The following appears in the February 24-March 1, 2012 issue of the Long Island Business News:

 In a remarkable essay titled “The Once and Future Liberalism,” historian Walter Russell Mead explains why “the core institutions, ideas and expectations that shaped American life for the 60 years after the New Deal don’t work anymore.”

In the post-World War II era, the United States was the world’s richest, most powerful and most productive nation. We possessed half the world’s wealth and produced two-thirds of the world’s machinery. British historian Robert Payne, after touring the United States in 1949, rightfully concluded “the rest of the world lies in the shadow of American industry.”

To secure their slice of the American dream, the “Greatest Generation,” World War II veterans, embraced what liberal economist John Kenneth Galbraith called the “Iron Triangle”: Big Government, Big Business and Big Labor Unions. Taken together this “blue model,” as Mead calls it, permitted both blue-collar and white-collar workers to procure lifetime industrial and government jobs that provided defined benefit pensions, shorter work hours, more leisure time and earlier retirement.

In the “halcyon days of the blue model,” American industries, utilities, insurance companies and banks were so mighty and so protected by federal regulators they could easily afford the expense of these higher labor costs by simply passing them on to their captive customer base.

By the 1970s, however, the industrial blue model began to decay and today it is financially in extremis. New communication models, foreign competition, offshore financial markets and the environmental movement were the death knells for Ma Bell, the Detroit auto industry, regulated airlines and banks, and scores of manufacturing plants.

Private sector managers and their trade labor union employees that clung to the blue model (i.e., steel industry) experienced shrinking market shares and profitability, and eventually went out of business.

The few blue companies that have continued to limp along have needed government trade protection or direct subsidies to survive. In Mead’s judgment, however, “neither works very well or for very long. Both are unsustainably expensive given current levels of national debt … and using public resources to try to prop up the old system is a waste of those resources and a hurtful diversion from the need to figure out what we need to do next.”

The great American crisis today, Mead argues, “is the accelerating collapse of blue government, not blue private industry, which is a phenomenon largely behind us.” The costs of the blue system social contract – retirement and other social benefits – are exploding and it is unlikely that federal, state and local governments, “the last true blue employers,” will be able to fund these obligations at some future point. Voters, particularly those with insecure private-sector jobs, defined-contribution pension plans and incomes below public-sector workers, will refuse to be taxed to pay for the costs of blue government.

Concluding that most politicians and bureaucrats have refused to face fiscal realities, Mead gives this gloomy prognosis:

As long as the federal government can print money and find lenders to buy its bonds, it can bleed slowly. … But state and local governments increasingly need vast transfers of cash from the federal government to keep their blue noses above the rising tide. The stock market declines after September 2008 wiped out huge chunks of the wealth that state pension systems needed to have even a hope of paying the pensions promised to government retirees. … California and New York are headed over the cliff without federal bailouts, and others are following close behind. That is why a substantial share of the Obama administration “stimulus” spending was targeted less at New Deal-era infrastructure projects than at simply keeping unsustainable state bureaucracies and systems afloat for a few months or years longer.

Mead’s trenchant essay on the need to get beyond the dysfunctional and outdated ideas of 20th century liberalism is a must read particularly for delusional Long Island politicians who strive to “retrieve the irretrievable” blue government model.

This article I wrote appears in the New York Post on February 17, 2012.

 The following appears in the February 10-16, 2011 issue of the Long Island Business News:

Gov. Andrew Cuomo’s executive budget for the state’s fiscal year that begins on April 1 is an intriguing document that on the one hand addresses some fiscal and policy issues long ignored while on the other hand placates some special interests. Here’s my take on his proposals.

The all-funds budget calls for total spending to be about the same as last year, $132.5 billion. If enacted, this will be a major victory for taxpayers. It will be the first flat budget since 1996 when the nationally renowned Patti Woodworth was Gov. George Pataki’s budget director. Since she left Albany in 1997, annual state spending has increased on average about 2.5 times the inflation rate.

Cuomo’s claim that his budget will be balanced without raising taxes and fees is true but disingenuous. That’s because Albany raised state income taxes in December 2011. The so-called tax reform bill that was embraced by both the Democratic-controlled Assembly and the Republican Senate actually imposes higher taxes on top earners to the tune of $2 billion compared to what would have been paid under the permanent, pre-2009 tax rates.

The tax increases were necessary to fund Cuomo’s unfortunate 2011 pledge to raise school aid and Medicaid funding by 4 percent in this year’s budget. If, however, the 2 percent property tax cap law that municipalities and school districts must follow applied to state spending in these areas, there would have been no need for additional tax revenue.

According to a Tax Foundation study released in January, New York has the second highest combined income, sales, corporate and property tax rates of all the states. And the Cuomo tax increase won’t help improve our ranking next year.

Cuomo’s call for the state to take over Medicare local cost increases is a step in the right direction. But much more relief from unfunded state mandates is needed to prevent many municipalities from falling into a fiscal abyss.

The proposal to create a new pension tier that would offer future state and local government workers a 401(k)-style defined contribution pension plan as an option and would save state and municipal governments $113 billion over 30 years is a first bold step to contain unsustainable defined-benefit pension costs. (In New York City, for instance, pension contributions, which totaled $1 billion in 2000, will be $8 billion this year and are expected to continue increasing annually.) While the proposal, if enacted, will not be enough to contain the pension cost explosion, nevertheless, as the Manhattan Institute’s Ed McMahon stated, “Cuomo deserves credit for finally putting real reform on the table.”

Cuomo threw down the gauntlet to the United Federation of Teachers and the New York State United Teachers by demanding the unions drop in 30 days their lawsuit against the state Education Department concerning teacher evaluations that is imperiling $700 million in federal education aid. If they refuse, the governor will include his own evaluation plan in his revised budget resolution.

The governor also informed school districts that if tougher teacher performance standards are not implemented by January 2013, they will lose state aid increases in next year’s budget. “The equation is simple at the end of the day,” Cuomo said. “No evaluation, no money. Period.”

If he follows through by effectively using the powers of his office to implement his budget proposals, it will be a battlefield victory in the war to tame Albany’s entrenched special interests.

Nevertheless, if the Empire State is to become economically competitive and is to stop people from voting with their feet and moving to tax and job-friendly states, Cuomo will have to continue to contain spending and enact genuine reforms that slash taxes, regulatory burdens and unfunded mandates.

This article I wrote appears in the New York Post on February 8, 2012.