‘Hoovers of the new millenium’

Nobody, probably including Joel Tyner, expects Joel Tyner to beat Andrew Cuomo in the Democratic primary for governor of New York State. But whether or not candidates win, they can have an impact on the outcome of elections by putting issues on the table that the frontrunners would otherwise not have to talk about. We feel that Tyner has made an important and timely contribution to the economic policy conversation with his charge that the other candidates are vying to be “Herbert Hoovers of the new millennium” with their focus on fiscal austerity.

Oddly enough, there’s one respect in which he might better charge them with vying for the title of FDR of the new millennium—not the FDR of the New Deal, whose bold-thinking, big-spending programs pulled the country out of the Great Depression, but the timid FDR of 1937, who heeded the calls of budget hawks to concentrate on balancing the budget, long before the private economy was capable of propelling itself. The result was a 28 percent drop in employment and a 43 percent drop in payrolls and industrial production between 1937 and 1938. Fortunately, FDR got over the lapse, and so did the country

Our current economy is clearly still frail, as was the 1937 economy. Yes, the stock market rallied strongly from its bottom in March of 2009. But down here on Main Street we don’t see much of this “recovery” that the Washington politicians are using as an excuse to stress budget balancing over stimulus. A recent Merrill Lynch report may help us understand why the view from inside the Beltway might differ from ours: it tells us that the world’s millionaires and billionaires saw their overall wealth jump 18.9 percent last year, to $39 trillion. Not surprisingly, a recent report on Bloomberg News showed that a recent recovery in retail sales was concentrated largely in the luxury sector.

From our less exalted vantage point, what we see is upcoming layoffs in the public sector. We see services being curtailed while local taxes have to rise to compensate for drops in state support. We see the long-term unemployed losing their last means of support while U.S. Senators go home on recess. We see that the index of pending home sales fell 30 percent in May, the biggest drop ever recorded, because the homebuyer credit expired. Bloomberg News wrote: “The industry at the center of the financial crisis remains vulnerable in the absence of government support. A stabilization in housing will depend on gains in incomes and employment that may stem foreclosures and give Americans the confidence to start buying again.”

We don’t see where those gains in income are to come from without government stimulus. Tyner has proposed to find the money to do this, on a state level, by increasing taxes on the wealthiest individuals. The theory is that increasing taxes on the wealthy, who save most of their income, will not have a significant dampening effect on spending. And with the gap between the top one percent of income earners and households at the middle and lower end of the scale the widest it has been in 80 years, according to a June 25 report by the Center on Budget and Policy Priorities, that might not be such a crazy idea.

Another approach would be for the Federal government to get off its current deficit obsession and channel more stimulus funds to the states, putting a halt to the draconian cuts in programs and payrolls that are having ramifications all the way down to the county level. True, stimulus spending would increase the budget deficit. But sending the economy back into a tailspin would balloon the deficit even faster. Stimulus, in contrast, creates growth that in turn generates revenues, including tax revenues, setting us on the road to deficit reduction down the road.

Increased taxes are always a hard sell, but at the very least we would like to see all the gubernatorial candidates break with the dangerous Washington groupthink that fiscal austerity is this country’s first order of economic business. The governor of New York has considerable moral—and political—suasion, and might be able to fill in the leadership vacuum left by the Obama administration to pressure Congress for additional stimulus funds to the states. That in turn could stanch much of the bleeding we have witnessed in county budgets—not a complete solution to local economic problems, but better than the downward spiral that is now occurring. In contrast, those who go along with the idea that fiscal austerity is the first order of importance in this vulnerable economy do indeed stand the risk of going down in history as “the Herbert Hoovers of the new millennium.”

Dr. Punnybone

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