Saturday, May 18, 2024

Did Politicians Learn their Lesson from the Great Recession?

Governor cuts pay, calls for furloughs for state employees.”

[North Carolina governor] suggests sales tax increase.”

[North Carolina Governor] Signs Billion Dollar Tax Hike.”

These Great Recession headlines from 2009 refer to the state under Democratic Gov. Beverly Perdue and a Democratic-run General Assembly. 

But firing teachers and raising the regressive sales tax that harms low-income families disproportionately are things progressives claim to despise.

How did the state get to that point?  

A generation of irresponsible and reckless spending guaranteed the state was ill-prepared for the Great Recession (2007–09). During the thirty years prior, North Carolina’s state budget tripled in size, even after adjusting for inflation. Real expenditures grew at three times the pace of population.

When the recession hit, the government cut state employee pay and jobs and introduced new taxes costing taxpayers $1.1 billion to avoid budget shortfalls.  

Inadequate Rainy Day savings, too, led to panic. It’s common knowledge that it is nearly impossible to save in a crisis. This makes savings during the good times the government’s responsibility, albeit politically unpopular, with many of the state’s employees and programs clamoring for funding. Yet at the end of FY 2007-2008, the Rainy Day fund balance stood at $849 million, less than 5% of the state’s operating budget. The state’s goal at the time was 8%.

It’s also unwise economic policy to raise taxes in a downturn, prolonging sluggish growth. But in 2009, as the state faced 10.6% unemployment, the seventh highest in the nation, the state raised taxes. 

Ultimately, these policies and state leadership’s appetite for spending hurt people. Teachers and other state employees were fired. And individuals who still had jobs in the private sector were coerced into giving more of their money to the state. 

Progressive policies, like those under Gov. Perdue, often prioritize short-run, visible results on certain groups, to the detriment of all — and the future. The policies may sound warm and fuzzy and are often framed in terms of helping a marginalized group or funding an important initiative. It is easy to stand behind progressive policies that promise immediate benefits to sympathetic groups. But the truth is, they don’t work. And we must be skeptical of authoritative promotions of good intentions. They too often end up hurting those they intend to help

And the short-sighted policy of rapidly expanding government during the booming economic times of the early 2000s ended up causing chaos when recession inevitably hit. 

It takes courage and willpower to say no to the politically expedient “quick fix” and yes to policies whose results may not be immediately visible, such as saving for the future and responsibly restraining spending. Conservative policies tend to focus on long-run results as they affect multiple or all parties. As such, they are much harder to articulate and envision in a tangible way. But they work. 

In North Carolina, we have an important case study in short-run versus long-run priorities. Since 2013, the new, conservative General Assembly has restrained spending and cut taxes. We have become the most business-friendly state, and people are voting with their feet and making the Tar Heel State their home. Today, North Carolinians are set up much better for the next recession. The Rainy Day fund sits at $4.75 billion, and the General Assembly last year created separate reserves to cushion against inflation.  

The political “wins” for conservatives often take time to yield results. It is easy to forget the committed, monotonous, and politically risky efforts that went into the restrained savings, for example, that allowed hardworking families to keep more of their money today. 

And once realized, it can be easy for others to cash in on the gains without acknowledging how these came about. Gov. Roy Cooper’s calls to shortsightedly spend down the savings amassed over several years comes to mind. 

This dedication must be acknowledged. We are grateful for a limited government that works for families and not politicians. With continued discipline and an appetite for reforms that benefit everyone, North Carolina can continue as a national leader and the best place to call home.  

Paige Terryberry is a Senior Analyst for Fiscal Policy at the John Locke Foundation in Raleigh.

This article was originally published by RealClearPolicy and made available via RealClearWire.