Boiling the Frog

Have We Finally Boiled the Frog?

In a previous life I was a credit officer at a bank. When loan officers wanted to justify making loan by saying that “it is almost as good as one that was recently approved” I would tell them they are boiling the frog. The idea is this: a frog is a cold-blooded creature, so as the temperature changes so does its body temperature, as opposed to warm-blooded creatures that sweat or otherwise attempt to maintain a pre-determined body temperature. Placing a frog, then, in a pot of water of water and turning up the heat would cause the frog to adapt to the higher temperature: it would feel good. Turn the temperature up a bit more and the cycle repeats: the frog adjusts and still feels good. Eventually, though, the temperature gets to the level that the frog’s blood boils and it dies. The frog felt great until the end.

Hence my headline. I live in (the Peoples Republic of) New York state. Our budget crisis is staggering on any dimension one wants to contemplate. Tax revenues are down on cyclical basis, of course, but are also down on a secular basis, too. Despite the profits at Goldman Sachs, there are fewer Wall Streeters today than a year ago and they make less. Wall Street supported the spending urges of NY state politicians to the tune of about 40% of the state’s budget. The numbers are similar for New York City. Governor Patterson has sounded the alarm about the deficit that is approaching $10 billion over the two year budget period, even though (because?) the legislature taxed anything that moved or even threatened to move. He wants the legislature to impose spending cuts since the increased income rates have caused a number of rich New Yorkers to flee the state, notably Tom Galisano. Mr. Galisano co-founded Paychex in Rochester, ran for governor three times, and owns the Buffalo Sabres, a hockey team. He changed his legal residence to Florida saving (please be seated and have smelling salts handy) over $13,000 per day in NY State income taxes! This is income that is now taxed at 0% by the State of New York. Even the most mathematically challenged amongst us knows that zero times anything is still zero.

The legislature has avoided cutting spending, instead it increased taxes on a laundry list of items, many of which the citizenry could avoid by either not buying altogether or reducing the rate of consumption. These they did with a vengeance. As such, tax collections after the imposition of the new fees have lagged even further behind than the projections estimated.   Despite this, the legislature won’t move.

Watching this train wreck unfold in slow motion over the past year I finally was struck by the realization that the legislators don’t seriously believe that anything they do in the form of raising tax rates, adding regulations ( hidden tax), or not addressing structural issues in the state’s budget will boil the frog.

If they are stupid enough to believe that what they are doing will improve the lives of New Yorkers, they need to be institutionalized. However, I believe that they know that what they are doing isn’t helpful for the greater good but it does help get them re-elected and favorable coverage in the NY Times. They don’t conceive that their actions will be the one that gets the temperature to the boiling point. A little more taxation won’t hurt; after all, this is America and New York, the Empire State, nothing can prevent us from achieving our destiny, whatever that is.

The legislators and their minions: state employee unions and do-gooders of all stripes; truly believe that even though this tax rate increase has detrimental effects, the economic prowess of New Yorkers will overcome it and grow the economy to new heights. Any discussion to the contrary is dismissed as the talk of greedy capitalists, people who don’t want to share the burden in the downturn.

The sad fact is that new business ventures don’t set up shop in NY unless the taxpayers lavish untold million in benefits on them. Our universities educate people that work in Texas, Illinois, Utah, and elsewhere, anywhere but NY. Well-to-do seniors flee to Florida to escape NY’s confiscatory income and property taxes. Many return to Canada for the summer but not to NY.

This problem has been the province of a handful of profligate state governments: NY, NJ, CA, and IL, to mention some of the worst; until recently. It has now come home to roost in DC. The US House and Senate and Administration seem to believe that no matter what program they inflict on the US economy, it will be able to shrug it off and keep increasing living standards for hundreds of millions of people here, as well as untold millions more elsewhere. How else can one rationalize deficit spending that is adding a trillion dollars per year to the national debt; or a cap and trade energy bill to correct a non-existent problem; or a health care plan that is so flawed and expensive that the house has to count part of the expenses in another part of the overall budget to make the arithmetic work?

These are not cruel people that wake up plotting the destruction of American civilization each day. Many may prefer that we were more like the Western European countries with a much larger presence of government in every decision. None, I don’t believe, want to destroy the wealth producing miracle that is the US economy. However, their actions are doing just that. They are boiling the frog, all the while thinking that “just a little bit more” won’t hurt.

My guess is that if these legislators and executive branch officials were confronted with the costs they impose on society and told if their actions worsened our lives, then it would come out of their pockets that they would be much more circumspect in their advocacy of higher taxes , more regulations, or more mandates.

Both NY state and America are rich places with many people with incredible ingenuity but even here eventually the frog will boil.

Jim

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One comment on “Boiling the Frog

  1. buckeye9 says:

    Bob adds,

    There is a similar method used here in Massachusetts, but we boil a lobster. There is even a debate about whether it is better to place the lobster in a warm pot and raise the temperature or to just fling it into a boiling pot.

    I agree that the cooks are not evil (at least most of them) but they are appallingly ignorant about economics, especially tax effects on behavior. I don’t understand why the politicians who persist in job destructive policies in the face of overwhelming evidence of their damage get re-elected. Voters must have some complementary disease.

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