Thursday, January 8, 2009

Paul Krugman Is Worried, So Am I

By PAUL KRUGMAN
Published: December 28, 2008

...as Washington tries to rescue the economy, the nation will be reeling from the actions of 50 Herbert Hoovers — state governors who are slashing spending in a time of recession, often at the expense both of their most vulnerable constituents and of the nation’s economic future.

These state-level cutbacks range from small acts of cruelty to giant acts of panic — from cuts in South Carolina’s juvenile justice program, which will force young offenders out of group homes and into prison, to the decision by a committee that manages California state spending to halt all construction outlays for six months.

Now, state governors aren’t stupid (not all of them, anyway). They’re cutting back because they have to — because they’re caught in a fiscal trap. But let’s step back for a moment and contemplate just how crazy it is, from a national point of view, to be cutting public services and public investment right now.

Think about it: is America — not state governments, but the nation as a whole — less able to afford help to troubled teens, medical care for families, or repairs to decaying roads and bridges than it was one or two years ago? Of course not. Our capacity hasn’t been diminished; our workers haven’t lost their skills; our technological know-how is intact. Why can’t we keep doing good things?

It’s true that the economy is currently shrinking. But that’s the result of a slump in private spending. It makes no sense to add to the problem by cutting public spending, too.

In fact, the true cost of government programs, especially public investment, is much lower now than in more prosperous times. When the economy is booming, public investment competes with the private sector for scarce resources — for skilled construction workers, for capital. But right now many of the workers employed on infrastructure projects would otherwise be unemployed, and the money borrowed to pay for these projects would otherwise sit idle.

And shredding the social safety net at a moment when many more Americans need help isn’t just cruel. It adds to the sense of insecurity that is one important factor driving the economy down.

So why are we doing this to ourselves?

The answer, of course, is that state and local government revenues are plunging along with the economy — and unlike the federal government, lower-level governments can’t borrow their way through the crisis. Partly that’s because these governments, unlike the feds, are subject to balanced-budget rules. But even if they weren’t, running temporary deficits would be difficult. Investors, driven by fear, are refusing to buy anything except federal debt, and those states that can borrow at all are being forced to pay punitive interest rates.

Are governors responsible for their own predicament? To some extent. Arnold Schwarzenegger, in particular, deserves some jeers. He became governor in the first place because voters were outraged over his predecessor’s budget problems, but he did nothing to secure the state’s fiscal future — and he now faces a projected budget deficit bigger than the one that did in Gray Davis.

But even the best-run states are in deep trouble. Anyway, we shouldn’t punish our fellow citizens and our economy to spite a few local politicians.

What can be done? Ted Strickland, the governor of Ohio, is pushing for federal aid to the states on three fronts: help for the neediest, in the form of funding for food stamps and Medicaid; federal funding of state- and local-level infrastructure projects; and federal aid to education. That sounds right — and if the numbers Mr. Strickland proposes are huge, so is the crisis.

And once the crisis is behind us, we should rethink the way we pay for key public services.

As a nation, we don’t believe that our fellow citizens should go without essential health care. Why, then, does a large share of funding for Medicaid come from state governments, which are forced to cut the program precisely when it’s needed most?

An educated population is a national resource. Why, then, is basic education mainly paid for by local governments, which are forced to neglect the next generation every time the economy hits a rough patch?

And why should investments in infrastructure, which will serve the nation for decades, be at the mercy of short-run fluctuations in local budgets?

That’s for later. The priority right now is to fight off the attack of the 50 Herbert Hoovers, and make sure that the fiscal problems of the states don’t make the economic crisis even worse. »

16 comments:

Dr. Monkey Von Monkerstein said...

We did we expect after years of neglect and short sighted leadership?

If you love me, blog roll me.

Utah Savage said...

I do, and I did. And I'll keep coming back. We have much in common. Other than our monkey thing, I'm sure there must be more. That and the great minds thing...

giggles said...

"...We have nothing to fear but fear itself....?"

I keep telling myself and my friends that, anyway...

Let's hope that Obama can get this job started at least.....

SaoirseDaily2 said...

We are headed for scary times. But my parents made it through the depression, so, I know we can too.

I love you too. I probably don't say it enough.

Kulkuri said...

That old Chinese curse has come true. "May you live in interesting times." The only question I have is whose name do we put on the new 'Hoovervilles'??

Randal Graves said...

An edumacated population is a dangerous thing.

Bushvilles. No, Chimpyvilles sounds better. Like a scary funhouse, only with actual death.

kathleenmaher said...

No kidding.

themom said...

Talk about a slippery slope. I believe in determination and fortitude --- and hopefully the next eight years of much needed corrections. So glad the steroids are working. I figure if nothing else, I will be able to breathe AND play football.

Linda-Sama said...

the fed and state money has been dwindling for years for the domestic violence shelter where I teach yoga and meditation, so this is nothing new.

on another note, when you look at your blogroll at Ageless Hippie Chick there's a pic that says "evil slut."

is that me or you? :)

Lisa said...

It's all coming home to roost now. Georgia is tinkering with the teacher's benefits. No surprises there. It's through the backdoor that people who believe the free market bullshit have let in the monster. They didn't realize when they voted for conservatives and conservative policies that they would eventually find their own throats slit.

yellowdog granny said...

so far texas isn't feeling the pinch as much as other states..i'm not sure why as we have good hair perry for governor and he's dumber than a box of bricks.

Utah Savage said...

YDg, could it be that Texas is getting so grafty help from being home to the retiring Pres?

Stella said...

Of course, Krugman is 100% right. Some 99% of California's problems were caused by the Dukemejian and Reagan administrations, which cut education, health care, and other social programs. Between them and Prop 13, we haven't yet recovered. I don't know if we will.

Gray Davis' budget deficit was a direct result of Texas Oil cartels that charged California exorbitant rates, something like four times the average price for oil, during our energy crisis. A couple of those names might sound familiar—the Bush family and H. Ross Perot, among other Texas oil concerns. That's where California's budget went, and that's what happened to Davis.

Much as Krugman, Davis also strongly opposed offshore drilling and supported education. I don't think the Big Texas Oil liked his policies much.

I'm not a big fan of Davis—but he was stuck between financial crisis and state-wide blackouts. In 2003, the word "budget deficit" wasn't a household word.

As Dr. Monkey said, "What did we expect after years of neglect and short-sighted leadership?" Davis inherited the debt from 16 years of Republican "leadership," although Pete Wilson was a social liberal. I believe people will criticize Obama's financial policies in the same way, not remembering that he has eight years of destruction to deal with.

I guess in some ways, Schwarzenegger did the best he could under the circumstances, but he's still a proponent of the upper 2%. I'll give him credit: he was already diverting gas taxes to help close the budget gap in May. Sadly, this money was earmarked for road construction and improvement, which California desperately needs.

On the other hand, Arnold could have done more with California's financial crisis. Most of his budget cuts affected social programs and avoided the wealthy—just as Krugman advocates. He's slashed money for the once-great University of California system where, in eight years, tuition has doubled for in-state residents thanks to bastards like Reagan and Dukemajian.

California holds 1/6th of the U.S. population. Although unemployment is 7.2% (up from 6.6% in December) nationwide, California is struggling with an 8.4% (up from 7.8%) unemployment rate. If you consider moving here, I'd say, "Forget it." We are drowning in deficit for the exact reasons Krugman states.

An educated populace is its highest resource: for that reason, our almost ex-dimwitted president used educational spending to make sure students could pass tests, rather than think for themselves. He decimated funding for social programs.

I hope current Attorney General Jerry Brown (CA-GOV 01/06/75-01/03/83) runs for governor in 2010. He is currently in court fighting Ken Starr to overturn Prop 8. And he represents everything Krugman rightly asserts as important to our nation. I am sick and tired of struggling under the greed of a few.

Utah Savage said...

Brava! Stella, thanks for weighing in on this with your intelligent comments. You do me great honor to show up and speak your mind--always welcome and always educational.

Stella said...

Aw, gee, Utah. I'm just pissed that my Republic of California, is going through so much. I just rant a lot.

Now about this "I love Krugman almost as much as Swearingen" quote from you? Oh, Utah, don't even make me go there or I'm going to go all Jerry Springer's guests on you. LOL. (No, I mean it.)

Beach Bum said...

...from cuts in South Carolina’s juvenile justice program, which will force young offenders out of group homes and into prison...

People in this state, usually the Biblethumpers, live in a black and white world where such concepts as group homes are thought of as a liberal wasteful project. Of course the idea of throwing these kids straight into prison were they truly get screwed up beyond all hope of repair is just beyond them.

It gets far worse than that one example, but for reasons I can't openly discuss I'll have to leave it at that.