Tuesday, March 15, 2011

On Wisconsin

The Wisconsin senate has now passed Gov. Walker's bill on unions. They were able to do this with a simple majority, by removing from the bill any pretense that it had anything to do with the current budget. As always, "cramming it down our throats" is in the eye of the beholder.

But what about the budget crisis? Let's just review some key points. First, states are having a lot of fiscal stress now, as they did last year. Second, the reason they are having so much stress is that we're in the middle of the biggest recession since the Depression, causing revenues to fall. I haven't figured out how to upload an Excel chart to this page, but here are the figures on state and local revenues, in millions of dollars, for each year. (To make a fair comparison, I'm omitting fourth-quarter revenues in each year, because the Census Bureau doesn't yet have Q4 for 2010. As you might expect, the big quarter for revenues is the second, since it includes April.)

 2005   809,523
 2006   869,539
 2007   915,604
 2008   949,095
 2009   885,665
 2010   907,631

Note the rather dramatic dropoff between 2008 and 2009.

Third, if the recession is to blame for the shortfall, who is to blame for the recession? That's a complicated question, but I'm pretty sure it's not teachers and garbage collectors.

The effect of drastic cuts in state and local spending will be to weigh down the economy just as it's getting up off the floor. And the hysteria about state and local government spending mirrors the hysteria about the deficit at the Federal level. According to the Congressional Budget Office's Baseline Budget Outlook the deficit, now almost 10 percent of GDP, will fall to 3.1% of GDP by 2014 and remain around that level through 2021. (Some costs in the baseline may be unrealistically low-- for example, it doesn't include the famous "doc fix" to Medicare-- but on the other hand it assumes average unemployment for 2011 of  9.4 percent, when unemployment was already below 9 percent by February.)

So Republicans' push to cut $100 billion out of the current-year budget makes no sense at all, if you care about economic growth (and therefore, it makes no sense if your goal is to reduce the deficit). It makes sense only as an attempt to get rid of programs that you want to get rid of for other reasons, or, to get really paranoid, as an attempt to kill the economic recovery for political gain.

Still, state and local governments do have to get their budgets into balance. If you've been reading this blog, you won't be surprised by my solution. We tax away an additional ten percent of the income of the richest 0.1% of the population (about 153,000 households, with incomes starting at $1.7 million per year).  We hand out, say, $200 billion to the states over the next two years, by some very simple formula (like population). That leaves us with about $660 billion over the next ten years to apply to reducing the Federal deficit/debt.

You know, on second thought, let's go all the way down to the top 0.5%-- households with annual incomes starting at around $560,000. After aid to the states, that leaves us with about $1.2 trillion over ten years to apply to reducing the deficit. Given that, does it really make sense to be talking about cuts in teacher salaries, food inspection, and tsunami detection?

Almost certainly, Republicans would not go for my plan. But if they don't, and the economy doesn't recover, then Obama is not alone on the hot seat. Moreover, I don't think there can be any doubt that measures like this would be overwhelmingly politically popular.

Yet the 21st century's answer to Silent Cal remains disengaged. He has implicitly bought into Republican's fear-mongering about the deficit. Once again, the American people remain uninformed, misinformed, and disinformed. Once again, the President seems to be hiding under the bully pulpit.

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