Thursday, May 7, 2009

Government Bubble?

by Chuck Marohn

We ended our conversation about Minnesota politics this week with some talk about growth in government overall. I proposed the notion, which my "Making-Sausage" colleague Colleen Nardone did not agree with, that what we have is a "government bubble" in the same way that we have recently been through a "housing bubble" and a "financial-services bubble".

This is not the classic argument that government has gotten too big and we need to cut it, or hold the line on spending, in order to bring it back into balance. What I am asking listeners to consider is whether or not we have (innocently or not) grown the government to fundamentally unsustainable levels.

As part of the overall premise, let me agree (for the sake of discussion) that every service the government now provides is essential, or at least important enough where cutting it would cause great pain. It might be easier to focus on something like a road - someone else's road, so it will not affect anyone we know personally - instead of something like health care, where people's lives are at stake.

In times of plenty, what did we do with roads? Well, instead of saving our excess monies or focusing on maintaining them in great condition, we built more. More demand begat more roads, which in turn begat more demand. Remember calls a few years ago by Republican Senator Dick Day to build a second beltway around the Twin Cities? It was a fiscally insane idea that was given voice only by the fact that we were in the middle of a government bubble. Nobody would be proposing this today.

But imagine had we built it. Like every other public road we have on the map, it would now be a piece of essential government infrastructure. This is true if it serves a million cars a year or a thousand. We would never consider abandoning the road, and so we have obligated ourselves to maintain it forever.

If we went back and could do it over, would we have built as many roads as we have, in the way we have? Not likely. Thus, if you are with me so far, we agree that we have a "government bubble", at least in the area of roads.

Colleen was right to point out that government is different than housing or financial services, but that does not mean that government escapes the realities of economics. I recently posted a blog entry on analyzing the obligations of just one Mn/DOT highway district, District 3 centered in Brainerd, MN. The conclusion: Based on the revenue Mn/DOT has available to it, the District has the next 115 years of funds already obligated to projects that are of immediate "Major Needs". These are unsafe roads and intersections where people are dying, and, without a major infusion of funding, it will take us 115 years to address the problems.

Some of my pro-government friends, and perhaps Colleen, will suggest that we need a gas tax increase then to cover our obligations on these roads. I calculate in the blog post that it would take between 85 cents and a dollar of gas tax increase to handle District 3, and perhaps that is acceptable to some. I challenge the people reading this to step back and consider whether or not such an investment would solve the problem or would simply induce a larger government bubble, fueled in this case by inefficient use of resources, that we would someday be even more pained to deal with.

Let me summarize:
· We feel an obligation to maintain all roads as part of government infrastructure.
· In times of plenty, we built more roads than we could possibly maintain.
· The large amounts of roads induced an inefficient development pattern (sometimes called sprawl) and subsidized large parts of the market.
· Having created the problem , we are now dependent on the government to solve it.
· A large government tax increase to solve the problem will continue the inefficient development pattern, increase the level of dependency on the government solution and perpetuate the problem of obligation we already have, making it much worse.
· We have created a "government bubble". Ultimately our obligation to maintain roads will run up against our ability to pay for the maintenance (whether that is a no gas tax increase or a $5.00 a gallon increase, it will happen), and the bubble will bust.

And this is just roads. If we start talking about other government services - health care and education are the two that come to mind immediately - it is a fair question to ask whether we have, with all good intentions, created an unsustainable "government bubble".

This is not a partisan argument. Both the Democrats and the Republicans today are saying there is a limit to what we can cut and we need to find more revenue to meet our obligations. Perhaps this is true, but are we ignoring the underlying problem and setting ourselves up for inevitable bursting of the bubble? I think we are. If so, the pain of getting things under control today (and it would be painful) will pale in comparison to the agony that future generations will experience when the bubble bursts.

Chuck Marohn is the President of the Community Growth Institute in Brainerd, MN, and a Republican commentator on "Making Sausage", KAXE's Thursday morning program about Minnesota Politics


Gord said...

Talk of "bubbles," referring to government services is silly, IMHO.
Consider the essentials: national security, police, fire and rescue.
Economic security, the Social Security Act of 1935, Medicare from the 1960s.
Still blowing bubbles, planner Marohn? Stay away from my local government unit!
Oh yes, we educate our young - publically - in K thru 12, Community colleges, and Universities. What kind of a cheapskate society does this "commentator" want to live in?
One where the unemployed are just out of luck, and millions of children can't get to the doctor?
Taxes are the dues we all pay for civilization.
-Gord, the Golden Gopher

Charles Marohn said...

Gord, Did you actually read the post?

I hope others do read it because I think it is an open question worth discussing. Like I wrote in the post, I don't think this is a partisan issue or one that even calls into question the validity of "the Social Security Act of 1935", for example.

Even people who are anti-cheapskate I think would have an interest in determining whether our actions today will unwillingly force us to be cheapskates tomorrow.

Gord said...

Yes, Chuck, I read your detailed and lengthy post. You seem much concerned about roads that the MN DOT tries to maintain around the Brainerd district. The no-more-tax Governor had to be overridden for the state to get enough funding to fix bridges and work on state roads. I have fundamental differences with your view of a government bubble. A silly slogan. You can frame your arguments anyway you please. I don't find them convincing.

Chad Haatvedt said...

While I tend to consider myself as politically progressive and supportive of governments foray into the provision of public services, I agree with you that our government is operating in an unsustainable bubble of growth. My concern is not about the size and functions of government, but instead the fact that we all seem to want something for nothing.

I support more spending on social services (the safety net stuff), education, health care, etc. But unlike most politicians and members of our society, I do not expect to get everything for nothing. You see, the problem is not that we spend money on things and services, it is that we borrow (steal) from our children and grandchildren to pay for it.

We've worked up a national debt beyond $11,000,000,000,000 (that's trillions) and committed every single man, woman and child in America to more than $36,000 in debt. Considering that the generations in political power at this time have absolutely no intention of making one red cent in payment towards that debt (cripe, they cannot even make the interest payments) the net burden on our children is monumental -- closer to $100,000 per kid.

So, you are right on, there is a bubble, and when the debt gets called in, it will burst. Our kids will either have to print more money and try to pass it on to their kids, or they'll pay the piper. If they have to start paying, guess what will happen to us old farts. They won't have a dime to spend on us, we don't deserve it and it's likely to be ugly. After all, it is our generation that created this mess.

Build me a highway bypass, a Vikings stadium, a new civic center, bail me out, buy a fleet of F-22 Raptors, and let's go to Mars. Go to the bank, borrow the money in our kids' names. You don't need their permission, and besides, they're to disenfranchised to even care.

It's unAmerican to save, or pay as you go.