are the necessary first steps to accomplishing this. In and of themselves I doubt that they’re sufficient, but they are necessary reforms I believe. They would make a much wider span of political thought feasible at the ballot box, and “radical centrists” might actually win a larger number of seats.

    As a second step I would support a Constitutional amendment directing the Federal government to create a “rainy-day” fund into which a percentage of Federal revenues in the following fiscal year equaling 1/4 of 1% of the growth in GDP exceeding population plus productivity growth plus maybe 1% for inflation in any given year must be directed. So, if the Federal government collected $2 trillion in fiscal year 2010 and the economy grew by 4.2% — yes, a very hypothetical assumption — the government would be constrained to save .3% of all its revenues (4.2 - 3.0% assuming 2% population and 1% productivity growth)

    I don’t have an axe to grind about the percentage suggested; obviously it should be set by public discussion. But it seems to be to be a fundamentally sound way to force some savings on the government.

    During times that GDP growth grows by less than the agreed upon amount withdrawals equal to the full percentage by which GDP undershoots the agreed upon amount would be made available for the budget. There are something like four years in which GDP growth exceeds “natural” growth for every one it does not, but again, the numbers are up for discussion. It’s just the idea I want to put out there.

    It’s a way to replace the automatic fiscal stabilizers in Europe without adopting their more rigid employment system while at the same time forcing some level of savings in the “up” part of the business cycle.

  4. comment number 4 by: Jim Glass

    Maher is half right, but he’s half wrong.

    He’s right that government-by-proposition has mandated special interest spending and helped make the state “ungovernable” by removing that spending and the programs that receive it from the control of the legislature.

    But he’s wrong in saying it’s also kept California from raising taxes — “we want this spending but we won’t let you tax us for it”.

    A look at the data, which often is interestingly informative about such things, reveals California tied with New Jersey for having the second-highest state-and-local taxes in the US, as a percentage of state residents’ income, after only New York. (This for 2007, the last year before the recession hit and for which there is full data).

    Having the 2nd-highest taxes in the nation seems hard to square with being saddled with a political system that keeps taxes too low, and a budget crisis being caused by under-taxation.

    Another interesting thing that jumps out of the data is that those three highest-tax states — New York, New Jersey and California — had a combined $65 billion in budget gaps to close in 2009 …2/3rds of the total budget gap of all 50 states! The states with the highest taxes had by far the biggest budget gaps.

    That fact is rather hard to square with the model of state fiscal governance that goes…

    “The legislature decides the level of spending and allocates it wisely, but voters refuse to pay enough taxes to cover it, so budget deficits and crises result. If only the voters will just pay more in taxes, budgets will be balanced and all would be well”.

    Instead, it looks a whole lot more consistent with the Milton Friedman/public choice/Bastiat model of fiscal crunches…

    “Special interest groups capture the political spending allocation process and allocate funds to themselves profligately. Taxes shoot up to pay for it, but can’t stay even, as the more tax is collected the more the groups spend. In the end, spending is constrained only by the size of the deficit and/or a fiscal crisis.”

    In California, what is the proposition system other than a way for special interest groups to capture the funding allocation process?

    I can tell you this is the process going on here for sure in New York — the #1 tax collection state. Facing an $18 billion deficit this year the legislature decided to …increase spending by 8% over the prior year, and pay for it by imposing 52(!) new taxes, from a 50-cent per ride taxi tax and a new utilities tax on consumers’ bills to new higher top income tax brackets.

    Now, just one month afterward, they’ve discovered they misjudged — the deficit is back up to $6 billion. And now, good gosh, they are saying they may be forced to make some spending cuts. Which model does that sound like?

    Here’s one actual example of “capture” in action here in NYS — it’s not as glib as Maher, but factual examples while not glib can be more revealing:

    One of the 52 new taxes is a payroll tax dropped on Dutchess County, 70 miles away from New York City, to subsidize the NYC subway and bus system, the MTA. Even though it is an hour’s drive from Dutchess to the nearest subway station.

    Why? Because the MTA pays 50% above-market wages (bus driver v bus driver, etc.; sales clerks get $24 an hour) plus full pensions at age 55 after only 25 years of work — and these labor costs are written into state law (capture!) so if Bloomberg wanted to negotiate them down via collective bargaining he can’t, it’s against the law.

    The exorbitant cost that results has to be paid from somewhere, fares can’t carry it, so in recent years the MTA received a share of the city’s property taxes. That was quite a bonanza during the real estate boom — but the MTA consumed it all without saving any, and now is busted. That money has to come from somewhere else now, because that spending sure isn’t going to be cut(!) … the political pain of dropping more tax on NYC (simply because it is to pay for the city’s transit system), the highest-taxed place in the nation, is too high … someone has to pay … so it’s Dutchess county, and the other counties around NYC, first, because they’re closest.

    Now Bill Maher might say: “If New Yorkers vote to spend so much on their MTA, they have to be willing to pay the taxes it will cost”

    To which the people in Dutchess county might respond: “Who voted?”

    If they start a tax revolt over this (there are mutterings) and a state fiscal crisis ensues, will it be be because New Yorkers don’t pay enough taxes?

  5. comment number 5 by: B Davis

    A look at the data, which often is interestingly informative about such things, reveals California tied with New Jersey for having the second-highest state-and-local taxes in the US, as a percentage of state residents’ income, after only New York. (This for 2007, the last year before the recession hit and for which there is full data).

    What is the source for that data? According to the Tax Foundation, California had the 6th highest State and Local Tax Burden in 2008 and the 4th highest in 2007. In 2008, the state-local burden in California was 10.5% compared to the national average of 9.7%.

    The above link also states that California’s top individual income tax rate is the highest in the nation but that its property tax collections are slightly below average. It would seem that this has likely added to California’s current revenue problems since the recession has likely affected individual income tax revenues more than property tax revenues, even with the current drop in housing values.

    “Special interest groups capture the political spending allocation process and allocate funds to themselves profligately. Taxes shoot up to pay for it, but can’t stay even, as the more tax is collected the more the groups spend. In the end, spending is constrained only by the size of the deficit and/or a fiscal crisis.”

    I haven’t had time to do much analysis of the data but I did find the revenue and expenditure figures for the California budget since 1976 and posted the data at this link. It is true that expenditures (excluding federal funds) rose from a low of 6.33% of state GDP in 1994 to a high of 7.97% of state GDP in 2002. In retrospect, it would have been wise to restrain this increase. Still, the first graph shows that there has not been the runaway increase in spending that many have described. In any event, the second graph shows that the interest costs on general obligation and lease-revenue bonds are projected to hit a new 30-year high. Hence, the cost of servicing its debt is a growing concern for California just as it arguably is for the nation as a whole.

  6. comment number 6 by: S. Dougherty

    Jim Glass writes, “The legislature decides the level of spending and allocates it wisely, but voters refuse to pay enough taxes to cover it, so budget deficits and crises result. If only the voters will just pay more in taxes, budgets will be balanced and all would be well”.

    How is it wise to decide a level of spending when you don’t already have the money to cover it? Isn’t that like counting your chickens to sell at the market before they hatch? It’s just an observation, but wouldn’t it be wiser to allocate only the money you know can be counted rather than base a budget on a wish list?

    My budget is based on the cash in my hand. If there isn’t any cash, then there isn’t going to be any spending. I have learned over the years that money borrowed from me is money rarely, if ever, returned. Maybe, if our government would stop spending money we don’t have to spend in the first place, our budget wouldn’t be so ridiculously overspent.

    B. Davis writes, “I haven’t had time to do much analysis of the data but I did find the revenue and expenditure figures for the California budget since 1976 and posted the data at this link. It is true that expenditures (excluding federal funds) rose from a low of 6.33% of state GDP in 1994 to a high of 7.97% of state GDP in 2002. In retrospect, it would have been wise to restrain this increase. Still, the first graph shows that there has not been the runaway increase in spending that many have described. In any event, the second graph shows that the interest costs on general obligation and lease-revenue bonds are projected to hit a new 30-year high. Hence, the cost of servicing its debt is a growing concern for California just as it arguably is for the nation as a whole.”

    I would like to highlight part of his paragraph where he states, “In retrospect, it would have been wise to restrain this increase.” If the money isn’t in the account as cash - I’m not talking about cash borrowed against a tax increase or from another budget somewhere. I’m talking legitimately saved cash to be spent specifically on whatever it was saved to be spent on - then it shouldn’t be spent at all. That’s a true budget. I understand our California has needs, my family has needs as well, but we have learned to go without until we could afford those needs. I’ve cut household costs by eliminating television (cable/dish) and a land phone line. Maybe it’s time our state and federal officials started cutting back on some of the ups and extras they don’t really need, i.e.; lunches on tax payers, gas on taxpayers, a car on taxpayers. Lets cut the excesses out of our government spending and stop spending money before we can count it as cash in hand.

  7. comment number 7 by: Anandakos

    Mr. Dougherty,

    “Lunches on taxpayers, gas on taxpayers, a car on taxpayers” for California legislators or Federal representatives and Senators is SUCH chump change it would not even represent a visible line on a pie chart of California or Federal expenditures greater than income, much less the total gross spending.

    This yadda-yadda about “government waste” meaning the spending on government operations itself is just so much partisan hooey. While obviously taxpayers don’t want public employees (that includes legislators) to fritter away resources, the issue is not too many staplers, it’s too many constituents. In particular, constituents who demand that their hog be slopped and scream loudly when their neighbor’s is.

    Democrats and Republicans have different groups of hogs to be slopped and different buckets in which to carry the slop (Democrats spend with line items, Republicans spend with tax cuts), but they both want a miles high silo. Because slop magically turns into votes for incumbents.

    It is a fatal flaw in our politics that we have a duopoly of potential victors in any contest. Economics has shown that duopolies are in some ways even more inefficient and inequitable than monopolies, because they give the appearance of a contest while freezing its results. Being “Number Two” isn’t much of a goad to success when there is not “Number Three” nipping at your heels. It takes AT LEAST three viable contenders to make any market competitive.

    Our political “market” has been essentially non-competitive since 1858 when the defeated American Party (the Know-Nothings) merged into the rump of the Whigs which had become the Republican Party.

    There were two brief interludes in which one of the two major parties temporarily splintered, but only at the Presidential contest level. The first was 1912 with Theodore Roosevelt’s “Bull Moose” personal party. The second was in 1948 when the Democratic party split into three factions: traditional Democrats, “Dixiecrats” and Progressives. Even with the huge kerfuffle at the presidential level, though, there were still only two candidates for Congress in nearly every race.

    We need to make fundamental changes to our “first past the post” election system to encourage the growth of viable alternatives which better reflect the disparate nature of the electorate. Both parties have fundamental conflicts that special interests are able to drive their slop-laden buses through.

    If we had four or five parties primarily funded by the people themselves, temporary alliances could stop the sort of craven stupidity that allowed the “party of the people” (the Democrats) to go along with the wholesale hijacking of the financial system that Phil Gramm foisted on us in the late Clinton administration.

    In countries where parliament chooses the head of the government (the prime minister) a multiplicity of parties often makes governance difficult, because there is no independent executive branch to give direction among the chaos of coalition politics.

    In the US, however, because the head of state has real power as an independently selected head of government, having a multiplicity of parties with shifting allegiances over different topics in the legislature would allow people to vote more closely to their real opinion of stupid pig-slop projects. They wouldn’t have the whip of their party in their face about some party pooh-bah’s pet project so often.

    The way to get there is instant run-off voting and mostly publicly funded elections. (I know; I’m a broken record on this, but IT MATTERS!)