Reports from the Economic Front

a blog by Marty Hart-Landsberg

The State Fiscal Crisis–Responses Needed

A recent article by economist Rick Wolff highlights one of the many serious challenges facing the country–the growing fiscal crises that are hitting our states and municipalities.  He presents the following table from the work of the Center on Budget and Policy Priorities, which shows the gap between the fifty states’ tax revenues and expenditures during the last (2001) and current (2007-?) recessionary periods.

As the chart makes clear, while a recession generates a budgetary shortfall, the shortfall extends for years after the recession is over.   In particular, the expected shortfall over the next two years will be very large–some $360 billion.   This shortfall will have to be closed through some combination of revenue increases or expenditure cuts.

state-budget-shortfalls.jpg

The CBPP has studied state responses to current budget shortfalls and reports the following:

  • 27 states have reduced health benefits for low-income children and families
  • 25 states are cutting aid to K-12 schools and other educational programs
  • 34 states have cut assistance to state colleges and universities
  • 26 states have instituted hiring freezes
  • 13 states have announced layoffs
  • 22 states have reduced state workers’ wages

With fiscal problems set to grow we need bold action.   If we do nothing budget cuts will only further weaken our economy (by reducing demand)  and worsen living and working conditions for the great majority of citizens.

Oregon is no exception.  In fact, according to a story in the Oregonian, a Pew Center on the States report “names Oregon as one of 10 states at greatest peril of following California over a state budget cliff.  Even though the national economy has started to rebound, Oregon is likely to have a harder time coming up with enough money to pay for schools and other public services — or finding enough places it can cut back its spending — than it did when patching together a balanced budget for 2009-10 said Susan Urahn, managing director of the Pew Center.”

One part of any rational response to this situation has to be increasing revenue by raising taxes on the wealthy and our large corporations.  Oregon is trying to do just that with Measures 66 and 67.  These measures–passed by the legislature but put on the January ballot by opponents–deserve our support.

Obviously significant national action is also needed to address what is a major structural problem.  One obvious response: cut military spending (which continues to grow) and channel some of the savings to state and local governments.

More generally, we need a government-directed, integrated industrial and employment program.  For example, our government owns large holdings in major auto and finance enterprises.  Rather than remain passive owners, we should take control over the firms we own and redirect their activity.  We should start producing mass transit vehicles and require that the banks direct needed funds at reasonable rates to support that production.  And we should direct federal transportation spending to state and local governments so that the new vehicles can be purchased.

We should do the same for the production of needed technology and equipment to develop and expand alternative energy sources like wind and solar power.

At present, federal stimulus money is being used to encourage private firms to retrofit buildings to improve energy efficiency.  Instead, we should encourage the establishment of local publicly owned enterprises to carry out this work, with the profit earned from the work redirected back to local government budgets to support desired social programs.  And all publicly organized production should guarantee living wages and encourage democratic unionization.

Much more could be done—including the cancellation of so called free trade agreements which encourage capital flight and the pitting of workers in one country against another.

The point is that we need a dramatic rethinking and reorganization of how our economy works.  There are plenty of good ideas available—at issue is the political organization and will.

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