Whistling Past the Deficit - NYT

This is the Times editorial page on the NY State deficit. Note how fiscally conservative they are when discussing this issue.

New York’s governor could not have spoken more plainly than he did last week before a joint session of the State Legislature. “Quite frankly, we are running out of money,” he said, as he asked members to help cut the budget. The plea has so far gone unanswered, even though, with each week, the fiscal problems get worse….

Gov. David Paterson has had a few awkward moments recently, but the fact that he’s taking a hard stand on balancing the state’s budget shows real leadership. If he sticks to his guns, he will have earned my vote next year.

Unfortunately, the Democrats running the State Senate seem to think things are not as bad as the governor makes out, and have advanced a plan that is politically palatable but also ludicrous. They would drain rainy-day funds and any other untapped pool of savings to pay the bills until March of next year.

That’s like cleaning out your 401(k) to pay the rent. And it leaves open the question of how the state would really manage once the savings were spent. Senators also want to refinance and extend loans on the tobacco settlement money, a scheme that does two things well — it helps the bond merchants of Wall Street and it forces future taxpayers to pay for today’s expenses.

It is time for the Legislature to face facts. New York spends twice the national average on Medicaid at $2,283 per person. That is the highest average in the country, with Rhode Island a distant second at $1,659. Mr. Paterson wants to scale back the health care budget by $471 million. That seems the least the state should do. Education is even more costly. The national average per student is $9,138; New York spends $14,884. Mr. Paterson’s plan to cut education costs by about 3 percent, or $686 million, is clearly in line with what’s necessary.

Budget issues have to be dealt with decisively. The sooner the better. As the foregoing paragraph emphasizes, the problem here in NY isn’t too-low taxes, it’s too-high spending.

This is equally true at the national level. Many have convinced themselves that the federal government’s ability to borrow money in a currency that it can print removes budget “constraints.” Mechanically, this may be true. But if we follow their prescription — borrowing and printing so long as there’s “an output gap” — latent inflation stored up in dollar-denominated assets overseas could go kinetic rather quickly.

Comments

[damienhaas:]

It is inevitable that the country has to raise to tax to cover the huge deficits accumulated by majority of US State governments

Nov 16 07:21 PM

[Denis Gould:]

Thw whole budget situation is a classic trap. Raise taxes and cut public spending to get the budget back on track and you kill the economy, with consequential negative effects on the tax take.

Keep on deficit spending to support the economy and end up with an ongoing rise in precautionary saving as individuals react to the collapsing of public finances. People know the deficit implies higher taxes down the track. Some day the debt has to be paid back (or defaulted on). In order to pay back the debt the government needs to run a primary budget surplus for decades. The result is economic stagnation as seen in Japan for the last 20 years.

The end-game is probably a global government debt default - called a "restructuring" - but that is many years away.

Nov 16 07:52 PM

[bob adamson:]

Arguably Mr. Winkler is neglecting to give sufficient consideration to all relevant factors governing government spending at this point in time. Sure, it would be great if taxes could be lowered and budgets balanced (and winters were shorted and milder, except on ski hills) but these objectives have to be prioritized against other economic objectives.

Nine months ago the US and global economies were in clear and present danger of collapse into deflationary depression chaos and maintenance and even enhancement of public spending was and remains an important bulwark against such collapse. The price of maintenance of those levels of public spending was high and this will weaken the capacity of governments in the future to provide needed public goods and services. Unfortunately, there were no other easy and thrifty options; either the economy would be stabilized through expensive stimulus spending (together with monetary easing) until true recovery can be achieved or it would be allowed to collapse and hopefully recover at some later date without government intervention. Deficit government spending (together with monetary easing) was therefore the least bad option available and it has not yet completed its intended role of setting the stage for recovery. It is pointless to decry the price, risks and burden entailed in choosing the stimulus route unless this is coupled with a concrete, practical and affordable plan to achieve recovery now at less cost and with less pain and misery. It is equally pointless to abandon stimulus prematurely as this would be the worst of all possible choices (i.e. the cost of stimulus to date would be incurred but deflationary depression would also be induced by conscious choice).

Mr. Winkler’s article simply curses the darkness without even suggesting that there is a candle, let alone lighting one.

Nov 17 03:01 AM

[swaps:]

To my knowledge, state governments cannot deficit spend forever - unless the Federal Reserve Bank is abolished and is replaced by (privately owned) central banks in each state that can print fiat mney to cover the local spending deficits.

California - the gorilla in the United States - is cracking under the strain of ongoing deficit spending.

Usury banking requires a periodic year of jubille when compounded debt has to be written off one way or another.

No compounded debt tree grows to the sky. Otherwise the ancient Roman Empire would still be here. Debt drove its native farmers off the land, forcing them to migrate to the fringes of empire or Rome and leaving their land to be worked by new waves of debt free immigrants.

California has been exporting its former land owners to Idaho, Utah and Colorado and importing hordes of cheap workers from Mexico. This has not shored up California's state finances.

The darkness is now here whether it is being cursed or not.

On Nov 17 03:01 AM bob adamson wrote:

> Arguably Mr. Winkler is neglecting to give sufficient consideration
> to all relevant factors governing government spending at this point
> in time. Sure, it would be great if taxes could be lowered and budgets
> balanced (and winters were shorted and milder, except on ski hills)
> but these objectives have to be prioritized against other economic
> objectives.
>
> Nine months ago the US and global economies were in clear and present
> danger of collapse into deflationary depression chaos and maintenance
> and even enhancement of public spending was and remains an important
> bulwark against such collapse. The price of maintenance of those
> levels of public spending was high and this will weaken the capacity
> of governments in the future to provide needed public goods and services.
> Unfortunately, there were no other easy and thrifty options; either
> the economy would be stabilized through expensive stimulus spending
> (together with monetary easing) until true recovery can be achieved
> or it would be allowed to collapse and hopefully recover at some
> later date without government intervention. Deficit government spending
> (together with monetary easing) was therefore the least bad option
> available and it has not yet completed its intended role of setting
> the stage for recovery. It is pointless to decry the price, risks
> and burden entailed in choosing the stimulus route unless this is
> coupled with a concrete, practical and affordable plan to achieve
> recovery now at less cost and with less pain and misery. It is equally
> pointless to abandon stimulus prematurely as this would be the worst
> of all possible choices (i.e. the cost of stimulus to date would
> be incurred but deflationary depression would also be induced by
> conscious choice).
>
> Mr. Winkler’s article simply curses the darkness without even suggesting
> that there is a candle, let alone lighting one.

Nov 17 10:42 AM