Taking the "Freedom" out of "Freedom and Unity"
By Tom Licata

The answer to our economic problem is this:  We must methodically manage an orderly reduction in our standard of living.  We have lived beyond our means, and while there are ways to alleviate this reduction - which I will touch on later - let me explain to you just how sobering events really are.

A September 2008 Harvard Business Review article reported that "in 1980, the total value of global financial assets was roughly equal to world gross domestic product (GDP)."  In 2007, these same financial assets increased to 356% of world GDP; most of the increase coming from private and government debt.  According to the Financial Times, "the ratio of U.S. public and private debt to GDP reached 358% in the third quarter of 2008."  The previous all-time high of 300% was reached in 1933, during the Great Depression. U.S. mortgages and credit-card debt in 2008 totaled 123% of after-tax income compared to just 83% in 1995.

What are the implications of these numbers?  Simply put, there is not enough money – by consumers, families, businesses or governments - to back up all this debt.

We’re not in the midst of a "normal" recession, which is part of our business cycle.  We’re going through a massive deleveraging process, meaning we’re attempting to reduce this debt.  Much of this will occur through bankruptcy.

There are many in Vermont who don’t understand these changing economic storm clouds and wish to hark back on tired solutions from an era that has past.  Senator Doug Racine, in a letter to the Burlington Free Press ("Douglas risks economic future," May 16) is one such Vermonter.  "A look back to 1991 provides a roadmap on how to face today’s challenges," writes Senator Racine, as he calls for increasing taxes.

Mohamed El-Erian, CEO of Pimco (the world’s largest bond fund) and former President of Harvard’s endowment fund recently stated that the markets [and world] are on a volatile journey to a "new normal." Mr. El-Erian is one of the most sought after economic thinkers.  This "new normal" includes much slower economic growth, increased deficits, greater geo-political risk and the "monetization" (i.e. printing of money) of U.S. debt by our Federal Reserve Bank.  Interest rates will rise; the U.S. dollar will fall.

Vermont’s economic problems and this "new normal" cannot be solved by the old, knee-jerk reactions of Senator Racine and his ilk by raising taxes on an already highly taxed and regulated Vermont economy.  It is wishful, lazy and cowardly thinking that speaks to the kind of entrenched thought and special interests that underlies Montpelier.  Ours is a spending, regulatory and growth problem, not a revenue problem.

Ours is a problem of freedom.

In what economists call a negative feedback loop, as increases in land-use regulations, taxes and spending are enacted with no sustainable funding source; more businesses contract, decide never to locate to Vermont or flee, shrinking the tax base.  Montpelier raises taxes again and the cycle repeats itself.

During this decade, Vermont government and education spending rose roughly 70%, while Vermont private-sector job growth rose 0%. It is long past time to close small, inefficient schools, drastically consolidate school districts and dramatically reform state government.  A society cannot consume and not produce.

Vermont’s impoverished and needy are largely the making of our Legislature’s policies.

Dorothy Canfield Fisher (1879-1958), writing about Vermont’s 1778 motto of "Freedom and Unity" stated:  "the Vermont idea grapples energetically with the basic problem of human conduct – how to reconcile the needs of the group, of which every man or woman is a member, with the craving for individual freedom to be what he really is."

"…With the craving for individual freedom to be what he really is."  This, my fellow Vermonters, is what Montpelier’s policies increasingly deprives its citizens of, as it becomes evermore difficult to prosper and grow in an environment that is increasingly hostile to economic freedom, property rights and individual liberties.
 

Tom Licata is the founder of Vermonters for Economic Health