Late-Stage Animal Farm

The noise you hear is politicians squealing like pigs deprived of food. Government, at all levels, is out of money. Tax revenues and markets refuse to bow to the pigs' demands.

Ben Bernanke is printing pig food. For a while, his produce might work, but eventually markets will expose his artificial feed source with increasingly higher inflation.

State and local governments have no way to feed their pigs. They survived the last couple of years based on overblown stimuli and political largess from Washington. Now Washington does not have enough for its own pigs. They are not about to share what they consider too small a food supply with others. For states, the game will end soon.

Steven Malanga focuses on the problem below the Federal government level:

Their biggest problem has been that until now most state legislatures and governors have continued to see the current downturn as just another budget cycle, albeit a nasty one. In their budgeting, states have acted like they expected tax revenues to bounce back significantly, and so rather than pursuing basic long-term reforms, legislators have used stimulus money and one-time revenue raisers to patch over deficits.

As we move deeper into our economic crisis and closer to the point where it is recognized as a depression, states will be confronted by the reality they have temporarily avoided. The Feds will no longer provide slush funds to support their profligate ways. The world has changed. Government hasn't. It will and it will start below the Federal government level. 

The old ways of doing business are over:

... governors and legislators always find it easier to create reform commissions than to enact their proposals. New Jersey began facing fiscal problems earlier than other states, and government there produced a number of reform proposals during the tenure of Gov. Jon Corzine from 2005 through 2009. Yet the most serious of these proposals, including significant pension reform, went nowhere. Corzine paid the price when he became a one-term governor. The current crop of new governors may face the same dilemma, that is, having to push through true reforms in the face of stiff opposition from special interests, or facing voters in four years and explaining why little has changed. 

States are about to experience what so many families have in this downturn -- unemployment, downsizing, payroll reductions, etc. The welfare state, expanding for almost 80 years at the expense of productive citizens, has passed its zenith. It is no longer sustainable and is now in the process of reversing. Politicians will be forced to try and manage the decline. Only markets, however, will determine whether the decline is gradual or sudden. 

The final chapter of Animal Farm is in progress. Markets and adults have regained control. Pigs are being returned to their proper place in the food chain. 

It may be an opportune time to operate an abattoir.