Deregulate Now

Wednesday, April 21, 2010

The political mood of the country can be captured in one word: glum. In particular, there is widespread recognition at the state level that conditions have reached near-crisis proportions. In states such as California, Illinois, and New York, large deficits and service cutbacks loom, as traditional tax bases can no longer support the ambitious entitlement programs that rest precariously upon them. Tax revenues are down 10 percent across all states, even as taxes are raised in half of them.

The consequences are serious. Just look at the implosion in higher education taking place at the University of California. State revenues have gone dry, budgets have been slashed; yet student and labor protests make it difficult to raise the tuition and fees needed to maintain a strong institutional base. More and more students are unable to complete their education in four years, and unpaid furloughs will drive the best professors, administrators, and students elsewhere.

Tragically, the economic lesson often goes unheeded. Too many professors and students link arms with union organizers in the naive hope of extracting blood from a stone. A bankrupt state cannot increase allocations to the university. Meanwhile, affluent citizens pack their bags to move to low-tax jurisdictions; those who stay do more tax-free work at home or participate more heavily in the underground economy.

It won’t work to reaffirm the deadly triumvirate that drives this misery: tax the rich, greater local control over real estate development, and special privileges for organized labor. What’s needed is to break from the past with some unimaginative but necessary resolutions in the areas of taxation, real estate, and labor.

On taxation, don’t play the mug’s game of imposing ever higher marginal tax rates on ever lower amounts of income. Play it smart for the long haul: low income-tax rates (and no estate taxes) will attract into states and communities energetic individuals who would otherwise choose to live and work elsewhere. Treasure their efforts to enlarge the overall pie. Don’t resent their great wealth; remember the benefits their successes generate for their employees, customers, and suppliers. Repudiate the politics of envy for the social destruction it creates. Don’t fret about the states and communities left behind; let them adopt the same sound policies to keep people at home. Enterprise is infectious. The outcome won’t be a zero-sum game. Open markets are the rising tide that raises all ships; high taxation is the tsunami that sinks them.

On real estate, change the culture so that getting permits for yourself and blocking them for everyone else is no longer the pre-eminent developer’s skill. The government can still prevent buildings from falling down and fund infrastructure through general taxation. But take a stand against letting entrenched landowners and businesses raise NIMBY (not in my backyard) politics to a fine art. Today our dysfunctional land-use processes too often build thousands of dollars and years of delay into the price of every square foot of new construction. The requirements on aesthetics and disability access should be junked, along with the crazy-quilt system of real estate exactions that asks new developments to fund improvements whose benefit largely accrues to incumbent landowners. And for heaven’s sake, learn the lesson of Kelo v. City of New London and stop using the state’s power of condemnation for the benefit of private developers.

On labor, state and local governments must junk the progressive mind-set in both the public and the private sector. State and local governments should never, repeat never, be forced to negotiate with local unions. The huge pensions garnered by prison guards in California or transportation workers in New York present the intolerable spectacle of ordinary citizens paying huge subsidies to union workers far richer than themselves. On the private side, don’t force developers to hire union workers on construction sites or to block the construction of new facilities that hire nonunion labor. If unions are really efficient—and they aren’t—let them compete like everyone else.

A bankrupt state cannot increase allocations to its flagship university. Meanwhile, affluent citizens pack their bags to move to low-tax jurisdictions.

On other labor fronts, we should kill off minimum-wage laws that reduce opportunities for youthful employees and overtime legislation that distorts labor markets. And yes, take on the sacred cow by repealing the antidiscrimination laws on race, sex, and especially age.

None of this activity costs the public a dime. All of it will increase tax revenues and reduce administrative expenses. The best test of a good policy is whether it is sustainable over the long haul, and we know now that the progressive regime flunks this key test. At this point, all good libertarians can only take cold comfort that they have fought these destructive policies tooth and nail. The next step can be summed up in two words: deregulate now.