Introducing ‘The Perry Spiral’

How long can you continue to cut government spending before those cuts actually begin to increase the cost of government?

This session of the Texas Legislature is facing an army of chickens come home to roost.  In order to maintain an attractive business environment in a state that otherwise has little of the kind of capital modern businesses look for, Texas has been cutting back on both the quality and quantity of what it delivers to its citizens for a generation.  Unfortunately, we were starting from such a minimal base of services that is has created an interesting problem, a sort of inverted Laffer Curve.

Call it ‘The Perry Spiral’ – a terrible cycle in which further budget cuts just create new needs which cannot be met which lead to more budget cuts, which create new needs which cannot be met, which…you get the idea.

You could cut the quality of government to such an extreme that it begins to create new costs.  It works like this.  Say, in order to keep taxes low this year, you cut back food/housing aid to poor families with children, literacy programs, CHIPS, and school funding.  You also eliminate any money being spent on health care for illegal aliens.  Easy enough.  Done.  Maybe they’ll finally go back to Mexico.

Sustain that over time and you start seeing other costs surge up through the cracks.  Counties experience ballooning emergency room expenses, eroding the quality of care at local hospitals.  Demand for police and prison beds climbs.  Graduation rates and the quality of the workforce decline.  And so on and so on in an ever-accelerating game of whack-a-mole.  The response to this new round of needs for prisons and schools and cops and hospital spending?  Cut some more.

Sound familiar?

You may continue to attract more new jobs because you’re a cheap place to do business, but an increasing percentage of those jobs are in low-wage, low-skill activities.  Real estate is cheap, but for good reason.  Cost of living is low, for the same reasons as the real estate.

On paper the economy looks pretty good, but median incomes begin to wobble.  Why? Because it gets harder to attract or develop high-end jobs.  A greater percentage of the most attractive jobs come to be located in places where the best employees would rather live; where their kids can go to good schools, enjoy a library, and not be surrounded by shanty-towns and strip-joints.

The declining wealth of the largest chunk of the population steadily depresses tax revenues.  Even though a lot of people are making great profit from this economic shift, it doesn’t do anything to improve the ability of the state to make a dent on the declining quality of life.  Why?  Because the tax burden in a state with no income tax rests heavily on the middle and bottom earners who in this scenario are drowning.

The gains in wealth enjoyed by those at higher income levels do not provide any additional resources to address the growing social dysfunction.  (*Incidentally, even after Illinois’ income tax hike I’ll still just be paying about the same overall tax I paid when I lived in Texas).

The whole process will be slow to reveal itself and hard to empirically prove.  Like a searing hot tub, you just ease into it until you don’t even notice.

The frustration that grows from this downward cycle is manipulated by savvy politicians redirecting it toward an imaginary tax burden or immigrants or the poor.  Thus, whatever political resistance that might have been generated by the deteriorating quality of life is cynically diverted toward accelerating the decline.

If the cycle isn’t interrupted, you end up living in a beautiful, sunny state full of fine, proud people, that looks an awful lot like Central America.  A few very well-off folks live in gated communities with broken glass cemented into the tops of the walls.  Everyone else lives in a sort of free-for-all, where education, infrastructure, and criminal justice are just stories told by the old folks.

So is this what’s happening in Texas?  Maybe.  Although thoughtless, knee-jerk tax increases like the one just adopted here in Illinois are definitely not the best answer to budget woes, the danger of The Perry Spiral seems much worse.

We were right thirty years ago to try to break the stranglehold of the government/union regulatory block on our national economy.  Although the remnants of that model remain to be shaken out of power in a few corners of the North, some parts of the country are already experimenting with new, more exciting disasters.  Taking a good ideology to mindless extremes, they are converting a misunderstood “free enterprise” into the building blocks of a new Hell.   When you embrace thoughtless black and white thinking, bad things happen.

The rhetoric we once used to rein in an over-reaching government has been distorted, blinding us to what government actually does to hold a civilization together.  We need to recover our sense of community, of civility, and duty to one another before we sink into a Third World swamp.

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