The Conservative Approach to Defunding the Police

This post was published in Rochester's daily newspaper, The Democrat & Chronicle, on June 21, 2020

Will Hurd is the only black Republican in the House of Representatives.  In a Wall Street Journal op-ed, he laid out his proposal for reforming the police.  Included was the implementation of best practices for police departments to be eligible to receive their portion of the $2 billion the federal government provides to police departments annually.  Implicitly, Rep. Hurd is saying Congress will defund police departments that don’t meet federal standards.

 

The clarion call to defund the police sounds like one end of a binary choice: either eliminate police department budgets or leave things as they are.  Of course, neither of those options are acceptable.  

 

At a local level, defunding the police will take a different form in every community.  In 2013, the city of Camden NJ dissolved its unionized police department and signed a service agreement with the county to provide shared services according to Bloomberg News.  The police were trained in non-crisis intervention and provided with body cameras.  The result has been a reduction in crime and improved community relations.  Last week, Camden police marched in solidarity with #blacklivesmatter protestors.  

 

Would Camden’s solution work in Rochester?  

 

The best approach is for each city to adopt solutions well-suited to their specific communities.  Can the federal government extrapolate a single, one-size-fits-all solution for the nation?  Would connecting that solution to funding have its intended purpose?  It’s unlikely. 

 

There are effective resources the federal government can apply to assist communities.  However, the very nature of large, well-funded federal programs attracts influencers who would undermine its intent and render it ineffective.  By the time lobbyists for police unions and lawyers for social justice organizations got through with it, there would be nothing left of Rep. Hurd’s good intentions.  Bureaucrats would create a set of rules, mayors would declare themselves in compliance, police chiefs would issue carefully worded policies, and nothing would change.  

How about this?  Eliminate the $2 billion in federal funding altogether.  The overall system of taxing Americans and redistributing the funds through federal programs is inefficient, ineffective and unresponsive to the needs of our communities. It would be better to leave the funds in our communities and trust local leaders to affect change.  They would be more responsive and more likely to craft something that works.   

Of course, that’s my libertarian fantasy.  It’s not as though eliminating $2 billion in funding would return that money to taxpayers or the cities we live in.  Two billion dollars is a rounding error on a federal deficit funded by funny money created by the Federal Reserve.  So, we must have our portion of the $2 billion.  But I would rather trust our African-American mayor and local community leaders address our need for reform.  Central planning doesn’t work.  Never has; never will. 

 

WHO WILL LEAD? 

Bailouts, bankruptcies and the Middle Class

Our pre-pandemic stop in the Atlanta suburbs to visit my brother and his wife began a months-long dialog about the state of the nation.  On that occasion, we shared wine and political views --  simultaneously.  That can be a deadly combination but we somehow, we managed our way through it without resorting to violence.  Kidding aside, we had no major differences of opinion largely because we are members of the American, suburban middle-class. 

Our political views are affected by our shared values.  What the suburban middle class has always had in common is our desire to provide a secure home for our families, to support our children’s aspirations and to be financially secure in our retirement. Yes, we have that in common with others who are not in like socioeconomic circumstances.  But the middle class have shared experiences that bind us.  We have endured the ups and downs of the economy, job losses, mortgage crises without an expectation that a government bailout will carry us through.  My brother and I both have been small business owners.  We have gone through years of reduced or no income and still managed to pay the mortgage and save for our kids’ college education.  

I have always assumed we were in good company – that our neighbors shared our values and habits.  But, as I wrote last year (Borrowing Our Way to the American Dream), middle-class families are carrying more debt than they should to maintain their lifestyle.  Middle class living became more luxurious as two income families became prevalent.  Two jobs mean you need two reliable cars (we had one when I was a kid). All that hard work deserves a bigger house and bigger houses mean the kids no longer have to share bedrooms (as we did).  After school activities require big expenditures for travel and sports equipment (it was free, or we didn’t do it).  

In a recent email from my brother, he expressed his astonishment (okay, he ranted a bit) over a news report “showing long lines at food banks.”  The report was a public service call for contributions to keep the food bank stocked. Unemployed middle-class people were understandably concerned their children might go hungry.  His reaction matched my own although he was more eloquent: “You’re driving a frickin’ new SUV and you don’t have enough cash to buy food?”  

It’s hard for me to imagine that the combination of weekly unemployment checks and a $600 kicker from the federal government will cover all their expenses.  So, yeah, they’re suffering, at least in the short term.  But, as my brother ranted, “I made personal sacrifices to save money and plan for contingencies.  Now, these people are asking for my money to feed their kids.   These are the same people that claim they can’t afford health insurance and college is too expensive.   Their priorities are clear.  They want that brand-new SUV, but they want someone else to be their safety net.  I [have] the same anger when I hear politicians talk about ‘college for all.’  Wait a minute, I [sacrificed] to save in a 529 account.  Why can’t they do that?”

We now live in Bailout Nation.  Our government overextends itself in good times and, therefore, lacks the capacity to respond to crises.  And, the same can be said for families and businesses.  Our last firewall against total disaster is – as it was during the 2008/09 financial crisis – the Federal Reserve.  During this pandemic, those in government have the same rational fear as a decade ago.  The crisis may be more than our economy can endure.  So, we flood it with newly minted cash.  

But this time is different. In the weekly newsletter of the American Institute for Economic Research, Scott Burns describes how the Fed has used its emergency powers in this crisis.  The last crisis affected the financial system.  This one is in the “real economy.”  That has cast the Fed in the role of commercial bankers lending to businesses by purchasing corporate bonds and extending credit directly to companies a banker wouldn’t touch.  Something the Fed has never been good at.

Much like my brother, the companies that have managed their balance sheets well don’t need and won’t get relief.  Those that have been profligate get a bailout under favorable terms.  Our economic future would be made more secure if those companies were to go through Chapter 11 reorganization under the bankruptcy code.  The shareholders would lose everything; the bankers would take a haircut.  But the companies’ operations would continue under new ownership, ownership that would be more careful to avoid that same fate.  And, a hard lesson would be learned by the next generation of corporate leadership. 

Of course, crisis conditions place us at risk were we to allow this to happen.  Were too many companies to fail all at once, it could cause a supply shock to the economy accompanied by massive unemployment.  The depth of economic harm could cause another Great Depression.  

So, how did we get here and how should we move forward?

Burns refers to the work of George Selgin on this matter.  It’s difficult to summarize his 322-page whitepaper in a few sentences.  But I’ll give it a try.  Just STOP!  The Fed should outline its operating framework in such a way that those who run banks and industrial companies know what facilities might be available to them under crisis conditions – PERIOD.  

Oh, and there’s one more thing.  One should ask why so many corporations have placed themselves in jeopardy.  The answer is they are doing what the federal tax code incentivizes them to do.  Capital gains are taxed at a lower rate than personal or corporate income.  So, companies engage in extensive borrowing at the aforementioned zero interest rate and use the cash – not to invest it in building a better company – but rather to buy back their own stock, raising the price and lining the pockets of officers, directors and shareholders.  

Raise interest rates to a more normal range, eliminate the disparity in the tax code and watch what happens.  By the time of the next crisis, we might be better prepared.  

WHO WILL LEAD?