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Parochial and Myopic: by Leonard Lardaro
Rhode Island’s budget deficits are not the result of anything that occurred in the last few weeks or months. Their origin can be traced back many years. The economic consequences of bad decisions and non-decisions have now been ratcheted up to such a degree that simple solutions no longer exist. All of the easy cuts were made long ago. It won’t be enough to merely balance our seemingly endless stream of budget deficits. The way we balance these budgets will ultimately define our state’s future economic viability. How did Rhode Island get into such a budget mess? We have had no shortage of caring and dedicated leaders. In general, I would characterize most of our state’s past and present leaders as good people who care a great deal about Rhode Island and who want to do the right kinds of things for our state. Unfortunately, the collective outcomes of their actions have proven to be especially problematic. Some years back, I invented a word to describe their overall approach to economic matters: our state’s leaders are PAROPIC – parochial and myopic. In terms of economic planning, this is the worst possible situation, as their focus tends to be restricted almost entirely on our state and what is happening here at the present time. Such focus has not been without serious consequences. First, our leaders tend to deal with symptoms and not problems, focusing on the short-term. All too often this has led to predictable quick fixes, where consumption-oriented programs take precedence over investment-oriented ones. Remember what happened to the cigarette tax settlement funds? This further reinforces their short-term focus, since consumption-oriented programs don’t do much for either our future well being or the size of our economy and our future tax base. Failure to emphasize investment-oriented spending as much as we should have in the past has caused us to be a lagging state economy. This slower growth has translated into lower tax revenue than had we not been a lagging state. Rhode Island is a textbook example of what economists refer to as fiscal dividend – but in reverse. Second, the normal mode of operation for our paropic leaders is thinking linearly, where everything is viewed as being separate in its own right and independent of everything else. This has led to the all-too-frequent surprises when the economic impacts of programs are far different than what was expected. For example, if Rhode Island were to offer some particular tax incentive, it should stimulate the activity the incentive is intended to impact. But, given Rhode Island’s non-competitive tax and cost structure, such measures often do very little, if anything, since the negatives of our business climate overwhelm the positive elements of the proposed incentive. Third, I naively assumed above that our state actually calculates the expected impacts of economic programs as a general practice. In reality, our paropic leaders engage in DUE PRESUMPTION – programs are presumed to perform exactly as our policymakers expect them to. By contrast, successful states routinely undertake due diligence, where they actually evaluate the magnitudes of proposed policies on their states’ economies before undertaking those changes. We are constantly exposed to due presumption. It makes balancing budgets far more difficult than would be the case had we engaged in due diligence. For example, it was presumed that treating 17 year olds as adults in our penal system would save money. Ultimately, it did not because a number of factors were never taken into account. Do I need to discuss the recent government employee cutbacks?” The projected saving of $100 million never materialized because of bumping. The correct way to view the original estimate was that these cutbacks would save at most $100 million. Looking to the future, the Governor will soon present a budget that eliminates a projected $450 million deficit (guess how scientific that deficit calculation is, by the way). He will be forced to propose many spending cuts, and along with these, expected expenditure reductions. While much of this will be correct and accurate, there will no doubt be instances where things turn out to be far different than what has been presumed, adding to the emotional stress and inherent divisiveness involved. For example, it is presumed that Rhode Island is a welfare magnet, where many persons come here for generous welfare and medical benefits. Is this really true? Has an in-depth analysis of this actually been undertaken by any group or entity with no connections on either side of this issue? I seriously doubt it. Obviously, there are many such questions. Having not dealt with them in prior times, we will ultimately discover their answers “the hard way.” Finally, the non-systematic nature of paropic leaders causes them to generally resist any and all efforts to make dramatic changes to our state’s economy, even when such measures are desperately needed. The prerequisite for such changes, honest and accurate analyses of our state’s strengths and weaknesses, is resisted as a matter of course. These persons constantly tell us that they prefer to look at the economic “glass” as being half full. By not examining our weaknesses over the years, we have foregone numerous opportunities to make our state’s economy better and stronger. This has not been costless. By growing less than we could and should have over the years, we are now paying in terms of diminished fiscal dividend and budget deficits that extend as far as the eye can see. So, how we balance our state’s budget deficits will prove to be every bit as important as balancing them in general. It is imperative that we consider both present and future consequences of various measures on our state’s economy, emphasizing the preservation of investment-oriented expenditure over consumption-oriented spending whenever possible. This rules out, for example, across-the-board spending cuts. Such cuts are indifferent between consumption and investment-oriented spending, with potentially dire consequences for our economy in the future. The days when Rhode Island could afford paropic leadership have come to an end, driven by the very deficits these persons were fundamental in helping to create. I truly hope that our leaders use this budget crisis to re-invent our state’s economy, making us far more economically viable. Hopefully, in November, we will bid a less-than-fond farewell to the “glass half full” crowd, as they go the way of the original dinosaurs. Do you remember Bill Clinton’s economic slogan from the early 1990s when he ran for president? It’s the economy stupid! Rhode Island’s economic rallying cry needs to become: It’s the size of the glass, stupid! |
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