Friday, August 06, 2010

The Democrats are all about moral hazard

The Democrats with the help of some Republicans, including Bush, have been endorsing policies that encourage moral hazard - people acting differently because they are cushioned from the risks that their behavior run - since Obama became president. They rewarded GM Chrysler for their bad business decisions and union contracts by bailing them out. They decided that businesses were too big to fail and that people needed help with mortgages that they shouldn't have gotten in the first place. They gave money to the states in the 4800 billion stimulus to help pay for their teachers and other state employees that they couldn't afford. And now they're calling the House back in to help pay the states again for their teachers and Medicaid spending. As the WSJ reports, even though the states were told that the stimulus aid they got last year was a one-time deal, many states just went ahead building in that federal aid into their budgets.
We argued during last year's debate that the stimulus was a pretext for a huge permanent entitlement expansion, and what do you know. Thirty states had actually built the presumption of Congress extending this "matching rate" [for Medicaid] into their fiscal 2011 budgets, even though it was due to expire on paper. Democrats are rewarding states for making unaffordable health-care promises and handing Governors even more incentive to do so: The more they spend, the more political pressure Congress will feel to come to the rescue.
You'll hear a lot about how this is money for teachers. States that haven't made the necessary adjustments in their education spending will now get more money to encourage them not to adjust their budgets.
Another $10 billion will disappear into an "education jobs fund," which is meant to prevent states from laying off teachers and other public-sector employees this fall. Yet according to the Cato Institute, public school employment has risen 10 times faster since 1970 than student enrollment. There may not be another sector of the economy more in need of belt-tightening than public education.

The White House and the teachers unions enjoy sparring publicly for the press, but they both know they have each other's back at crunch time. President Obama praised the Senate bill in a statement Tuesday and promised to sign it in the name of "economic prosperity."
And of course, there is the phony math on how the federal government is paying for this new supposed stimulus package.
Senators Snowe and Collins say they were won over because this new spending won't increase the deficit—but Democrats merely gamed the budget math. In addition to unrealistic Medicaid phase-outs that will never happen in practice, they also "cut" funding for food stamps and subsidies for alternative energy that will be restored when the next "emergency" rolls around. The bill also includes about $10 billion in new taxes on U.S. companies with overseas subsidiaries.

In other words, Democrats are taxing productive businesses that will now employ fewer people in order to increase welfare transfers and protect their Big Labor base. Meanwhile, the White House will continue to lecture everyone about how extending the Bush tax cuts is "irresponsible."
Since the federal government keeps bailing out the states, the states can avoid the painful choices that they need to make in order to balance their budgets. And so they don't. I know that in my state, North Carolina, the legislature passed a budget presuming that they would be getting this extra money. They knew that the Democrats in Washington had their back. But what will occur next year? Does anyone expect that the revenues the states will get for 2010 are going to cover the spending that the states would like to make? We're going to be in a permanent state of emergency - all because the Democrats keep shielding people from the consequences of their bad decisions.