Economic freedom is a beautiful thing. If you want to stop drinking Bud Light because you don’t like its controversial promotional campaign, that’s your prerogative. If you want to drink more Bud Light to support it, that’s your call, too (assuming you’re of legal drinking age, of course). These kinds of freedoms are what make America great.
Unfortunately, when governments meddle in these matters, things can get ugly quickly.
The left has long sought to use the power of the government to try to impose its social and cultural views on taxpayers. The latest push to do so has dramatically cranked up the temperature on a simmering culture war over environmental, social and governance (ESG) policies. And recently, to the detriment of taxpayers, the right has too often responded with policies that abandon its small government, free market roots.
The whole ordeal picked up steam years ago with efforts initiated by progressives in states like California, which has repeatedly imposed politically motivated restrictions on its largest pension funds, CalPERS and CalSTRS. In 2000, the state forced the funds to divest from tobacco companies, a move that cost nearly $3.6 billion in investment earnings. The pension funds have faced frequent — and occasionally successful — demands from activists and legislators on the left to divest of other progressive bogeymen, like firearms, oil and gas, and private prisons.
These politically motivated demands to place social goals above the fiduciary responsibility to pensioners persist, not just in California but also in Maine, Vermont, Massachusetts and many other blue states. At a time when many state pension funds are facing enormous fiscal imbalances, these policies are worsening the problem and shifting massive burdens onto taxpayers, who will have to foot the bill for the progressive aims of policymakers.
Indeed, research shows that putting social policies ahead of fiduciary responsibility can come at a hefty cost. A study found that public pension funds with ESG investment mandates have investment returns that are 70 to 90 basis points lower than those that do not — meaning retirees are financially hurt by these investment strategies.
Not to be outdone, conservatives in red states have been fighting back with anti-ESG policies of their own. Unfortunately, rather than establishing an environment that ensures taxpayers are best served, many of these policies elevate conservative cultural preferences above fiscal considerations. Like the pro-ESG policies of the left, these anti-ESG policies have cost taxpayers considerably.
In 2021, Texas prohibited municipalities from doing business with banks that had certain ESG policies. By reducing the number of viable financial institutions, this raised costs to the public by $300 million to $500 million in just eight months, according to a study by the Brookings Institution.
These higher costs haven’t discouraged lawmakers in other red states from following suit with so-called “Fair Access” bills that seek to determine precisely who the banking industry can and cannot do business with. Such efforts have been launched in more than a dozen states, including Arizona, Oklahoma, Arkansas and West Virginia. The end result will be to increase costs by limiting the number of financial institutions that can bid on government contracts within the state. Some efforts, including one in Texas, would go even further by banning certain insurers from doing business with both government agencies and private entities.
Such proposals stand in stark contrast to the limited-government, pro-business policies that have lured droves of individuals and businesses to Texas (and away from big-government states) in recent years. Further, they could lead to ethically questionable contracting decisions; if government officials can steer public contracts away from businesses they hold in low regard, they can also steer contracts toward companies they like, for whatever reason.
Using taxpayer dollars to fight over social policies might score political points among certain constituencies. But such tactics are fiscally irresponsible and shortsighted. This is especially true as state budgets are increasingly facing crunches after burning through federal pandemic funds and many state pension systems are being tested by an erratic stock market. Instead of wading into ongoing cultural wars, policymakers of all ideological stripes should establish a level playing field and seek to ensure that taxpayers are getting the best deal possible.
Cultural battles aren’t leaving the public square anytime soon. But whether it’s California Gov. Gavin Newsom bullying Walgreens over its abortion-related policies or Florida Gov. Ron DeSantis sparring with Disney over its LGBQT views, taxpayers are unfairly getting pulled into these fights. And while the politicians leading these efforts might think they are sticking it to their political enemies, it’s really taxpayers who are getting shortchanged.
Brandon Arnold is executive vice president of the National Taxpayers Union.