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SEIFFE:  Structural Incompetence 

Sunday, May 13, 2007

By Ralf Seiffe

Readers of The Illinois Review are likely to agree that markets are the best mechanism to regulate most human activity.  Businesses embrace markets because they are efficient as well as ruthless; the successful are rewarded and incompetents are quickly dismissed.  Unfortunately, politics is not subject to market disciplines--it must be the only business in which abject failure is rewarded with increased responsibility. If things go as the pundits predict, Illinois’ General Assembly will offer proof of this regrettable quality over the next couple of weeks. 

Markets charge business managers with producing some product or service for which the public is willing to pay more than the cost and that executives tell the truth about the business’ condition.  Markets have little tolerance for managers who do not measure up to these standards. Certainly we all have experience with bad managers in the private sector but when an entity becomes a certain size, the markets work.  Enron is a perfect example; the exchanges had marked down the company’s stock to near zero long before federal prosecutors moved in to make criminal charges. 

That’s why Illinois’ situation is so frustrating.  By any measure, “Illinois Inc.” is an utter failure. The State’s Constitution requires the General Assembly to refrain from spending more than its revenues and there is a statutory requirement to budget truthfully.  Nevertheless, the State’s managers have ignored these imperatives and have accumulated a huge debt that continues to expand. 

The State misleads us by systematically spending money it doesn’t have.  When it funds new projects with cash that should have paid outstanding bills, it is creating the illusion that our State’s financial condition and capabilities are better than they actually are.  That is no different than a crooked, private sector executive inventing false profits and then telling analysts that they should mark up the company’s stock price.  The public sector analogy is for politicians to point to new benefits they have created as the reason to be reelected. 

No one even knows the size of the deficit; Democrat Representative Jack Frank estimates it at $50 billion while other civic watchdogs believe the total to be at least twice that size and whatever the truth is, it will be bigger tomorrow, The State’s bosses--Democrats and Republicans--have managed to create a financial deficit that rivals a cosmic black hole from which no light, let alone logic, can escape. 

One reason for this black hole is because governmental accounting standards let politicians  account for their pension costs in ways that have been exorcized from the private sector.  Illinois could live up to the higher standard businesses must apply but our leaders would rather take advantage of every loophole and effectively, lie about the State’s financial condition. 

This economy with the truth proves our General Assembly poor stewards of the State’s purse and disingenuous if they even consider the Governor’s proposed, open-ended entitlements.  One would think the General Assembly would fund the promises it has already made before taking on new ones. 

They probably would if their financial statements--the manager’s report card--were designed to illuminate rather than feed the black hole. 

Such self-delusion is a lethal combination in the private sector.  Corporate “accomplishment” created by fraudulent financial statements is an unforgivable offense and the feds regularly indict those who profit from this particular offense. 

But, in Springfield, “no problem!”  Indeed, if there is a problem, it’s their justification for rewarding themselves with more money in the form of a tax increase.  Despite behavior that would not be tolerated by any functional market system, our leaders believe that they should be rewarded with a larger slice of the State’s bounty.   

Their current rationale is that raising taxes is the only solution to the State’s “structural deficit.”  History says otherwise.  Didn’t they tell us that the income tax would solve our financial problems?  Didn’t that same notion support the increases in the sales tax over the years and wasn’t that part of the justification for the lottery and for introducing gambling in Illinois?  The empirical evidence is that we don’t have a “structural” problem as much as we have a legislature that will game any tax structure. 

Now that the Governor’s feint over the Gross Receipts Tax has earned its deserved fate, many believe the General Assembly will use its 107-0 vote against the GRT like a magician to misdirect Illinois’s taxpayers into accepting an increase in the State’s income tax or sales tax.  The leaders will tell us there is no alternative to raising taxes and that they are competent to manage the State’s affairs when they get the new money. 

In a market system, these architects of our financial disaster would find themselves sitting on the curb outside the statehouse with a banker’s box on their knees.  Their boxes would be filled with photos of themselves shaking hands with more famous politicians and with phony plaques awarded to them by organizations completely dependent on the kindness of government.  They would not be on their way to other state agencies to enjoy lavish salaries, attractive per diems and triple-dipped, overgenerous pensions that no longer exist in the private sector. 

Indeed, one could make the argument that our largest-in-the-nation public deficit makes Blagojevich, Madigan and Jones uniquely unqualified to manage the state.  There is no possible justification for providing more resources when they cannot manage what they already control.  A $100+ billion deficit is proof that these so-called leaders roundly ignore the intent of the State’s budgeting and spending laws and that they are abjectly incompetent managers.  By consenting to new sales or income taxes, we explicitly reward that failure.

© 2007 Ralf Seiffe

Ralf Seiffe advises business start-ups and product launches from Chicago, Illinois and is a political analyst and columnist for the Illinois Leader and Illinois Review.

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