Out with the High, in with the Low

There are basically two general theories about what is going on in Rhode Island. Tom Sgouros enunciates the leftward (vested interest) explanation more succinctly than most of his compatriots (paragraphs reprinted out of order):

So this is the situation: The Assembly and Governor have together created a tremendous budget crisis. The crisis was caused by tax cuts of the past ten years, exacerbated by the economic downturn (not the other way around). Now that we're in a crisis, the Governor is demanding the right to slash spending without accountability to anyone, and the Assembly leadership seems perfectly willing to hand it over. ...

There are certainly budget cuts that haven't been as deep as the Governor would like, but as I wrote about a couple of weeks ago, it's simply not feasible to balance the budget by cutting entitlements alone. This is a fact of arithmetic: Entitlements are simply not as expensive as you think, and we're deeper in the hole than that. The stuff about the legislature wriggling in the iron grip of the social service lobby is pure fantasy. And a lot of the Governor's plans for personnel reforms seem to imagine somehow that there aren't unions at all. Like them or not, realistic management means you have to acknowledge that unions exist.

The other theory, which most Anchor Rising readers could likely explain themselves, at this point, is that a government regime that is hostile to business, corrupt to its core, and just about criminally inefficient when it comes to providing services from education to transportation infrastructure is driving out productive citizens, even as costs for public employees and social services continue to climb. Those productive citizens take with them businesses that they've created, the readily accessible workforce that businesses might wish to see before opening up shop, and a key market for many goods and services.

The debate may be at such a broad level, and inextricably tied with personal interests and ideology, that no evidence will ever be conclusive, but let's just say that Saturday's Business section story providing details of Rhode Island's job losses last year hardly contradicts the Anchor Rising view:

The 5,200 jobs that vanished from Rhode Island’s payrolls last year were better-paying than the jobs the state gained, according to an analysis of state data.

Construction workers, mortgage brokers, loan officers and real-estate agents were among the hardest hit by job losses, due largely to the housing and credit-market problems, according to revised data released last week by the state Department of Labor and Training.

The average annual wage in the financial activities sector in 2006, the latest year available, was $53,728, among the highest of any industry, the state data shows. Construction wages averaged $46,668.

Meanwhile, the biggest job gains last year were in health care and social assistance, where the average annual wage in 2006 was $37,618, followed by private education, where the average wage was $39,804, according to the state data.

For years, the state has been replacing higher-wage manufacturing jobs with lower-wage services jobs. Now, higher-paying jobs in sectors tied to the real estate and credit markets are leaving, too.

Sgouros has, to some degree, covered this base with his mention of the economic downturn, but note that he stresses the primacy of the tax cuts in causing our crisis. (I'm purposely leaving aside the "fact of arithmetic" when it comes to the tax cuts' percentage of our deficit pending some research that I'm trying to slip into my schedule.) In light of these jobs reports, I'd offer testimony from very personal experience that the segment of the population that benefits from those "tax cuts for the rich" is central to keeping the construction and real estate losses from being even worse. Even if the tax cuts haven't attracted new taxpayers to the state, it's still true that they're allowing such working class folks as my family to remain in the state and to continue to pay their own taxes, rather than requiring public assistance, themselves.

In his February 17 Rhode Island Policy Reporter newsletter (which isn't online), Sgouros ends a piece about population migration with this paragraph:

It would be very challenging to use this data to support a theory that wealth is flowing from Rhode Island, except inasmuch as it flows with people seeking their as-yet-unrealized fortunes elsewhere. Those people are our future, so cannot be ignored, but to imagine that tax changes to favor wealthy people are the only, or even the best, solution, is only fantasy. A healthy economy requires investors, certainly, but it also requires workers, infrastructure, educational opportunity, markets and much more. To focus state policy solely on investors at the expense of the rest, as we have done and are doing, is to miss most of the picture of what makes a healthy economy, and will only drive more young people to look for opportunity in other states.

I would agree wholeheartedly, but with an emphasis on expanding the methodology by which we've sought to fortify our investor class across the spectrum — that is, creating an environment of financial freedom and personal opportunity, getting government out of the way. Something is manifestly wrong when, of the three fastest-growing employment areas, two are closely tied to government handouts and benefits and the other highlights the inadequacies of the public education system.

Crises call for extreme measures, which means that Rhode Island must take market-focused reforms to the extreme, at least for a few years. Scratch out the pages upon pages of burdensome regulations. Cut taxes and fees (which will require cutting government expenditures, in the short term). Bring people here to work and to spend.

In an interview with Matt Jerzyk, RI General Treasurer Frank Caprio suggests an advertising campaign that leverages Rhode Island's lack of tax on clothing of any price, which he believes would bolster tourism during our off season. That's the tack that the state should take across the board. All sales taxes should be cut beneath our neighbors' rates. At least when it comes to the scope of government, the cost of doing business in the state should be made similarly attractive.

Subscribing to a theory that tax cuts hurt the economy and that government expenditures are immutable will at best freeze our recovery and at worst hasten our collapse.