Epstein's Resolution for Failing State Governments: Deregulation

Deregulation Now
Richard A. Epstein
January 5, 2010

As we enter a new decade, the political mood of the country can be captured in one word: glum. In particular, there is widespread recognition at the state level that conditions have reached near crisis proportions. In states like California, Illinois and New York, large deficits and service cutbacks loom everywhere, as traditional tax bases can no longer support the ambitious entitlement programs that rest precariously upon them. Tax revenues are down 10% across all states, even as taxes are raised in half of them.

The consequences are serious. Just look at the implosion in higher education now taking place at the University of California. State revenues have gone dry and budgets are slashed, yet student and labor protests make it difficult to raise tuition and fees needed to maintain a strong institutional base. More and more students cannot complete their education in four years, as unpaid furloughs will drive the best professors, administrators and students elsewhere.

Tragically, this lesson often goes unheeded. Too many faculty and students link arms with union organizers in the naïve hope of extracting blood from a stone. A bankrupt state cannot increase allocations to the university. But affluent citizens pack their bags to move to low-tax jurisdictions. And those who stay do more tax-free work at home or participate more heavily in the underground economy.

At this point, it won't work to reaffirm the deadly triumvirate that drives this misery: tax the rich, greater local control over real estate development and special privileges for organized labor. What's needed is to break from the past with some unimaginative, but necessary, New Year's resolutions in the areas of taxation, real estate and labor.

Richard A. Epstein