Tuesday, January 5, 2010

Editorial: It won't hurt to wait a bit longer

The Courier thinks we should hold off on more stimulus to see whether what we've done is enough to bounce the economy back. Historical note: that's what the Republicans thought in '33 as well, and they got Roosevelt to back off, putting the economy deeper in the toilet for another eight years. Just sayin'.

8 comments:

Anonymous said...

I am curious that if thousands of public safety and teaching jobs weren't saved for this year with federal stimulus money, how would that have helped the states economy? The reason I ask is because I keep seeing comments after courier articles from people wanting to cut the fat (i.e. teachers and the dept of education and general "fat" in the state budget)I cannot see how having thousands more people getting umemployment, losing their houses and not spending money helps. Would somebody please enlighten me.

Steven Ayres said...

It's typical for people on the right side of the political spectrum, including the majority of our Legislature, to focus on the money rather than the people and jobs that money supports. This is often a willful blind spot, in my experience -- if you have any empathy at all, seeing a given program cut as unemployment for 35 people makes balancing the budget a lot more difficult.

On your education example, I haven't heard anyone seriously advocating a reduction in the number of teachers. The scare stories we heard over the summer (and that's exactly what they were) came out of school districts threatening to cut teachers if they lost some of their legislative funding. The idea at the legislative level -- a minority idea that failed, by the way -- was to cut education funding from non-critical (i.e. non-classroom) functions. But this was enough to send districts to the PR mattresses (rather than look at how many of them have been soaking up legislated new funds for teacher pay over recent years and diverting it elsewhere).

Legislators see the education bureaucracy as a category quite distinct from schools and teachers, and the talk about severely reducing or eliminating the Dept. of Ed. is serious. Education is by far the largest sector of the state budget, and significant savings there would make more difference than any other, so it's a fat target, and all sides agree it's been in need of drastic reform for decades. I think it would be a mistake to assume that cuts in the bureaucracy are necessarily counter to sensible values. It all depends on how it's done.

I think everyone's aware that laying off state workers costs almost as much in state services as keeping them in their jobs. The legislators who are paying attention study up on this sort of impact (if allowed the opportunity) and work to minimize it.

The crucial policy problem is that tax revenues are down by over a third this year relative to 2007. Without additional revenue, the state simply does not have the money (and no legal authority to borrow it) to pay all those employees. Most legislators see tax increases as off the table, that leaves only disemployment.

Personally I have no doubt that the upper strata of our rapidly diverging economic classes could afford to contribute a lot more to state services. But politically that's not gonna happen. So what would you do?

Fred said...

Steve, with all due respect, on your "historical note": I don't recall reading in any history books about how the GOP obstructionists in Congress prevented Roosevelt from getting the WPA, PWA, TVA, AAA, CCC, NRA (Hugh Johnson's NRA, not Charlton Heston's), NLRB, FHA, FDIC, SSB, and whatever other "alphabet soup" agencies enacted. In fact, there's a revisionist school of history (see, for example, Amity Shlaes 2007? book The Forgotten Man) that makes a sound case for how New Deal programs (plus boneheaded actions by the Fed) may actually have prolonged the Depression, which itself was triggered more by the consequences of the Smoot-Hawley Tariff of 1930-- passed by a Republican Congress under a Republican President-- than by the October 1929 stock market crash.

Steven Ayres said...

Fred: I hear you. Here's what I'm referring to, and what I've heard Krugman and other bigwigs talking about (Wikipedia: New Deal, Recession of 1937):

"The Roosevelt Administration was under assault during FDR's second term, which presided over a new dip in the Great Depression in the fall of 1937 that continued through most of 1938. Production declined sharply, as did profits and employment. Unemployment jumped from 14.3% in 1937 to 19.0% in 1938. Keynesian economists speculated that this was a result of a premature effort to curb government spending and balance the budget, while conservatives said it was caused by attacks on business and by the huge strikes caused by the organizing activities of the CIO and AFL).

... "the Administration's other response to the 1937 deepening of the Great Depression had more tangible results. Ignoring the requests of the Treasury Department and responding to the urgings of the converts to Keynesian economics and others in his Administration, Roosevelt embarked on an antidote to the depression, reluctantly abandoning his efforts to balance the budget and launching a $5 billion spending program in the spring of 1938, an effort to increase mass purchasing power."

This budget-balancing mistake was an effort by Roosevelt to placate the corporatists.

birther t. bagur said...

Fred, Amity Shlaes does not make a "sound case" that the New Deal prolonged the Great Depression. She cherry picks statistics and completely ignores statistics from the period that don't prove her case.
I think one of her tricks was actually to compare unemployment from 1932 with 1937-38 and say "aha, the rate didn't drop that much". Lo and behold 1937-38 is the year Steve refers to where Roosevelt was forced by republicans and the Blue dogs of the day to scale back the New Deal (unemployment ramped back up that year and the economy regressed). Further, Shlaes used a measure of unemployment that pretended government jobs didn't exist. You can read a good review of Shlaes hackery here:
http://www.tnr.com/article/books/wasting-away-hooverville
and here:
http://www.slate.com/id/2169744/pagenum/all
This brings me to perhaps what the biggest problem with Shlaes is: she pretends she is an economist (and to further the myth she was given the empty, honorary title of "economic historian" by the Council on Foreign Relations). The reality is she was an English major in school. I have tried to establish whether she has ever had anything resembling an economics or statistics class to no avail.

Fred said...

Ah, Mr Bagur (it's pronounced Bah-GOOR, right? Accent on the last syllable? Like the discotheque in Valladolid?).... I doff my hat to you!.... Perhaps I should revisit Ms Shlaes work with a somewhat more, mmm, rigorous and questioning spirit.... Or at a minimum, keep my commenting focused on matters that are nearer and dearer to my heart than national politics.... At any rate, thanks for the insights.... But really, now, isn't "hackery" just a tad harsh?..... And I had a college room-mate who was an English major, and he turned out OK (he even managed to get an IT job with a big consulting firm)

PS: Don't know if I've ever met any people with your first name. Sounds Norwegian? Like that famous ski jumper from the 1930's?

;-)

birther t. bagur said...

No one does the world any favors by minimizing hackery. Completely ignoring a myriad of statistics like GDP while selectively using ones (comparison of 1932 v. 1938 unemployment rates) that have already been selectively sorted (not counting a paying government job as a real job) is hackery.
And I'm not saying that having an English major is bad at all. I am saying that having an English major isn't particularly suited to knowledge of statistics and economics. In this sense it is also hackery that our media institutions allow Shlaes to call herself by economist-sounding title when she blow smoke up her ass. I mean she is spouting off economic hackery on NPR's Marketplace about every other week, yet you will never hear any mention of how she lacks formal training in the field.

birther t. bagur said...

That should be "blows smoke up our ass".