A Long-Term Economic Plan: Solutions 
By Tom Licata

What I witness in Vermont reminds me of something I read, where the Roman historian Livy writes of the moral confusion of the late Roman Republic, in which he talks of "the dark dawning of our modern day when we can neither endure our vices nor face the remedies needed to cure them."

We can either begin to manage our vices or have our remedies dictated to us by coming economic and demographic events (see Vermont’s Economic & Demographic Crisis: Its Symptoms).

Former Federal Reserve Chairman Alan Greenspan, in his new book, The Age of Turbulence: Adventures in a New World, writes that in the Bush White House, the "political operation was far more dominant" and that "little value was placed on rigorous economic policy debate or the weighing of long-term consequences."

As I read those words, I couldn’t help but notice the irony in how easily I could have replaced "the Bush White House" with the words "the Vermont State Legislature".

In Vermont, appeals to the emotion and sentiment – as opposed to "rigorous economic policy debate or the weighing of long-term consequences" - are what get our politicians elected. And this creates a paradox of a self-fulfilling prophesy: where our Legislature condemns us to the kind of poor economic conditions that enslaves us to their empathy – and goodies – that they are so capable of extolling and handing out.

Sometimes I wonder whether some in Vermont aren't infected with Stockholm Syndrome: a psychological response sometimes seen in an abducted hostage [i.e. the taxpayer], in which the hostage [i.e. the taxpayer] shows signs of loyalty to the hostage-taker [i.e. our Legislature]; regardless of the danger [economic ruin] in which the hostage [i.e. the taxpayer] has been placed. Over time, the hostages [i.e. taxpayers] become sympathetic to their captors [i.e. our Legislature]. Ahhh, but I digress...

Over time, tax revenues are determined by economic and productivity growth. This simple statement, endorsed by Mr. Greenspan, provides a roadmap for Vermont’s economic recovery. We need economic growth friendly policies and complementary productivity savings and government reform to grow our revenues. This will require long-range thinking and policies that may include the following:

POSSIBLE SOLUTIONS

(1) A "Sense of Urgency" is critical. If you don’t believe this as necessary, read "Vermont’s Economic & Demographic Crisis: Its Symptoms", nearby.

(2) Development of a meaningful and comprehensive Long-Term Economic Plan. One that simultaneously sets priorities among all competing government spending demands, and mixes a strategy of economic growth, productivity and government reform to meet the long-term liabilities and needs of Vermont.

(3) Creative destruction must be embraced in our effort to reform government, education, and our economy; particularly with regards to agriculture. Although agriculture will play an important role in our future, it is not what will bring 21st century prosperity to Vermont. Creative destruction was introduced by economist Joseph Schumpeter and describes how the destruction of our current way of doing things - in government services, education, and economic policy - is a positive force for change; allowing the more creative forces of cost-saving technologies to improve how goods and services are brought to market. It’s a kind of industrial transformation through radical innovation of ideas and technologies.

(4) Identify and pre-permit selected tracks of land for economic development; with emphasis on knowledge-based, "clean-tech" businesses such as is currently being done in San Jose, California. This would have Vermont become the "Silicon Valley" of the east. Employer diversification requires Vermont to seek larger, industrial base employers in order to broaden our tax base. Vermont needs to successfully create a very attractive environment for economic development as the basis for building a State that provides its citizens with hope and opportunity for middle class families.

(5) In 1982, President Reagan directed the Grace Commission to "work like tireless bloodhounds to root out government inefficiency and waste". Vermont must do something of similar scale and conduct a thorough efficiency and effectiveness study of state bureaucracy with the goal of trimming 20% of government spending.

• Vermont has less than half the population of New Hampshire but nearly the same number of full-time state government employees; this according the Census Bureau payroll data, March 2006.

• Between 2000 and 2006, net non-farm employment in Vermont grew by 9,000 jobs; with the addition of 20,000 new jobs and the loss of 11,000 old jobs. Of Vermont’s 11,000 job losses, all occurred in taxpaying, private sector businesses, almost all in manufacturing. Of the 20,000 new jobs added, about 65% were either from government (4,000) or from the education & health services field (9,000). And as with government, most of these 9,000 jobs consisted of employment in non-taxpaying entities such as "social assistance" employment.

• This is an unsustainable tread: our taxpaying business sector shrinks, leaving our remaining private businesses and home owners to support a growing government and non-profit sector. Between 2000 and 2006, Vermont saw an overall net job growth of 2.9%, whereas government grew at 8% during this same period. This according to "The State of Working Vermont 2007", prepared by the Public Assets Institute.

• "Rhode Island Governor Don Carcieri announced Monday [10/15/07] that he would eliminate more than 1,000 state jobs to help close an estimated $200 million budget deficit in Rhode Island, where the state is the largest employer. In addition, Carieri said he wanted to negotiate with the state's unions to have their workers pay a higher percentage of health care costs"; this according to a Burlington Free Press article of 10/16/07.

(6) Governments are de facto monopolies and have no natural incentive to improve productivity. Vermont should contract out – where possible – those services currently provided by state government and shift those services to taxpaying private sector businesses, preferably locally owned. This would provide Vermonters with private sector jobs, fill our state coffers with revenue from taxpaying businesses, and promote efficiency.

(7) Development of meaningful tax and regulatory reform that would promote productivity, economic growth and business friendly incentives within Vermont is needed.

• Lobbyists and special interest groups like the Conservation Law Foundation, VPIRG and the Center for Climate Strategies have gotten too comfortable in impeding innovation and flexibility. Innovation and flexibility can bring the kind of quality job growth and affordable living standards working, taxpaying Vermonters deserve.

• It is time to put the interests and agenda of the working, middle-class taxpayer ahead of the lobbyists, special interest groups and political elites.

(8) Dramatically reduce the number of school districts; close and consolidate a number of schools; consolidate special education services; and increase the student/teacher ratio from its current level of 11:1 to something more affordable and closer to our national average of about 16:1.

(9) Opportunity Cost is an economic term referring to the value of something given up to pursue something else. Our Legislature should provide its citizens with an opportunity cost analysis for each new regulation or tax hike proposed.

For every added regulation or tax increase, we should see an analysis on the effects of things such as: lower consumer spending; less business investment; greater barriers to entry; and no or slower job growth, resulting in smaller profits for business and thus, lower wage and benefit raises for the working Vermonter.

Greater land-use restrictions result in housing shortages, less affordable housing, and keeps out-of-state business from relocating into Vermont. These and other deleterious consequences are part of what our Legislature refuses to "value" as they pursue any number of their well intentioned regulatory and tax policies.

(10) As suggested by The Snelling Center for Government, investigate the possibility of converting some of Vermont’s highways into Toll Roads and – like that of the states of Illinois and Indiana – lease or auction them off; with proceeds used to fund the repair and maintenance of our current roads and bridges.

(11) We have to make a more honest and proportionate assessment of what we can reasonably do as a state - given our limited time and financial resources - versus what our congressional representatives could take up at the federal level. Regardless of where you stand on issues such as universal health care or global warming, issues like these will most likely be meaningfully resolved at the national or international level. All presidential candidates have some plan for major national health care reform, and most, if not all, achieve universal coverage. Global warming is being addressed both in Washington and through the United Nations.

While states certainly can, will and should weigh in on these issues, it seems in proportion to some of our more immediate needs – transportation infrastructure, job and economic growth, property tax burdens, pension and Medicaid deficits, escalating education costs, etc… - that our Legislature should be focusing their time and energies on these more immediate needs affecting more closely the everyday lives of middle-class Vermonters.

• Rajendra Pachauri, chairman of the Intergovernmental Panel on Climate Change, the scientific body that shared the Nobel Peace Prize with Al Gore said the following to the United Nations General Assembly: "The inertia of the system that we have is such that climate change would continue for decades and centuries even if we were to stabilize the concentration of gases that are causing this problem today, which means that adaptation is inevitable." My point in sharing this quote is to show the enormity of the problem, and point to the fact that whatever Vermont does to combat global warming, however well intentioned - regrettably - will have no measurable affect on the world's climate. And, at this point in Vermont's history, we're better off leveraging our efforts and time toward things we can better control and affect that will help the average, middle-class working Vermonter.

(12) Peggy Noonan writes of the Bush White House, in the Wall Street Journal's 9/22/07 edition:

"When Gen. Eric Shinseki told Congress, before the Iraq war, that post invasion troop levels should be "something in the order of several hundred thousand soldiers", his views were called "outlandish" by administration officials. He was bureaucratically undercut, and he limped to retirement. When economic advisor Larry Lindsay told this newspaper the war would likely cost up to four times what the administration asserted, he was sacked."

"The deeper story [and analogy here] is that the Bush White House [like Vermont's Legislature] hurt itself by using muscle to squelch alternative thinking--creative thinking, independent judgments--that would, in retrospect, have benefited them."

"It was this tendency that led to the administration’s gym-rat reputation, all muscle and no brains."

"All muscle and no brains?" Folks, it's your move come Vermont's November 2008 Legislative elections.
 

Tom Licata, Burlington, Vermont  http://www.vermonttaxrevolt.org/