In today's WSJ, South Carolina Governor Mark Sanford explains his opposition to accepting portions of the federal stimulus funds, and his desire to use stimulus money to pay down state debt.
Before the stimulus bill passed, I asked for states not to be bailed out. After it was signed into law, I said that a state bailout would create more problems than it solved, and that we shouldn't spend money we don't have. That debate was lost, so I looked for a reasonable middle ground. I asked the president for his support in using the $700 million to pay down state debt.
If we're going to spend money we don't have at the federal level, it becomes all the more important that our state balance sheet is in good order -- particularly if this is a protracted downturn. But many people do not realize that the stimulus money runs out in 24 months -- at which point South Carolina will be forced to find a new source of funding to sustain the new level of spending, or to make sharp cuts. Sure, I could kick the can down the road; in two years, I'll be safely out of office. But it would be irresponsible.
Obviously, there are no alternatives other than a crippling budget crisis that puts thousands of government employees out of work and a pro-cyclical fiscal policy likely to intensify the effects of the recession in South Carolina.
Sanford lacks a basic understanding of economics. SC is incredibly unfortunate to have him at the helm during this time of crisis.
A counter-cyclical fiscal policy seeks to smooth out the business cycle by running a deficit when business activity is low. But that means future taxes must be higher to pay back the borrowed money which decreases future business activity. Thus the pain of today is decreased at the cost of more pain tomorrow. The net gain is zero unless you believe in the "multiplier effect" where the stimulus of today permanently increases business activity. During the 1970s the "multiplier effect" got discredited and fell out of favor getting replaced having the Federal Reserve change interest rates to fight recession. The "multiplier effect" has now been resurrected, but not everyone believes it, Mark Sanford being one of them along with many economists.
You are being unfair to Sanford because he does not share you faith, and I'm afraid the multiplier is more faith than not.
Sc is not taking those one-time fed funds that require establishing an unfunded program expansion. When the economy expands, SC, not states that took the one-time fed funds and must increase taxes and regulations, that will me more competative.
For the record, I think the governor is wrong, but I appreciate his reasoning.
OTOH, if the private sector and the US economic relations with the rest of the world add up to a deleveraging of several trillion dollars, maybe raising government debt by $ 700 billion isn't such a bad idea.
Tell us exactly how the governor is wrong in his reasoning.
If the world suddenly finds itself much less wealthy than it thought, how is more borrowing or more money creation going to help that?
Lord I hope not.
From the Sacramento Bee:
California's state work force grew despite budget woes and cut promises
While legislators and Schwarzenegger debated how to close a $40 billion budget deficit, 66 state agencies saw a net gain of full-time employees, 35 kept the same number of employees and 55 lost employees, data from the state controller's office show.
Link
Meanwhile private-sector unemployment is over 10%.
Previous governor Grey Davis lost his recall bid partially due to the expansion of state payrolls by 45% over a four year period. Schwarzenegger did no better. The federal government should be bailing them out why, exactly?
Perhaps the taxpayers of California should suffer the consequences of their choices. Might lead to better governance in the future? Nah.
Borrow from who? The US government itself is broke and has no money to lend. It must borrow from someone to finance the cost of its operations that exceed tax revenues. At one time the US could borrow from its own citizens (sell them bonds), but today the private sector is largely broke too. That's why Hillary Clinton is over in China begging for money.
It's a philosophical issue. Theoretically, government will need to repay the borrowed funds. The source for this repayment is through taxation, i.e. taking it from my earnings. Therefore in my fantasyland I should have some say in the matter. It is not obvious (at least to me) that doubling the national debt in the next decade is a good idea.
I don't believe his reasoning is wrong. I think his reasoning is, well, "reasoned."
I believe he is wrong because I believe that counter-cyclical spending by the government is a good thing, even though, as the governor quite plausibly points out, such spending can have the disadvantage of creating programs that are difficult to get rid of when the money runs out and that create a drain on the government's expenditures.
I believe that the benefit outweighs the cost; the governor disagrees, and he has well-thought-out reasons for so disagreeing.
Or perhaps not raise taxes.
His comments about not kicking the can down the road show he is unfit to be a politician.
Well yes, but are there any serious economists who don't believe in the "multiplier effect"? There are serious economists opposed to the bailout, of course, but they question the size of the multiplier not its existence.
And even if one is willing to accept a challenge to a fundamental consensus of economists even without compelling evidence, there is a net gain in transferring some of the pain of today, when we are having the most serious recession and financial crisis since the Great Depression, to the future when presumably we will be in better shape. Look at Milton Friedman's permanent income hypothesis; smoothing out incomes is a good thing people want to do.
When state budget cuts become necessary, states are loathe to cut these block-grant-funded programs because one dollar cut from money the state spends results in a two dollar cut in the money available to pay for state programs. Thus, programs that are less critical than other programs to state policy makers may wind up getting preferential protection from budget-cutting measures when such measures are necessary. State budgeters often wind up cutting "meat and bone" from the budget rather than "fat" because of this.
The problem is compounded by the fact that many federal block grant programs require special administrative and staffing requirements and all these budgetary burdens are retained by the states -- even if they're totally useless -- becauser of the two-for-one (or higher) multiplier that federal block grants appear to give state budget planners.
These "little" details are purposefully ignored by liberal federalists but they've wrought havoc in state budget planning for the last forty years or so.
Put differently, the problem in money markets at the moment is one of counterparty risk, not liquidity. (I've read the studies, but I don't have them at hand at the moment.) No one trust the creditworthiness of anyone anymore. The only borrower out there who is still undisputably creditworthy is the Federal Government. Their borrowing is providing the suppliers in the money markets a safe haven, a rare security that is still reliable.
@Jmaie: Clearly the argument above says nothing about what should be done with the borrowed money. Arguably an accross-the-board tax cut, for example an income tax holiday, would be a good idea. To the extent that an increase in government spending is going to help the economy, the effect won't be felt untill the middle of next year.
Equally clearly the state's right to decline the money is undisputed. (I know exactly nothing about the South Carolina constitution, but I have heard nothing to dispute the fact that the governor has the legal right to decline some or all of this money on the state's behalf.) The problem here is that the governor would like to use the money for something other than what Congress intended. He is obviously welcome to argue his point, and to try to reach a political agreement with Washington. From his POV, this is a smart move, since it allows a degree of free riding by South Carolina on the stimulus generally. (If he gets this approved, the stimulus would still help the entire US including SC, to the extent that it works at all. However, regardless of whether it works, SC would end up with more healthy state finances than other states.) I'm not sure whether the President and/or Congress will go for it, though.
Are you sure the terms of the stimulus package ALLOW such use of the money?
I'm not an economist, but isn't the multiplier just a ratio of two measurements? In that sense, of course it must exist. But I believe there ARE economists, and more than a handful, who think the multiplier can be less than one. In that situation, of course, the multiplier hurts rather than helps the economy. So questioning the "size of the multiplier" is not simply a matter or arguing how beneficial it is, it's a matter of arguing whether it is beneficial or harmful.
If an economist wishes to correct any misimpression in the above paragraph, I look forward to reading his/her thoughts.
"Well yes, but are there any serious economists who don't believe in the "multiplier effect"?"
I don't know what you mean by a "serious economist," but the "multiplier effect" went out of fashion on mainstream economics after the stagflation of the 1970s. It didn't work for Japan in the 1990s either. So for almost 30 years many mainstream economists rejected fighting recessions with fiscal policy and instead opt for the monetary approach. Now monetary policy has not worked so the old discredited Keynesian approach has been resurrected. I think it's because they don't know what else to do. Or in the case of Obama and his running dog Democrats, they want any excuse to spend a lot of money to build and cement their power base.
To answer your question listen to the 2/25/09 podcast of interview with Marvin Goodfriend on Bloomberg Economics. At about minute 7 he says flat out that fiscal stimulus does not offer "much bang for the buck." Your could read his papers like this one. But the interview is free and directly addresses the issue.
You seem to think that fiscal stimulus is somehow the mainstream position in economics, but that's simply false.
Your comment pertains to the banking crisis as opposed to the economic crisis. You are somewhat off topic.
For some multipliers, e.g. for a change in taxes, the multiplier is usually thought to be much less than one (that is, cutting taxes by $1 will result in an increase in GDP, but that increase will be less than $1).
The multiplier most people are talking about is the fiscal policy multiplier, which is the amount extra government spending, with no change in taxes, will increase GDP. Theoretically I suppose this could be less than one, but I haven't seen a respectable economist suggest this is the case. As I understand it, the suggestion is that because of current conditions the multiplier is around 1.2 or so, which is considerably lower than it has been estimated at historically.
Of course, even if the multiplier is less than one increased government spending still increases GDP. The multiplier would have to be negative for it to be harmful in the sense of hurting the current economy (as opposed to being painful to payback later).
"Tell us exactly how the governor is wrong in his reasoning."
Sheesh, at least acknowledge the olive branch before continuing to press the attack.
I'm certainly no expert on Japan, but my understanding is that the mainstream view is that the Japanese Central Bank was too worried about inflation and followed an overly tight monetary policy which prevented a recovery, not that Japan's fiscal policy prolonged the slump.
I think Mr. Goodfriend is taking the position I mentioned in my last post that the multiplier is unusually low at the present time. I don't know enough to sensibly criticize that view, so I won't. But saying that fiscal policy isn't very powerful, which is what I take Mr. Goodfriend to say, is very different from saying it is useless which seems to be Governor Sanford's position.
I referenced Marvin Goodfriend because he's trying to reconcile the neoclassical synthesis of Keynes with monetary approach of Friedman. There have been raging controversies with the academic economics profession for many decades and it's a real mistake to think that anything is a settled issue in the way the laws of thermodynamic is settled among physicists.
My person opinion.
The very subject of economics is flawed as discussed by Steve Keen in his book Debunking Economics. He has a blog site here, and Wikipedia entries here and here.
We have approximately 14,000 professional economists in the US. How many predicted the subprime crisis, the CDS crisis, the banking crisis, and the current global recession? Approximately 10! This should give you a clue that's something's seriously wrong at a fundamental level with this discipline.
Even if your very flawed view of fiscal stimulus is correct (that it is equally harmful to raise taxes during a recession as it during good times) it still does not justify Sanford's view.
If South Carolina doesn't take the money, Congress is going to allocate $700 million to someone else. In other words, $700 million of debt that will have to be paid back by citizens in South Carolina and all 50 states is going to be incurred regardless.
Thus, your whole argument about the wisdom of fiscal stimulus, though completely wrong, is also completely irrelevant to a defense of Sanford.
His argument is that the problem is that the stimulus money only exists for two years. At that point, the state might have to cut some of the programs that are funded now (or shift funding from other programs to pay for them or raise taxes.)
So, basically Sanford's argument appears to be that it will be difficult in two years to do what is difficult to do during a recession: cut spending.
His argument basically is, yes, while spending must be cut now, that is "easy" but in two years, if this money running out requires a spending cut, that will be "hard." A spending cut two years from now must somehow be "harder" that a spending cut now. What?? I call BS. A spending cut two years from is likely to in fact be much easier, because the economy will be in better shape then. There will be fewer unemployed people in South Carolina who need assistance. Furthermore, the spending cut that is necessary could be much less severe, because tax revenues will increase as the economy recovers.
Overall, whatever you think of fiscal stimulus, Sanford's arguments are definitely the sort that only appeal to those with either low IQs or those who are not paying much attention.
However poor the return, it might be better than merely financing other states' budgets, and NOT getting any of it back. That's the hideous bind federal grants put states in.
In addition to the problems w/in the field of economics that Zark alludes to, there's another real-world problem with a counter-cyclical fiscal policy. Whenever a bureaucracy is created for a government program, it creates a constitutency -- both within the government (politicians who are associated with the program and being able to take credit for its "successes" -- real or imagined but reported and believed in -- and the government workers who work in the program and develop an expertise in administering it), and outside of the government (beneficiaries of the program). Accordingly, despite -- or maybe more accurately, "inspite of" -- economic theory that mandates cutting or eliminating the program when the economy improves, the programs created to deal with the economic down-turn continue and frequently grow when down-turn is past.
By declining one-time federal funds which would require creating non-funded, continuing programs, whatever the merits of Gov. Sanford's theoritical economics reasoning, his practical political reasoning is very sound. Never create a government program or benefit unless you are willing to having it continue and grow whatever happens to the reasons of its initial creation, including solving the problem.
"Even if your very flawed view of fiscal stimulus is correct (that it is equally harmful to raise taxes during a recession as it during good times) it still does not justify Sanford's view."
That's not exactly what I wrote. I mostly wrote that the fiscal stimulus approach to fighting recessions is not a settled issue among mainstream academic economists.
"The idea that economics can ever be like physics is one of the eternal stumbling blocks for any real advancement in economic knowlegde."
It's the academic economists that want to emulate the methods of physics because they don't want to be thought of as a branch of sociology. That's one of things that's holding back advancement. Eventually the behavioral approach will gain more traction, but the academics don't like that because they feel that will diminish the prestige of the subject. For example they still cling to efficient market theory and they are going to have to give them up if they are going to ever achieve any real predictive power.
Paul Samuelson made economics look like thermodynamics. He was motivated by one of his Harvard professors who was a student of Gibbs who laid down the fundamentals of the subject. But using the methods of physics goes back to founders of the subject like Walrus.
You need to explain to us why you think the Obama stimulus plan is going to be a long term net benefit to the US economy. Very little of the debt it will create will be self liquidating meaning that the projects it funds have a zero to negative net present value. In other words, the spending is mostly geared towards consumption not investment. We need more investment not consumption because the US has over consumed for at least 10 years. This is led to a gigantic and record breaking total debt of about 4 time GDP. This excessive debt is one of the primary factors in the current crisis. Is more debt going to solve debt crisis?
When the spending stops unemployment will rise and GDP will stagnate or fall. Japan tried this and it failed. They spent big time on railroads and other infrastructure projects and it didn't work for them. Do you think we can run ever increasing deficits?
As for multipliers and fiscal stimuli, it's not really my area of expertise, but I would suggest the main open questions are how to tell the smart ways of investing the money (i.e. high multipliers) from the not-so-smart ways, and the question of how quickly it works. I traditional criticism is that fiscal stimuli work too slowly, with their effects in a normal recession not being felt until the economy has recovered already anyway, causing the stimulus to contribute to the overheating of the economy at that point. At the moment, with monetary policy in tatters, and with a recession that looks like it might last quite a bit longer than normal, a fiscal stimulus of some sort seems reasonable.
But that still doesn't tell us where to put the money, or whether automatic stabilisers should count.
I could do this, but I am not going to. It isn't relevant to Sanford's policy decision. That is what you are defending here. The debate over whether we are going to have a stimulus has already been decided. That was a decision for Congress and the President, not governor Sanford.
The question is, given that policy decision, is Sanford right in declining to take $700 million in stimulus when people in South Carolina are suffering from the economic crisis? You cannot justify that decision because you think that stimulus policy, which is a given, isn't a good idea.
The implication of the statement that fiscal policy doesn't matter is the idea that it doesn't matter whether there is a recession or there are economic good times when it comes to decisions about whether to raise or cut taxes or whether to raise or cut spending.
If your position is that it is worse to raise taxes during a recession than in good times, you are making a concession to those who think that fiscal stimulus has a place.
Sorry about the spelling error, I did mean Walras, although he did have (almost) a Walrus mustache.
"Instead of making the starting assumptions more realistic, the secret to using economics responsibly is a careful understanding of what it can and cannot do."
That was essentially Milton Friedman's position. Don't worry about how realistic the assumptions are, look at the predictive power. That approach is pretty dangerous because it's prone to the data mining effect. See Specification Searches for a through treatment of this subject.
"I'd say there is a place for economics as a discipline with an approach that is clearly distinct from sociology and psychology, with arguments starting from clear axioms, like efficient markets and perfect rationality."
Hasn't Kenneth Arrow already done this? BTW John Von Neumann wrote one of the most significant fundamental papers on economics ever published. I'm sorry but I forget the title. The mathematical level is pretty high (topology) and like so many of Von Neumans's paper it's difficult to read anyway.
"... this banking crisis, is something economics can never be expected to catch."
Some people did catch it. I predicted it. Partnoy caught it. Roubini caught it. Sornette caught it and predicted when the crash of the UK and the US housing markets would occur. In contrast many well known academic economists missed it such as Krugman and DeLong. Although to his credit Krugman began to wise up, but too late. One has to question the value of academic economists to the people to pay their salaries.
Your argument is flawed. I am not saying that there isn't a place for a subset of economists to start with these flawed assumptions (thus rendering their policy prescriptions based on these flawed assumptions less than relevant to real world policy.)
But to say that each and every economist MUST adopt this particular methodological approach, well, that is just intellectual fascism.
There is a place for economists who understand standard theory and who also understand other disciplines. Who try models that make different assumptions.
And there is also a place to understanding what non-economists can and can't do. That is, understand the limits of the advice given to them by economists.
What you need are professionals who both understand vanilla economics (with its unrealistic assumptions) and have an idea about how to cope with those limitations when it comes to formulating real policy. You also need economists who understand vanilla economics and try to produce different models that don't make identical assumptions.
It seems to me that what you are advocating is leaving it to untrained individuals the full burden of figuring out how to cope with the conclusions of vanilla economics. But, I don't think that most ordinary politicians or policy makers are up to that task.
You thus need economists who go farther than that.
Also, you cannot categorically assert that better models than those that assume perfect rationality and efficient markets are not possible. (And when I say "better models" I mean more useful in a particular context.)
If you are correct about that, I think we should kick most of the economists out of our research universities. Because, you are basically asserting that truly important new knowledge in the field of economics is not possible. What new knowledge, other than cute mathematical models that no one cares about, is going to be produced by further exploring the implications of these unrealistic assumptions? I would suggest not enough to justify the number of academic economists that exist in our universities.
I never said that. Raising taxes is a way of changing consumption choices. If one likes the things that the government buys better than what individuals buy then raising taxes is a good idea for you. Thus school teachers like high taxes if the legislature will use the money to increase their salaries.
If we could rely on the government to make wise investment choices that the private sector is unable or unwilling to make, then stimulus spending might be a good long term policy. But most of what I see in Obama's stimulus package is more wasteful spending.
I think we are the same page here.
If government policy is better than whatever the private sector would do with the taxes needed to support that policy, then we should raise taxes and implement that government policy regardless of whether there is a recession or not. That is not something that economists disagree on. (Though of course, in the religious views of some libertarian economists, this test is simply hardly ever met.)
The question, of course, is whether the existence of abnormally high unemployment and what some assert is a liquidity trap at all change that basic calculation. Should government spending which does not meet the above cost-benefit test during times of full employment be undertaken? Or, is the cost-benefit test even the same? Do we believe that because resources are not being fully utilized by the private sector, that the same trade-offs exist?
Moving back to Sanford for a second his decision is not relevant to any of these debates. The decision to enact fiscal stimulus has already been made at a level above his pay grade. It wasn't his decision and his actions cannot do anything to change the decision that has already been made. So, again, you cannot defend Sanford on the basis of that you do not think the stimulus was a good idea to begin with. The decision has already been made; it is a given. That battle has already been lost, and never involved Sanford (except in his limited role as a private citizen).
Re data mining: That's a different story again. Economic theory is useful not only when it correctly predicts outcomes. The perfect market model, for example, is clearly and obviously flawed in its assumptions, but it still provides useful insight, quite apart from whether you can use it to model real life markets. (You generally can't.)
Historically, this kind of approach was favoured by the Austrian school, like Hayek and Von Mises. It's certainly nothing new.
Re: predicting the banking crisis. I haven't read all the people you cite, but as far as I can tell what they predicted is the end of the housing bubble. That's not the interesting part of the current crisis, though. That there was a bubble in the housing market was pretty obvious as early as 2005/2006. (Krugman wrote a NYT column about it around that time, for example.) Seeing bubbles is not easy, but doable given the current knowledge. The really interesting thing about the banking crisis is the way the end of the housing bubble affected the whole rest of the banking sector. That this was going to happen was certainly not obvious, except with 20/20 hindsight.
That doesn't mean that no one could have predicted this, but rather that to do so would have required not so much a good economist as a good critical thinker, albeit one with training in law and finance.
@David Welker: I'm sorry, I was outlining my own approach, I didn't intend to set down the rules for everyone. (Just to clear up, my own work is on transaction cost economics, which completely dispenses with both efficient markets and perfect rationality. I just used those as examples of starting points that an economist might choose to use, depending on what problem the were interested in studying.)
Economists should certainly explain what they're doing more carefully. The most important reason why I think that isn't happening - other than that it isn't very easy - is that there is a tendency to blur the difference between economic propositions and political ones. (I don't think anyone has sorted out yet whether studying economics makes one more libertarian or whether people who are relatively libertarian are more likely to study economics.) As a result you see economists using undiluted economic claims to argue politics, whithout any incentive to explain the limitations of the former. (For example, economics only ever talks about efficiency. It is important not to forget that when talking about, for example, measures that are aimed at helping the poor, like minimum wage or social welfare.)
Thank you for your clarification. I misunderstood you. It appears that we are in agreement.
I agree that models that contain flawed assumptions can nonetheless provide insight. You agree (and in fact practice!) economics that experiments with different starting assumptions.
"The question, of course, is whether the existence of abnormally high unemployment and what some assert is a liquidity trap at all change that basic calculation."
This is the crux of the matter. It's my position that we don't have a reliable enough theory to decide the question. It's basically a gamble. The stimulus spending could actually make the situation worse.
Now I will deal with Stanford.
The states cannot print money and they must balance their budgets, which means they can't sell bonds (borrow) for expense items (consumption). New York City tried this in the early 1970s and went into bond default. They needed the feds to bail them out. Thus the famous headline in the Daily News. As such the states are similar to families.
A family has income, expenses and debts. If a family gets a windfall like an inheritance should they pay down debt, consume it or invest it? The answer of course is "it depends." If a family member needs a vital medical procedure then the answer is obvious: consume. If a family is debt burdened, then they should pay down the debt. If they can invest the money and get a greater return then the interest on the debt, then they should invest.
Stanford says that he thinks SC should pay down its debts rather than consume the $700 million windfall. Whether that's wise or not depends on SC's financial situation. I don't know the details for SC, so I can't say whether he's right or not.
Now the final question. Should SC refuse the $700 million if the feds force him to use it for consumption rather than investment? Going back to our family: should it refuse an inheritance if it comes with strings attached? In general no. Enjoy the gift. But suppose the family gets used to the high life the gift provides and finds it more difficult to live within their means in the future. In this case they should refuse the inheritance. Similarly Stanford thinks that consuming the $700 million will led to future financial problems because the extra consumption will become irreversible. My guess is that's what will happen and SC should refuse the money. But we cannot know for sure without knowing a lot of details.
However, California is now in a death spiral. It never fully recovered from the recession of the early 1990s expect for housing. Housing and all the related industries-- finance, construction, home improvement etc created an illusion of prosperity fueled an unsustainable burden of debt. With the collapse of the housing market, California's weak economy is revealed. It simply does not have the economy to generate the tax revenue to support the welfare state a majority of its residents want. Something has to give. Even after the recent tax increase, a new fiscal debt has opened up to the tune of $8 billion. This will inevitably lead to a new tax increase or more federal aid. Thus either California goes into default like New York City in 1975, or it must become a permanent financial ward of the federal government. It can't keep increasing taxes as that simply drives out their sources of revenue.
California is liberalism's Vietnam.
I think you totally misunderstand California. This is a state where you can't increase taxes without a two-thirds vote in the legislature and where property taxes have been strictly limited since 1978 due to Proposition 13.
Increasing tax burden? It has been practically impossible to balance the budget here, because of insane Republicans who would rather irresponsibly drive down our bond ratings (and increase our interest rates) rather than voting for a compromise of spending cuts and tax increases.
Our universities are increasingly underfunded. We spend nearly as much on prison as higher education.
I don't know what kind of right-wing propaganda you have been reading, but you are definitely seriously misinformed about California.
http://tinyurl.com/clck4y
mB
I too live in California, and I've lived here a long time. This is hardly a low tax state. My county has an 8.25% sales tax-- going up to 9.25 next month. Income taxes are high unless your earnings are low. The low Proposition 13 tax rates are offset by the high price of housing. Then there is the Mello-Roos Community Facilities Act of 1982, which can boost your property tax rate to 2.5% if you should be so unlucky to live in those districts. Also bear in mind that Proposition 13 only applies to ad valorem taxes. Communities are free to pass special assessments, and they do. Then there are numerous business fees and taxes that get passed along to the consumer. It costs about 50% on top of base salary for an employer. Then unlike the federal govenment CA will hit you with a steep capital appreciation taxes when you sell a house. I paid more tax to CA then the feds when I sold my house. Then there are taxes on utility bills.
In April income tax is going up, so is sales tax and the sales tax will apply to auto repairs and vet services. The vehicle registration tax is going to double next month. The car I priced out will cost $800 more in taxes and fees next month. I don't see how you can deny the tax burden is not increasing.
We do spend a lot on prisons, but that's because of the powerful prison guard union, and the high crime from immigrants and their offspring. California is full of "sanctuary cities" like Los Angles and San Francisco who frustrate deportations.
I could go on but that enough.
"I don't know what kind of right-wing propaganda you have been reading, but you are definitely seriously misinformed about California."
Ah, yes, those public-employee unions bankrupting your state are famously right-wing...
I agree that taxes are going up in response to the need to close a $41 billion dollar deficit. But you forgot to mention the huge spending cuts that came along with that also.
That deal was only possible when a few Republicans in the legislature finally changed their minds about running California off a fiscal cliff.
It's time to look at some data. This graphic shows that California has the 6th highest tax burden. Hawaii really doesn't count because everything there is expensive, so 5th is a better rank. This is consistent with my posts. Thus California achieves a high rank in tax burden despite the 2/3 requirement. You should be happy with that requirement otherwise our taxes would be much higher. Would you like to pay at 15% marginal income tax rate, and have a 12% sales tax?
Now let's look at the budget. From WikipediaThus the data confirms my posts. California has a very high tax burden. California's spending increases have caused the current budget crisis. It really has little to do with the Republicans in Sacramento.
Let me ask -- as someone very far removed from California and without any particular bias save my usual liberal tendencies -- if a budgetary change retards the previously assumed growth of a program, and in fact leads to shrinkage in a particular, establish program, is it "dishonest" to refer to that change as a "cut"?
If you look at government spending from the appropriations side, any decision to "lower the rate of increase" in spending is not a cut. It's just spending less, and ultimately taxing less. But if you look at government spending in terms of the provision of goods and services, a program whose funding growth had been set according to careful scrutiny as to its aims and its requirements suffers from from an actual and harmful funding cut whenever the rate of increase is lowered.
Spending often increases to meet the growing needs of established programs, and when those programs go underfunded, services which the government expected to continue providing, it no longer provides. I call it fair and honest to describe that kind of "lowered rate of increase" as a cut.
Yes. The same way that if I received a smaller raise than I anticipated (and been spending in anticipation of), I would be dishonest and unfair to my employer to say he had cut my salary.
I call it fair and honest to describe that kind of "lowered rate of increase" as a cut.
Then you've managed to rationalize that dishonesty to yourself. The human mind is a remarkable machine, isn't it?
"Hey, people of america, this year we spent five trillion of your dollars. Next year we were planning on spending seven trillion, but we've decided to only spend 6.89435 trillion. ZOMG budget cuts."
and btw, the "growing needs of established programs" always seems to be out in front of both inflation and population growth. Hmm.........why would that be? Could it be because every governmental program is invested in increasing its own mandate? Of course not, right?
Why the implied insult? Why the conviction that another point of view is a rationalization? I'm not going to come and tell you (because I don't know that it's true) that your failure to see a legitimate difference of opinion is evidence that you're very stupid. It could also be, say, evidence that you're passionate enough on this topic not to understand that, say, cutting regular and expected funding to a healthcare program, so it can no longer grow along with population and would have to cut its standard entitlements, counts as a "spending cut." After all, the program would have stated, discrete goals, funded by anticipated spending, and then would fail to meet those goals, due to spending cuts. That's a perfectly reasonable proposition.
Anyway, to turn your example around, giving you a raise -- but a smaller one than you were at first promised and projected to receive -- could be considered by management a spending cut in that area. Your boss surely might consider your reduced raise a spending cut in payroll accounting. Or else he would have to tell his boss, that, no, he wasn't able to reduce spending for the year. I'm sure that's not how he sees it, because he'd better be able to tell his boss that he slashed your raise to cut spending, given budgetary concerns. Which is exactly what the government seems to be doing. And yet by your logic cutting your usual raise to bring expenses within budget doesn't actually count as a cut, because you still got a smaller raise.
Sorry, but I don't think it's so cut and dry.
While the argument over what constitutes a "cut" appears to be purely semantic, it's really much more than that as I will explain.
In the 1980s we were bombarded with statements of the form "Ronald Reagan cut the budget for ... ." From time to time I would check out the item only to find that the budget amount had actually increased!
The same kind of mysterious language applied to taxes. Despite the the California Proposition 13 "tax cut," my check for property tax kept going up year after year. Yet I kept hearing that property taxes had been "cut." I also heard statements that Proposition 13 had destroyed the "hopes and dreams" of many people. That one got me. What does anyone's "hopes and dreams" have to do with an ad valorem property tax? I realized that I needed find the secret decoder ring to find out what "cut" means. Here it is.
Let's say the budget for something = x, and x varies with time. The politicians and the press will tell you budget x has been "cut" if the derivative of any order of x with respect to time is zero or negative. That implies that the growth of x with time must be at least exponential. But that not the whole of it by any means.
It's not enough for x to grow exponentially. The quantity x/A must also grow exponentially or else we have a "cut". Here "A" is some normalizing factor such as population or the consumer price index. Thus x/A could be per capita sending on schools, or spending per pupil. When A= CPI, it's spending in real dollars. Now we know what "cut" really means. BTW when all the derivatives of x exceed all the derivatives of A, we have "progress." Now you know what "progressive" government is.
The California budget has grown faster than population or inflation over the last 10 years (see my prior post). Politicians don't want to be accused of being against progress. They certainly don't want to be accused of "cutting" something and destroying people's "hopes and dreams."
"The politicians and the press will tell you budget x has been "cut" if the derivative of any order of x with respect to time is zero or negative."
Exactly what I was thinking. Nick, I do appreciate your taking the time to enunciate your reasoning, and I'm now somewhat more sympathetic having heard it, but given the current state of the economy, if in your world "cut" refers to higher order derivatives, you'll need a new word to describe decreases in the original function (real spending) itself, because those seem looming, and soon.
One other distinction that may be material. If one has already established a budget, then is required to adjust it, reductions in projected growth could indeed be considered "cuts". On the other hand, when one is establishing the budget itself, it would be disingenuous to term an increase of any order a "cut", and perhaps imprudent to consistently budget on the basis of assumed increases in any sense other than one of various contingency plans.
As for demand for the services, given that the price for such services is often zero, it makes little sense to premise budgets on said demand. Perhaps your friends on the supply side could be persuaded to share some of their Davis-Bacon.
I honestly didn't mean to insult (I find it fascinating the way people - myself included - can sincerely convince themselves of things that just aren't true), although upon re-reading it certainly comes across that way. I apologize for that.
It's wrong (or at best intentionally misleading) to refer to a decrease in spending growth as a cut. If the budget is $X and next year it's $Y, and Y>X (in constant dollars), then the budget just hasn't been cut and it's a misuse of the language to declare otherwise.
That doesn't meant that $Y is an appropriate funding level, or there aren't negative consequences from not funding at the anticipated level of $Z (>$Y). There's lot of valid debate to be had on the proper level of funding of any particular program, but declaring $Y to be a cut in funding strikes me as demagoguery intend to avoid the substantive debate by misrepresenting the situation at a very basic level.
A fairer way to express the situation you're raising would be to say "the proposed funding level will require a cut in projected level of services". Then you can debate what services may not be available due to the lower-than-anticipated funding. But that doesn't create the inference that Sen. SoAndSo hates babies and is trying to starve them by (really) cutting their funding.
Yes you can. It's called principle.
Apology accepted, and I'm sorry that I saw an insult that wasn't intended.
I still disagree that it's dishonest and an abuse of the language to describe a cut in the rate of increase as a cut in spending. After all, if you describe it in terms of actual dollars over inflation, you can say it's an increase, but if you describe in terms of anticipated rates and of services provided, you simply can't talk about the situation without referring to it as either a spending cut or reduction, since the program in question will be underfunded and have to cut its spending. The people who make this cut in the face of a budget crisis will probably describe it as a "budget cut."
And your phrase the "cut in the projected level of services" can be shortened to "a cut in the projected spending." After all, the level of services is contigent mostly on the spent funds.
We're treading old ground. Bob Somerby wrote a three part series that involves the notions of "cuts" in the 1990s healthcare budget debates. A few things are relevant when it comes to who's demagouging and when.
During these debates, Clinton and the Dems frequently called Gingrinch's plan an overall cut, and the Reps reesponded that that was a lie and a distortion. Many, taking your part, agreed. The Reps weren't going to be cutting spending on Medicare, they were slowing the rate of increase. But Clinton -- and people like Treasury Undersecretary Larry Summers -- described their own proposal as involving cuts, too, and argued that the Rep plan proposed deeper cuts. So was he demagouging on the issue, or applying his chosen semantics equally across the board?
Beyond this, Gingrinch frequently referred to his cut in the rate of increase -- which, in real terms, would lead to budget shortfalls -- as a "40% increase" in Medicare. He was "increasing" the program by allowing it to run up a deficit in years to come, which would require entitlement cuts He used this formula on the theory that an increase in real spending can always be described as an increase. I'm not sure that's more fair or than the other way around. Especially since he was once comfortable with the term "budget cut" until, for political reasons, he would only discuss it as an increase.
In the end I agree with Somerby, and with you. Of course it's fair -- it's essential -- to point out that a certain spending cut is actually a cut in the rate of increase, or, conversely, that a certain spending increase is actually a cut in the rate of spending. We need to know what the facts actually are. The semantics don't matter as much as the numbers. But flagging one position as demagougery and dishonesty, and the other as plain-speaking, doesn't actually get us closer to the numbers. It just mires us in semantics.
Thanks for accepting my apology. It wasn't meant, but it was reasonable for you to see an insult in my original post
And your phrase the "cut in the projected level of services" can be shortened to "a cut in the projected spending."
I'm OK with that too.
We need to know what the facts actually are. The semantics don't matter as much as the numbers.
I'm in absolute agreement with you here. That's why I (strongly) object to using the inherent ambiguity of the English language to obscure the underlying facts.
But flagging one position as demagougery and dishonesty, and the other as plain-speaking, doesn't actually get us closer to the numbers. It just mires us in semantics.
To be fair, I don't believe "the other side" is plain-speaking. I think both sides are guilty of demagoguery - just not in this particular case.
Actually, I take that back. I like your phrasing better. Spending is not (necessarily) equivalent to the level of services (you'd hope it would be so, but look at TARP...). Your phrasing doesn't equate the two.
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