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Blue Blights Empire State

Weekend readers of the New York Times got an eyeful yesterday; the Grey Lady took a long look at New York state, and the result is an article that could almost have appeared in the Weekly Standard or the National Review. While the Times carefully avoided drawing any indelicate conclusions that might upset its liberal readership, the review of government finance at the state and local level reveals an appalling picture of blue model thinking at its worst.  New York state and local politicians, egged on by public sector unions, have dug the state into such a deep hole that it will be hard to emerge.

And the unions — along with the pro-bankruptcy wing of the Democratic Party — want to keep digging.

The reality is that from Long Island to Buffalo, New York cities and counties face severe and growing fiscal woes. The chief drivers of the crisis: blue sweetheart programs that are out of control: state pensions, Medicaid, and retiree health costs.

Example: New York City’s annual out of pocket pension costs have ballooned from $1.5 billion a year ten years ago to $8 billion today.  This is the cost of the lies New York politicians have told their sheep like constituents for many years, promising fat pensions to workers while refusing to raise taxes to put enough money away for when the bills come due. According to the eye popping numbers in the Times, 3 percent of New York city property tax revenues went to pay pension costs in 2001; 35 percent of those revenues will go to pensions by 2015.

Meanwhile, the ratings agencies have been downgrading the debt of New York cities and counties as if we were on the Mediterranean: last month alone Rockland County and the city of Utica got downgrades, with Long Beach and Yonkers getting hit last year. Suffolk and Nassau counties are having to borrow to pay their pension fund contributions for this year; worse is likely to come even as the general economy slowly improves.

Read the whole piece to see both how a whole state can go down the tubes, and how a newspaper can report facts while tip toeing carefully around any implications that might make its readers unhappy.

The root problem is that New York elected officials lost sight years ago of the need to run the state and its cities on a businesslike basis. They made “investments” in social policy and educational spending that manifestly did not pay off in terms of enhanced productivity or economic benefits. They made pension promises that they neglected to fund. New York as a state has been committed to the belief that a high regulation, high cost, big government approach to state and municipal management would pay off in the long run: yes, government in New York would cost more than in Texas or Alabama or other benighted hell holes, but New Yorkers would be better educated and more productive. New York’s infrastructure might be expensive, but it would facilitate business growth. New York’s public sector labor force might be expensive, but it would be competent and motivated so that it would deliver more. New York could make a high cost, high regulation governance model work: that was the big bet.

It has failed.

It’s time for the state to take a long hard look at itself. The investments haven’t paid off — at least not enough to justify the costs. The government model is breaking down; the system doesn’t generate enough revenue to cover its cost.

Hopefully an economic recovery will provide a little breathing space, but New York can’t afford to waste any respite it gets. The state is on the wrong road and the outlook is grim.

When blue policy goes wrong, blue pols and their chorus of captive intellectuals sing for bailouts.  If the city is broke, the state must pay up.  If the state is broke, the feds must pay up.

But the feds can’t — and won’t — pay up.  The feds are tapped out, the state is a mess, and there will soon no alternative to deep policy change.


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  • Jim.

    Well said, Professor Mead.

    So, do you think that the fact you’re a registered Democrat (if not a very partisan one) helps you make your case to your fellow party members?

  • jay hoenemeyer

    And the next big threat to the republic will be the attempt by NY and Cal and Ill to send the bill for this nonsense to the federal government , ie the taxpayers . As Mr Ryan said in another context , this problem is not political , it is mathematical .

  • Peter

    The parasites are destroying the host.

    It couldn’t happen at a better place than NY.

  • Bart Hall (Kansas, USA)

    It is all a classic example of malinvestment, and not just in New York. Easy money leads people to make really stupid choices.

    In business it is essential that our borrowing be for self-liquidating investments, such as a machine which will increase worker productivity and improve their job-satisfaction.

    Politicians are not only missing the entire self-liquidation thing, they’re not even seeing an increase in economic activity for all their borrowing. Rather the contrary.

    When increased borrowing has a *negative* effect on Local Domestic Product (which is widely the case is hard-core “blue model” states) the aeroplane is not only at stall speed, but is at such a low altitude that diving to increase speed is no longer an option. You therefore tend rather quickly to run out of altitude, airspeed, and ideas all at the same time.

  • Gerald

    There is no easy solution to these problems, but as a retired CFO, I would recommend that each level of government – Federal, State, County, City – be required to prepare and publish the same type of Quarterly and Annual Financial Statements (using the same Accounting Standards) as businesses. At a minimum this would include Income, Balance Sheet and Cash Flow statements. This would highlight financial issues to anyone interested, and expanatory notes would be required to highlight risks. This is a burdensome activity, but it is necessary if the public is to be informed and to cut out silly accounting games practiced widely at all levels by both political parties. It might also have the effect of simplifying some of the more stupid requirments of Sarbanes Oxley over reactions to Enron, et al. The same legal penalties that put Enron executives in jail should apply to government executives. That might cause a bit more realism and less vote buying.

  • Kolya

    At the federal level we are not confronting the limitations of the Blue Model. Instead we borrow over 1 trillion a year and print half that. Will we make the necessary reforms at the federal level before destroying our currency system? Perhaps some states will opt to print their own currencies and then we can truely become more European.

  • Tom Cooney

    At some point someone has to say no. Naturally that will be Romney who will not bailout CA, IL, NY, etc. and everyone, including Wall Street, the Bankers, Democrats, Non-Fox Media, will hate him more than Bush jr. They will hate him because he helped them, just like we all don’t like dentists and surgeons who hurt us for our own good.

  • cubanbob

    You can’t help a drunk or an addict until they hit bottom. Let them hit bottom so they see the need to sober up. Otherwise it will be a gigantic waste of money and utterly futile to boot.

  • Jacksonian Libertarian

    Despite all the TEA Party Limited Government political activity of the last couple of years, the cultural lesson has yet to be fully learned nationwide. The blue states and cities have been the most resistant to learning the lesson, and so they will suffer the most. By the time of the next census, the phrase “like rats leaving a sinking ship” will come to represent those blue states and cities, with Detroit as an example of their future.

  • VA Teacher

    They are already trying to pass the bill on to the Feds…all those calls for “infrastructure” spending and support for “hard-working teachers, police and firefighters”…that is a call for money to be spent by the Federal government to cover traditional state and local responsibilities.

    The problem is twofold:

    1) The Republicans control the House of Representatives and don’t want to send the money.

    2) Even if through some miracle the Democrats (controlled as they are by the public sector unions) managed to retake control of the House, the structure of the Federal government would require not just a bailout of California, New York, Illinois and the states in the biggest hole…but a huge frenzy of log-rolling that would ensure that EVERY state got a full share of the loot…which brings us to the biggest problem of all…

    3) There isn’t any more money. Even if they got their much dreamed of repeal of the Bush tax cuts…even if they managed to impose some combination of new taxes on millionaires and billionares…even if they got the full magilla of a value added tax…they are on the wrong side of the Laffer Curve. Raise tax rates all you want, you can’t get more revenue. All you can do is shrink the economy and dig all the holes even deeper.

    There are only two ways out of this mess: 1) Cut the cost of government to the level that we can afford.

    2) Crash the economy completely…which will ultimately lead to some version of solution #1 (probably after a few heads are stuck on pikes).

    Everything else is a fantasy. You can’t argue with math.

  • PTL

    This class of Democratic Party politicians at
    the State and Local levels are to the left of Lenin/Stalin/Mao. They have been in power for longer than a century and make Boss Tweed look
    like a piker. The corruption is so embedded in
    the system that there is no solution in the
    near future.

  • George Dixon

    So long as democrats assuage their “social conscience” with other people’s money it will not end

  • Steve M

    Perhaps the Beatles can save us from the Blue Meanies?

  • VRWC

    Thanks for a great article, I agree with you on all of it except for one thing…. the Feds will bail them out.

    Republicans will promise up and down NOT to bail them out, but when push comes to shove, the actual decision will be made in a crisis atmosphere…. with the nationwide municipal bond market about to crash.

    And thus they’ll cave and bail them out just like they bailed out Wall Street…. mark it down….

  • Arch

    From 1987 until 2006, I lived in the Village of Williamsville, NY. On our 1400 sq ft house on a 55′ x 110′ lot, we paid $4,400 in annual property tax. If you saw “Gran Torino,” that was the house. We also paid 63¢ per gallon of gas, and an 8.75% sales tax. NY State income tax was 7.5%.

    The village Council was run by liberals who never met tax they didn’t need. Without asking the 4,500 residents, they bought a Water Mill circa 1811 for $475K that appraised at $375K. I went to a Council meeting and asked a couple of questions. No one had any idea what they were going to do with it. Nor did they know how much the restoration would cost (millions). Neither did realize the property would come off the tax rolls. When these geniuses said that they would get NY State to fund the project, we decided to move.

    Today, we live in 3,500 sq ft house on three acres of old woods. Annual property tax is less than $900. Sales tax is 4% and my retirement income is not taxed. On gas we pay 24¢ a gallon. The town was planning to build a new government office plaza, but when the recession hit, they deferred the project until funds became available. In another improvement, we traded up from Senators Schumer and Clinton to Senators Shelby and Sessions.

  • Mr. G

    Mr. Mead said we. Are you from New York?

    I have been dragged to some local election forums and it doesn’t look good. If tax money doesn’t come roaring in its obvious racism and all the cookie cutter politicians fall all over themselves to say they are not Tea Partiers and never will be. In fact the only time when money is talked about getting saved is to prevent one district’s residents from enjoying a social program set up in another district. Taxpayer money alloted to a random geographical boundary is apparently to be wholly owned and enjoyed only by the residents within that boundary. These people get steamed up if someone besides themselves has access and they want transparency in government to prevent that happening. Good luck in changing a second rate mindset into a citizen who can work in a democratic system. They are people who believe in totalitarianism and are too lazy even to want to be the totalitarian.

  • DAS

    I agree with this article’s point of view entirely. But there is a major complication here (which is actually a big part of the linked NY Times article). The NY STATE pension system actually purports to be fully-funded (I have my doubts in this regard, but, looking at this metric alone, NY is clearly in better shape than most other states). It is certain CITIES AND MUNICIPALITIES in NY that are going to go belly-up from pension obligations alone.

    This is a meaningful distinction for a number of reasons. As the Times article discusses, the issue currently being debated in Albany is whether and to what extent the State should pick up the tab these cites have run. (IMO it should not – among other reasons, reward unwise spending with a bailout and you get more of it). And, what I think will prove more important down the road, cites and municipalities CAN declare bankruptcy – the State cannot. What the consequences will be are far from clear to me – watch the coming bankruptcies in California and Rhode Island to see a preview though.

  • Kris
  • Duncan Frissell

    And this is a state that is sitting on half the Marcellus Shale (Marcellus is actually a village in upstate NY). The state has prohibited any hydraulic fracturing while it “studies” the issue.

    Meanwhile Pennsylvania is getting lots of revenue and McDonalds in North Dakota are paying $18/hr plus signing bonus.

  • K Scott

    There is a way to dig out.
    1. Everyone contributes more to the pension fund
    2. Everyone works more years before fully funded retirement.
    3. There are no deals such that retirees get a pension higher than their salary when they retire; nor do they get a lump sum payout.
    4. Every public budget item – health insurance, school buses, school lunches, trash pickup, snowplowing – is rebid and outsourced to the private sector if level of service can be maintained.
    5. Collective bargaining in the public sector unions is abolished.
    No reform in the area of pensions and health insurance is possible unless collective bargaining is abolished in the public sector. That is the Wisconsin experience – the unions opposed Governor Walker’s reforms, refused to help out the Milwaukee public school system by voluntary reform with the result that 350 people lost their jobs and are spending enormous sums of money on recall attempts. Also there are millions and millions of dollars wasted because contracts are renewed without rebids and this is not solely because of the unions – it is inertia on the part of the financial officers.

    6. School choice and home schooling should be strongly supported – overall they are much cheaper.
    7. Retired people should be allowed to volunteer to keep public services going. Remember that these services are being cut because of pensions.

  • max

    Next thing you will be lying to me about the Social Security Trust Fund and telling me there is nothing in it but a bunch of IOUs from the federal government for money they already spent on bike paths and artists who signed $10.00 bills and gave them to illegal immigrants.

  • Rich K

    See no evil,speak no evil,hear no evil. That is the policy statement eminating from the NYT’s editorial department.Oh, who am I kidding,its what every Blue blooded Pol does to keep that gravy job at city/county/state/federal hall.
    Caymens are nice this time of year though.

  • koblog

    Go ahead, Dr. Mead: tell us now of California. We have something like a $500,000,000,000 (one half trillion dollar) pension obligation to the Teachers, Police, Firepersons, Prison Guards and State workers/politicians.

    I personally know a man whose retired father — a teacher — makes more retired than he did when he was “working” as an administrator (which, far as I can tell, ain’t teaching….)

  • Mike

    I live in Alabama but I don’t know Arch. Thank G-d my stash of Confederate dollars is safe.

  • teapartydoc

    Compassionate Armageddon.

  • John

    I worked for 10 years running crews of IBEW Local 3 electricians doing subway work. We worked hand in glove with NYC Transit Authority union employees every single day.

    I could tell stories all day long that would curl your hair. The waste, fraud, sloth and greed are beyond words. Just having seen that tiny slice of NY, I have absolutely no idea how the city functions.

  • DonM

    I looked at starting a manufacturing business in my old home town in New York State. Costs there were twice what they would be in Tennesee. It would be fun to be a ‘big man’ in the old home town, but not that much fun.

  • vanderleun

    Richard Fernandez at the Belmont Club has this to say, among other things, about the Mead conclusion:

    “Mead says the well is dry. ‘But the feds can’t — and won’t — pay up.’ They’re in a bigger hole themselves. But so what: the impossibility of conjuring money out of thin air is not nearly so infeasible as the one thing that definitely won’t happen, at least voluntarily — ever — which is that the Blue Model should give up its gains.”

  • Gary L

    “Read the whole piece to see both how a whole state can go down the tubes, and how a newspaper can report facts while tip toeing carefully around any implications that might make its readers unhappy.”

    It seems that a great majority of the 511 (and counting!) comments to the NYT article are amply aware of the fatal flaws of the Blue State model. Perhaps the Old Grey Lady needs to show more respect for the ideological diversity of its readership.

  • Chase

    Well, while I agree with the gist of your post – that public employee pensions need to be reformed – I would just like to add that there are some good points to the blue states.

    The top five states in terms of income per person in 2010 are ALL blue states. Of course it’s worth noting that a lower salary goes a lot farther in Midwest and the south than it does in the northeast – so one does need to put this information in context – but I do think Prof Mead should point out that there are some good points to blue states, even if they have real problems.

    Top states: income per person

    Connecticut 1 56,001 34%
    Massachusetts 2 51,552 35%
    New Jersey 3 50,781 31%
    Maryland 4 49,025 41%
    New York 5 48,821 41%

    • Walter Russell Mead

      @chase: but it’s more significant that red states have been closing the gap; in 1950 the income differences between the south and the north were much, much greater than they are today. The blue states are losing their historical advantage; that is the problem they face.

  • Sue

    This is a perfect example of the results of that “hope and change” mantra that was continued by Obama since FDR…how do the blue people like it? Unions don’t care and progressives like Schumer and Pelosi have so much of their own personal wealth, that, they could care less about the state of NYC or CALI!

  • Steve

    Dr. Mead is on target again. But the broader question of Federalism must be addressed. New York State still sends more to DC (in the form of income taxes) than it gets back. I think CA does too.

    This will become a hot topic in years to come as the welfare state model collapses.

  • Nikolai

    “The trouble with Socialism is that eventually you run out of other people’s money.”

    Margaret Thatcher

    Other people’s money has now well and truly run out, at every level.

    The reality of fiscal discipline has hit – nations who heeded the call will prosper, nations that didn’t will suffer, and rightly. RIP socialism, I’d say.

  • Nick

    “But the feds can’t — and won’t — pay up.” Walter, when will you and other conservatives learn? Of course the federal government will bailout NY, CA, IL and all the other blue states that go bust. How do I know? No Republican has yet to stand up to the continuing resolutions and debt ceiling increases, what makes you think they will stop a state bailout? The Democrats will use the same arguments they use at the federal level to keep up the deficit spending, the fact that it will apply to states will make no difference.

  • Doug W.

    The fact is that NYS is being sapped of its wealth and vitality. NYS taxpayers send $89 billions more to the federal government than it receives back. Poorer, marginal states that hate the liberal northeast are the chief beneficiaries. Yet they have no problem with taking our money. Maybe we should follow the red state prescription and cut these welfare cases off. Progress in these marginal states would wither away in few short years. Even getting back half of that $89 billion each year would go along way toward taking care of our fiscal problems.

  • Doug W.

    Nick – Places like NYS and California are drivers of wealth in this country. The federal government doesn’t have to bail out these states just take less from these states in federal taxes to subsidize the poorer, backward states.

  • jim

    What the New York legislature and governors have been doing for decades is waiting for a big Wall Street boom and then spending every penny of that tax windfall on new programs.

    (The reason they run for office in the first place is to start new programs, not to mind the store!)

    It’s really a lot more like the oil economies of the Middle East than anything else.

  • justaguy

    The real issue will reach a full head of steam once more people leave and the tax base starts to erode at an accelerating pace to the point it is no longer deniable. The productive class will leave where the looter class doesn’t have as much sway.

    Once the size of the pension hole becomes obvious, compared to size of the tax base (is the 35% statistic close?), then maybe a TEA Party (Taxed enough Already) based legislature will disclaim the pension debt as illegal and not binding on the future, letting the existing pension funds and accounts cover or very partially cover all pensions. Why should the future pay for past performance? The pension deficit is much more than realized gain risk losses, but exists from systematic and long-term under-funding. I wonder how long before one generation says “these debts are not ours, we didn’t agree to them, they were corrupt, and we have no benefit form them.”

    Generational theft should end with the Boomers, who thus far only paid and voted to sustain the promises…They shouldn’t collect.

  • TRM

    As a baby boomer and former New Yorker who wouldn’t mind moving back, having the kind of income that would yield a nice little piece of change for the state with a reasonable tax rate, I am afraid to even buy an apartment there now.

    As for boomer retirements, here is one boomer that voted against these benefits since I was 18, well, 22, I voted for Carter when I was 18. I voted against them because I don’t expect the next generation will pay for them and slavery went out with the civil war.

  • TRM

    It is amusing that the generation that pushed Obama on us is blaming it all on the boomers though.

  • Alan

    vanderleun @28 said, quoting Fernandez at the Belmont Club: “…the one thing that definitely won’t happen, at least voluntarily — ever — which is that the Blue Model should give up its gains.”

    No, the Blue Model won’t give up its “gains” – but I expect a lot of people, mugged by reality, will give up the Blue Model. Only a few of those who are left will be productive with things people want, and so continue whole and able to preach; the remainder are apt to become bitter clingers of another kind, and welfare recipients.

  • b

    All the commenters claiming that certain blue states are wealth creators and send lots of money to the federal government (in income taxes) have not demonstrated that said *private* sector wealth creation has anything whatsoever to do with the wasteful public sector spending. And that is because there is no link.

  • Mark Michael

    Re: Comment #30 Chase and Comment #33 WRM

    The high-income “blue” states noted in #30 and to which WRM responded in #33 (CT, MA, NJ, MD, NY, etc.) also have high state and local taxes compared with lower-income mostly “red” states. State and local taxes are deductible on your federal individual income tax return. So wealthy taxpayers in “blue” states substantially reduce their federal individ. tax bill compared to their wealthy peers in, say, the South with their much lower taxes.

    So, yes, perhaps CT, MA, NJ, MD, and NY pay in more collectively as states than they get back in federal programs/handouts than poorer southern states, but a wealthy “1%-er” in a low-tax state pays a higher federal income tax than his peers in CT, MA, NJ, MD, NY, etc. since he can’t deduct as much as his northern high-tax-state peer. A wealthy person in, say, Texas is subsidizing New Yorkers.

    I’d propose that we END the tax deductibility of state and local taxes for the federal income tax. Then they could really complain about not getting enough of their taxpayers rebated back to their states! Why should wealthy 1%’ers in low tax states pay some of the taxes those 1%’ers in “blue” states should be paying instead?!

    If those “Progressives” want the 1%’ers to pay more federal income tax, why don’t they propose ending the deductibility of state and local taxes? Wealthy Wall Streeters with those very high incomes – and very high state and local taxes – would see their tax bills jump way up, just like the OWS’ers want! You wouldn’t have to raise the top marginal rate, either.

    I’d also point out that welfare benefits in those high-income “blue” states tend to be much more generous than in the poorer “red” states. California, as I recall, has very high percentages on welfare getting rather generous benefits – way out of proportion to what other states have.

    Those wealthy “blue” states should forego all federal welfare programs -if they could pay in less in taxes to the feds. It would be a good tradeoff for them, I’d think.

    Turn over ALL of the approx. 130 federal welfare programs and Medicaid over the states, while we’re at it! CA, NY, IL, MA, CT, NJ, MD, et al could continue to pay out very generous welfare benefits as they do now. The “red” states could continue to pay much less generous welfare benefits – just as they do now already.

    You’d cut out the middleman: the huge federal bureaucracies with their overpaid civil servants. You’d also (hopefully!) end the millions of pages of redtape.

  • Danram

    What we are now witnessing in Greece, Portugal, New York, California and Illinois is the predictable result of the “progressive” welfare state.

    As Margaret Thatcher once said … “The problem with socialism is that eventually you start to run out of other people’s money.”

    And yet the idiot voters of New York and California seem content to keep voting for the same Democrats who’ve brought them to the brink of bankruptcy and those Democratic legislators continue to put off making the fundamental reforms (i.e.: spending cuts) that might rescue their states, no doubt hoping that Washington DC will jump in to bail them out with taxpayers’ money so that the party can continue.

  • gladRocks

    I don’t understand. Krugman says when the government borrows a bunch of money it can’t pay back and spends it on “infrastructure”, everything turns wonderful…seriously…what happened?

  • Rob H.

    Wow, who could have seen this coming? Oh, that’s right: EVERYONE.

  • Peter Miller

    Anyone who believes that if these states or even the federal government hits some kind of bottom it will mean liberals suddenly having an epiphany about spending and big government just doesn’t know liberals. I live in NYC, where Democrat liberalism is a religion with deeply held beliefs as strong as those of the Catholic Church when it comes to contraception and abortion. No amount of real-world results will ever convince them that something might be wrong with their models. I could give you plenty of examples, but let’s just say I’ve had dozens, perhaps hundreds of discussions with liberal friends over the years as well as recently. Whether it comes to economics, foreign policy or domestic policy, they see only good and right in their approach, nothing but bad and wrong in the conservative approach and nothing in between. And welfare reform was of course the enlightened approach of Clinton who brought conservatives along for the ride. Not kidding!

  • Phantomorphan

    Someone above says “there’s no easy solution to the problem.” But there is a simple one: Pry the fingers of the public unions from around the government’s/taxpayers’ necks. In NYS the public unions, led by the teachers, own and operate the state government for their own purposes. Hence pension madness, lethal taxation and imminent disaster. But, as Creedence sang ages ago: “Their only cry is more, more more!”

  • Renfield

    “. . . Texas or Alabama or other benighted hell holes . . .”

    I was born in New York City and lived there for 10 years on and off. I now live in Alabama (though I do not know Arch or Mike). Beautiful new house in a gated community surrounded by natural beauty of postcard quality. Zero crime. Annual property taxes under $700. (And concealed carry permit in three minutes for $20.)

    It is New York City that is the hellhole, and I’m quite happy to have traded Menendez and Lautenberg for Sessions and Shelby.

    Blue-staters blubbering about sending tax money to red states should consider that (1) much of that money goes to maintain the federal highway system; and (2) voters in California, New York, New Jersey, Illinois, etc., CONTINUALLY re-elect the same politicians who historically raise taxes and increase the size of government. Anybody who voted for Corzine, Boxer, Schumer, Lautenberg, or Obama has NO GRIPE COMING.

  • Peter Miller

    Chase # 30–The Blue states, including (and especially) the one I live in, NY, is great. Blue states in general have some of the most wonderful cultural, civic, educational and entertaining institutions in existence. The social programs they and liberals have developed for more than 70 years have also been great–as envisioned or sold. The problem is that politicians being politicians always add to whatever giveaways they gave away in the first place until they become unsustainable, as they are based on static models whereby poputlation growth, economic fluctuations and a whole host of unknowns exist. That is what we are now facing, and it doesn’t matter that it has come to a head because of the great economic downturn, or whether liberals or conservatives were more to blame for it. Sooner or later a severe economic catastrophe happens, demographics change, etc. The only viable solution is to reduce the size of government, give the money saved back to the people, create programs that give individuals more control over their income and spending and more responsibility for their own health care, retirement, etc. and develop a true safety net for those who are physically or mentally unable to help themselves.

    Liberals call this a harsh worldview that makes it every man for himself. It can be if not properly designed, ensuring, for example, that if Social Security is eliminated the 12% of income (employee + employer contribution) that goes towards it must be directed to investments and that the investment choices have certain risk limits. There are many ways to do it and we are only limited by our imaginations, but as WRM has pointed out many times, the Blue Model is dying for lack of oxygen and not enough of it is being produced to save it.

  • Laurent

    As a NYer, I agree that the article and comments are correct. But the fiscal train wreck will hit some NY local govts (like NYC), but not the state itself, which has a better funded pension plan. CA and IL are much further on the way to financial meltdown. Caveat emptor, muni bond buyers!

  • Bob D

    Maybe they could put the Yankees up as collateral. Just sayin…

  • Vicky Bennett

    Wonder why I am seeing headlines about California and Ny being like Greece or in dire straits today?
    Aren’t they both run by LIBERALS…. Just asking.

  • EJM

    New York, California, Illinois, Michigan: All states in deep debt, with declining services, declining economies, high unemployment, and both capital and human flight.

    And all states who have slavishly followed the blue social model favored by European socialists and their American acolytes, like Obama, trying to institute it at the national level.

    The same policies lead to the same effects wherever they are tried. When will proponents of more government, more spending and higher taxes ever learn?

  • Charles

    @ Peter Miller – Why should I be required to hand over 12% of my income to the same “investment advisers” who crashed Bear Stearns, Lehman Brothers, Merrill Lynch, AIG and countless others (arguably the entire economy) into the wall?

    Simply return to a currency that retains its purchasing power over one’s lifetime instead of maintaining one that depreciates by 50% every 30 years and there is no NEED for the investment banking “industry” which produces no tangible product and provides no utilitarian service.

  • richard40

    have you ever noticed that all the states and cities that are close to going broke, Detroit, NY, CA, Ill, are all run by dems. I haven’t heard about TX going broke lately. In fact that lead the nation in job creation. There is one thing that might ruin TX as well though, not anything TX has done, but Obama, with his anti drilling policy.

  • ThatPeterG

    “Blue Policy?” NY had a do-nothing Republican governor named Pataki for 12 years until 2010, and the State Senate has been in Republican control (with one brief exception) for decades. And Republican mayors of NYC for the last 20 years….So, there’s plenty of blame on both sides of the aisle to go around….no need to assign it to one side or the other.

  • ThatPeterG

    2006, not 2010.

  • d farley

    At least under the Cuomo administration I feel like this state is at least a Democracy. NY hasn’t banned the word “gay” in schools like TN has, or has mandated vaginal mandates of ultrasounds, which in NY could be classified as rape. No major voter ID laws in NY. Health care is being expanded, public transportation funds were taken from what was denied by Rick Scott in Florida.

    As for cost of living, it is higher than many of the states of the midwest and south, but at least we aren’t ruled by preachers, theocrats, and politicians whose principles on dealing with poverty are something like that in the CZar era of Russia.

  • Teamosil

    Did you know that the median income in blue states is about $10k higher than in red states on average? In fact, almost every blue state has a higher median income than almost every red state.

    Definitely there are things blue states could do better, but obviously emulating their failed red state brothers isn’t one of them

    • Walter Russell Mead

      @Teamosil: again, look at the trend. The blue states are losing ground over time; they start with inherited advantages and are throwing them away.

  • GSpinola

    Where do I begin? How about property taxes?

    New York: $5,400 annually for a 600-square foot condo.

    North Carlina: $1,900 annually for a 2100-square foot house.

    All the standard public services exist down here in NC. We have roads, parks, schools, police, and firefighters. How good are these services? No worse than New York’s. The roads are better, but that surely has to do with the much milder winters.

    The point is that I don’t feel like a serf down here. Government down here is inefficient (what government isn’t?). But it’s not super-inefficient, and its appetite for my income isn’t nearly as voracious as its New York counterpart. I actually make progress when I get a raise down here.

    Finally, I was a “public servant” for over twenty-one years up in New York. I worked for a Highway Department. And how did we treat the taxpayers? Very shabbily. My guess is that we gave the taxpayers around fifty cents of “service” for every dollar they surrender to us in taxes.

  • JakeMcKenzie

    New York State,a true collectivist-redistributionist Utopia . Finally, at “Coffin Corner”. Not funny. Sad, Been watchin’ it for 40 years.

  • Rick

    New York put itself in the road to ruin many many years ago. I grew up in Syracuse in the 50s and 60s. Nelson Rockefeller was governor almost the entire time I lived there – 23 years. The original Rockefeller Republican. The GOP represented the unbelievable wealth of NYC, Albany was actually run by Democrat mafia crooks who were stealing the state right out from under Rocky’s nose, and Jewish collectivists who were unrestrained in spending and borrowing for a socialist utopia. I have to say that as crooked as NY politicians are, they did deliver good roads and good schools and a good subway system in NYC. Unlike California, where the politicians are less sophisticated in their thievery, but who are such doofuses that the roads and the schools are a shambles. I am truly amazed NY has lasted as long as it has with the amount of Democrat corruption in Albany.

  • powerpickle

    An acquaintence of mine is a classic example of the public sector pension problem:

    – Former NYPD emergency services (SWAT) with only 5yrs service.
    – claims bogus work-related injury (pre-existing condition from HS football days)
    – retired on “disability” at age 40
    -works off-the-books security jobs

    Because the police union hit the idiot politicians up for “presumed disabilities” (ie, claimed injury is automatically assumed to be due to work), he’s retired at 40yrs old with 90% of his salary (spiked, of course, with overtime and unused vacation) and full, gold-plated health benefits ($500 annual deductible and $5 – $20 copays)…all thanks to the good NYS tax-payer…did I mention he also works illegally on the side?

  • JET99999

    We know how the left will answer this. They will simply claim as Obama prefers to do, that its because the “rich don’t pay their fair share.” Wall Street bonuses are off more 20% this year and NYC is taking a big hit, but all the concern by Bloomberg seems odd, because Obama puts out the notion they’re all pretty much like Warren Buffet and paying next to nothing anyways.

    This entire war on the top 1% is nothing more than a hate campaign. First all approximately 354k or more in income per year puts a taxpayer(just) into this top 1% where many individuals are concentrated. These are primarily wage earners meaning they pay high effective rates and very high (35% to 45% plus including state ,city, medicare etc) marginal rates, and generally derive little if any income from low taxed (15%) cap gains or dividends like Warren Buffet does, who intentionally structures his income with low wage salary to avoid taxes.

    As for the so-called “Buffet Rule”, it may not actually apply to Buffet himself because the “taxable income” calculation still deducts out charitable contributions, but we need Buffet and his secretary’s tax return to figure what the exact situation is. You may have heard “Mr I don’t pay enough” Warren Buffet and his NetJets firm is fighting the IRS which claims they owe 300 million plus. Basically the IRS is treating NetJets like a private airline with equity contribution by so-called “owners”, arguably form over substance.

    Now 354k plus in NYC is reasonably well off but after taxes its not as if you’re ultra rich. I would argue in NYC its probably somewhere between upper middle class and very low wealthy class. Wall Street bonus types are easy to attack because they’re viewed as paper shufflers, but in fact in terms of numbers you will find many high value professions in this general range including scientists, engineers, MDs and so forth right at this level or thereabouts, particularly those with very high levels of expertise (e.g. 15 to 20 yrs out of medical school) including for example top surgeons or other specialist MDs etc that could well be saving your life down the road or even tomorrow, hardly useless Wall Street types.

    Posted by JET999998 | Report as abusive

  • Stan in Rochester

    Everyone in New York State (even the NY Times!) knows what the problem is – out of control pension and benefit obligations for public employees. Unfortunately, the state legislature is totally in the pocket of the public employee and teachers’ unions and is resisting the governor’s attempts to impose common sense changes to the pension system for future state and local government workers (current government employees are protected because the state constitution prevents changes to current employees’ pensions). We pay the highest property taxes in the nation as a result of the state imposing numerous unfunded mandates on the localities and the NY State economy flounders but the unions don’t care as long as their gravy train rolls on. Sadly, most of the public doesn’t think it’s possible to change this situation in any way. I wish New Yorkers had the option of ballot initiatives like some other states do. That’s the only way I see real change happening.

  • Tony Caruso

    This is more than just a fiscal problem. At its root, New York has practiced moral bankruptcy for years and they are now paying the price. Those who produce, i.e. the high income folks, got sick and tired of the corruption years ago and left. They weren’t willing to continue throwing good money after bad. Now they’re living the good life in Florida, which has no income tax, and there’s no one left to pay the bills. But don’t expect the socialists who run New York to admit they were wrong – that would take moral courage, and there isn’t any of that left either.

  • Lavaux

    New York’s Blue Model would work better and last longer if they’d just build a big wall around the entire state to keep the people in, particularly the rich ones. That’s how the East Germans were able to build such a prosperous, well run society that lasted over 40 years. No, really!

    Americans can always learn something by studying how other countries do things. We’re not really exceptional, after all. In fact, I’d love to read a WRM piece on how Cuba does health care …. Er, what’s that? Michael Moore has already been there and done that? Darn.

  • PacRim Jim

    Time to change from “New York” to “Yet Another York”

  • Penfeld

    This discussion should not go without at least passing mention of the winners and losers in the net transfer of Federal tax dollars.

    The top ten net gainers in the Federal taxation scheme, receiving as much as twice in Federal outlays as paid in Federal tax over several decades, are: New Mexico, Montana, West Virginia, Mississippi, North Dakota, Alaska, Virginia, Hawaii, South Dakota and Alabama, solid Red States almost all and none that can reasonably be called Blue States.

    The top ten losers in the Federal tax transfer scheme, all receiving less in Federal outlays than they pay in taxes, are: Connecticut, New Jersey, New Hampshire, Nevada, Illinois, Minnesota, Michigan, Delaware, Wisconsin, New York, almost all of them solid Blue States with a few Purple States.

    In fact, the only traditional Red State on the negative end of the Federal tax transfer ledger is Texas. Blue States subsidize Red States.

    Now, I’m willing to accept that Blue States are also making poor decisions with regard to pensions, spending, etc. but if we’re going to turn this into the obligatory blustery Mead rant about the “Blue Model” writ large then to be intellectually honest we have to look at the advantages Red States have received from the largesse of Blue States.

  • Howard Evans

    What needs to be looked at in detail is the manner in which Mead has cherry picked numbers, exaggerated and just plain manufactured his supporting data to arrive at an “We were right all along” conclusion.

    Let’s start with NYC, which raises only a small amount of its operating capital from property taxes. It raises more from income taxes than property taxes, and as much from financial transaction taxes as all other sources combined.

    I tend to keep better track of retiree benefits in NY than most people, because I was treasurer of our small village a few years ago and still do budget analyses for our mayor, and because my wife is a NYS retiree.

    All state and local government retirees receive a pension from the NY State and Local Retirement System. For the fiscal year ending in March of 2011, the fund had a balance of $146.5 billion and returns of $14.6% for the year. For comparison, the payout in that year to all state and local retirees was $8.5 billion, or about 6% of the fund’s balance before earnings.

    Pension costs to municipalities come two ways: in the percent of current payroll they pay to NYS Retirement each year, and in covering healthcare insurance for retirees. Here in the village of 3000 where I live, that collectively is a tiny portion of the $5.5 million annual operating budget.

    Mead’s conclusions and prescriptions are no more accurate than his data. I take it American Interest is staffed largely by the people whose credibility was too strained for Fox News.

    • Walter Russell Mead

      @Howard Evans: Excellent. No problem at all. The New York Times is a right wing hate sheet, worse than Fox. Cuomo is a deranged anti-union loon. The pension funds are in excellent shape; so is the state and so are all the cities and counties. Full steam ahead!

  • Ellen K

    At some point, in liberal homes, the family talk about Wants vs. Needs never occurred. Perhaps it was because my father was a child of the Depression or maybe it was just good Texas common sense, but we didn’t buy what we didn’t need if we could not afford it. So while I went to college, it was paid for and my parents gave me the gift of not being in debt when I graduated. Now we have kids who believe that student loans are simply a way of life and who also believe their are entitled to a country club lifestyle while they attend. In a similar fashion, we have adults who run up their credit cards and then expect others to bail them out. This is what I consider to be a liberal attitude and it resonates when you see what the governments in largely liberal states have wrought.

    California, Illinois, New York, Michigan reads like a litany for bad government. They have placated a patchwork quilt of demographic categories with draconian fixes and benefits in order to rally votes. Waivers, grants, agencies, appointment and programs all add up to more bureaucracy, more cost and down the line, economic failure. They support things like “the arts” when they cannot afford such social largesse. Please, don’t get me wrong, I teach art and I am an artist, but to be supporting arts programs during a period where people are struggling to survive seems like poor decision making. Lorenzetti painted a mural entitled “The Allegory of Good Government” which was meant to be a reminder to civil servants that when their actions were prudent and measured that the population in general benefited. While Blue States like to claim Red States abandon the arts and similar programs, I would say that being prudent, we are more readily able to support things fully AFTER we have taken care of the necessary things that must be done. It makes no sense to support non-essential feelgood programs when there are potholes in the streets and homeless people living under bridges. And that is the message I would send from Dallas to New York.

    PS. New York does have wonderful museums, but I would put the Kimball in Ft. Worth right up there. And the Winspear Theater in Dallas is state of the art. So spare me the idea that we are a bunch of backwoods yokels. Not having to live hand to mouth does have its benefits.

  • Otis McWrong

    @Penfield: I know you’re not the only person claiming that federal tax outlays to “red states” leave them short-changed, you’re just the most recent. Also it is very big of you to acknowledge that New York has made poor decisions with regards to pensions. You may have also noticed the sun rising in the East.

    Some thoughts for you.

    1) you include Hawaii as a red state. It is reliably blue and one of the most liberal states in the country. Elvis and “Blue Hawaii” and all that.
    2) You mention my home state of Virginia. Virginia includes the world’s largest Naval base in Norfolk and has numerous other military bases, not to mention the CIA and other federal agencies. Being directly across a river from Imperial Rome is more a driver of VA’s net benefit than any red state/blue state causes.
    3) Montana? Really? If Montanans paid more in federal taxes New York and CA wouldn’t be such basket cases?

    If NY/CA are so ill-served by the federal behemoth, why do you keep sending the same redistributionist hacks to the Senate and the House? Also, I assume you included all the bank and Wall Street bailouts in your tally of what a given state receives. Even with the hundreds of billions in bailouts NY is still on the net minus? I’m not buying it.

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