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John Hood: Serious leadership lacking

RALEIGH ó Those who would participate in politics should possess a healthy sense of humor. It helps. But that doesnít mean they can afford to be unserious about the major issues affecting North Carolina and the nation.
As I survey recent events in Raleigh and Washington, I see far too many politicians who fail to exhibit the seriousness needed to grapple with the present moment. They are debating yesterdayís issues, using yesterdayís language and defending yesterdayís conventional wisdom.
Itís long past time for them to update their operating systems to todayís realities.
North Carolina is recovering all too slowly from a deep recession. Continuing economic woes are crimping government revenues, leading to persistent fiscal woes for state government and localities. Budget deficits arenít a fleeting problem. They canít be fixed with stopgap measures.
More generally, American government costs too much and delivers too little. During the past two years, Washington has run massive budget deficits equating to about 10 percent of gross domestic product, much of it spent papering over state and local deficits with federal borrowing.
In the short run, policymakers have to do what is necessary to close these deficits ó and in ways other than imposing economically destructive and unfair tax increases.
But these short-term operating deficits, while severe, arenít the only budgetary problem facing state governments. They are only the immediate symptoms. In each of the past two fiscal years, the total national difference between planned state spending and projected state revenues has exceeded $100 billion. Thatís certainly a lot of money by any standard.
But two longer-term problems are far more serious. One is a structural gap between current state revenue projections and massive future liabilities for obligations such as pensions and health plans for public employees, debt service, and deferred maintenance of public buildings and infrastructure. This fiscal imbalance is denominated in the trillions of dollars in the nation as a whole, and in the tens of billions of dollars in North Carolina alone.
The other problem is even more basic: taxpayers donít get a good return of return on the money their governments spend. Even if government books were balanced, this fiscal failure would impose opportunity costs on our economy ń fewer jobs, lower incomes, less safety and innovation ń in the tens of trillions of dollars over the next few decades.
Obviously, the short-run crisis requires immediate action. But as state policymakers close their short-run deficits, they should avoid taking steps likely to worsen fiscal imbalances and failures in the future. And they should recognize the connections that bind all their fiscal challenges together: the incentives imbedded in government that reward waste, expand bureaucracy, encourage debt, discourage responsibility, and protect costly and ineffective public-sector monopolies.
Whether in business or government, productivity gains are the gateway to success. It is no accident that the two sectors of the economy with which North Carolina government is primarily engaged ń education and health care ń are precisely those sectors where productivity gains have proven difficult to accomplish and where we spend more money than most of our international competitors, without commensurate improvements in outcomes.
It is not enough, therefore, for North Carolinaís governor and legislature to scrounge up enough cash to sustain our current education and health care systems for the next two fiscal years.
These systems need fundamental, lasting reform. Even in education, where North Carolina may rank below the national average in expenditure, our expenditures far exceed what most of our European and Asian competitors spend.
The problem is not an insufficiency of funding. Itís an insufficiency of positive incentives, competition and choice.
I can understand why the interest groups who run and derive income from government education and health care programs donít want to see them changed.
But serious leaders would be willing to overrule their objections and embrace fundamental reforms such as school choice and consumer-driven health care. And serious leaders would embrace the need to restrain the growth of entitlements such as Social Security and Medicare.
Itís funny how rare such seriousness remains.
On second thought, no, itís not.

John Hood is president of the John Locke Foundation and publisher of CarolinaJournal.com.

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