Tag Archives: austerity

Wall Street Fine, Main Street Not So Much, States Caught in the Middle

The situation in Nevada is beginning to demonstrate the universal application of the great literary phrase: “It was the best of times, it was the worst of times.”  Consider the following information from a Las Vegas Sun article about therapeutic services for disabled children back in March:

“In 76 percent of the cases reviewed, the state did not provide all of the services called for in plans agreed to by state caseworkers and families. This was “due to a lack of available personnel resources” and reduced hours the state had to contract with therapists.”

In 52 percent of cases, the state did not initiate services within 30 days, as required by the federal government. This was “attributable to the lack of personnel resources as a result of the reduction in the amount of funds available for contract services.”

There are 2,477 children receiving these services, such as they are, and another 250 ranging in age from newborn to 3 years of age on a waiting list.   So youngsters with autism, physical disabilities, developmental issues, and other serious medical challenges are in the cross hairs of a support system in which “fewer children could have more services, or more children could have fewer services.”  This is what an austerity budget means.   For everyone. If there are no increases in revenues, then all public services will be caught in the same bind as the kids — fewer may have more, or more can receive fewer.

However, in a political climate still clutching the remnants of the failed Voodoo economics of the Trickle Down Artists, and the ephemeral mythology that lower taxes magically transforms spreadsheet pixel dust into increased revenues,  any attempt to raise revenue is the antithesis of good politics.  [“Sandoval, not in favor of business tax initiative“, LVSun]

The often and well debunked MYTH [EconoFact]  that lower rates of taxation will generate the revenues necessary to provide essential government services simply doesn’t work in the real world in which there are pot holes in asphalt, 30 kids in a kindergarten class, not enough health inspectors to cover the number of restaurants in a single year, not enough deputies to keep trucks from speeding through small towns, aging fire fighting equipment, and what might generously be called “antique” drinking water delivery systems.

For small businesses in Nevada this isn’t the best of times either.  Nevada’s experiencing job growth of about 1.1% YOY, a tick behind the national YOY job growth of 1.4%.  [DETR] Of special note is that the capital region — Carson City — has lost 4.2% of its job growth.  In fact, the capital city MSA is the only one in the state which is having declining job growth.

When the “business” of a MSA is primarily government then the private sector is affected when government declines.  We can craft a little home-made chart showing what happened to Carson City in terms of the percentage change YOY in its taxable sales as reported to the Department Of Taxation, as the state shed jobs and shaved the budget.  (pdf reports)

It’s no wonder small businesses and local retailers feel the bind when there’s been only one YOY increase since 2007 — and they started digging and backfilling out of the prior four year hole.  This is what an “austerity” budget looks like to local businesses trying to function in an area in which government payrolls help support the local economy.

So, why all the demand for “austerity,” if it doesn’t help provide public services and it doesn’t help local businesses? 

Federal and state deficits are a problem when interest rates are high.  Here’s one of the simplest explanations I’ve found so far:

“When long-term interest rates are high, a federal deficit competes against and “crowds out” private borrowing and investment. When long-term interest rates are low, the federal deficit is not taking away from borrowing by the private sector. On the contrary, the federal deficit is acting as a needed boost to aggregate demand in the economy, an action also known as “fiscal policy.” When the economy is slack, every dollar of reduction in federal spending takes three or four dollars off of our gross national product.”  [Grayson](emphasis added)

Got that?   The “crowding out private borrowing and investment” happens when interest rates are HIGH.”   So, what are the long term interest rates now?  The Treasury 20 year CMT is 2.13%. [Treasury] What does this look like in a historical context?  This:

The overall trend line doesn’t seem to indicate “high interest rates” does it?  Notice that the top of the line for the interest rates shown on the chart doesn’t go above 5.5%  Now, let’s compare that to the 30 yr. CMT for a previous era, say 1980 to 1990:

Since the old 30yr column has gone the way of the DoDo, and really long term Treasuries are spoken of as 25+’s, perhaps a better comparison would be the current 20 year rates:

The rate for 20 year notes hasn’t crept up over 3.08% during 2012 thus far.  We could sit and look at pretty charts all day, and the message would remain the same — this is NOT a period of HIGH interest rates, therefore the old “government borrowing drives out private capital” maxim doesn’t apply.  What the heck! Let’s look at one more — the U.S. Treasury’s Yield Curve showing the yields (rates) for all the notes available:

And, there it is — a graphic illustration of Low Interest Rates.  So, let’s get this straight.  We have to have an “austerity budget,” meaning that the federal government has to cut back on aid to the states, because when the government has to borrow money it crowds out private investment — EXCEPT when interest rates are low.   No, this doesn’t make sense, and Laura D’Andrea Tyson explains why:

“The “crowding out” argument explains why large and sustained government deficits take a toll on growth; they reduce capital formation. But this argument rests on how government deficits affect interest rates, and the relationship between government deficits and interest rates varies.

When there is considerable excess capacity, an increase in government borrowing to finance an increase in the deficit does not lead to higher interest rates and does not crowd out private investment. Instead, the higher demand resulting from the increase in the deficit bolsters employment and output directly, and the resulting increase in income and economic activity in turn encourages or “crowds in” additional private spending.”  [NYT] (emphasis added)

How do we know when we have excess capacity?  High unemployment is one really good tell.   What have we learned?

(1) Austerity budgets, the result of program funding cuts without any new revenue don’t serve to provide basic services for Nevada citizens, and others throughout the nation.

(2) We know that in regions in which government spending constitutes one of the major supports of the local economy local retailers and other small businesses see their sales decline.

(3)  Deficit reduction is necessary when government borrowing during periods in which we are operating at or close to our economic capacity when interest rates will be affected by the “crowding” to get capital.

(4) Our interest rates, for even very long term treasury notes, are exceedingly  low.

(5) Our economy is not functioning close to its capacity — witness the unemployment rates.

Therefore, the argument that we have to privatize Social Security, turn Medicare into a voucher coupon program, cut women and children off WIC nutrition support, take SNAP benefits from working families, cut spending for infrastructure maintenance and improvement, slash preventative medicine and wellness programs, and leave the national parks to rot…. because We Have To Reduce The Deficit — is ultimately ideology and currently bogus economics.

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Filed under conservatism, Economy, Federal budget, Health Care, Infrastructure, Medicaid, Medicare, Nevada economy, nevada health, Nevada politics, nevada taxation, public employees, recession, Romney, Social Security, Taxation

Coffee and the Papers

## There are some headlines that just really aren’t all that surprising, for example, “Nevada Ron Paul backers unfazed by RNC warnings.” [Las Vegas Sun] Hmmm, did someone think they would be?

## Should we go back to having a “War Department?”   Maybe we should, considering presidential candidate Willard Mitt Romney’s selection of Neo-Con military and foreign policy advisers.  [Nation] A taste:

“Of Romney’s forty identified foreign policy advisers, more than 70 percent worked for Bush. Many hail from the neoconservative wing of the party, were enthusiastic backers of the Iraq War and are proponents of a US or Israeli attack on Iran. Christopher Preble, a foreign policy expert at the Cato Institute, says, “Romney’s likely to be in the mold of George W. Bush when it comes to foreign policy if he were elected.”

Oh, goody… just what we need.

## Uh huh, we know there are some people who will not vote for President Obam, and we also know why:

“He was like, ‘Here I am, I’m black and I’m proud,’ ” said Lesia Felsoci, a bank employee drinking a beer in an Applebee’s. “To me, he didn’t have a platform. Black people voted him in, that’s why he won. It was black ignorance.” [NYT] [TAWire]

##  Here’s a classic example of why it doesn’t do to sound off too early on foreign policy questions:

“A Chinese dissident has been given a fellowship at a university in the United States and will be allowed to leave China with his wife and two children, providing a possible solution to a diplomatic crisis for President Obama. The Chinese government is expected to arrange travel procedures for Chen Guangcheng, according to Victoria Nuland, a State Department spokeswoman.”  [The Hill]

Some adviser didn’t give candidate Romney a heads-up about speaking too soon, allowing the presumed nominee to say:

“It’s also apparent, according to these reports if they’re accurate, that our embassy failed to put in place the kind of verifiable measures that would assure the safety of Mr. Chen and his family,” Romney said. “If these reports are true, this is a dark day for freedom and it’s a day of shame for the Obama administration. We are a place of freedom, here and around the world, and we should stand up and defend freedom wherever it is under attack.” [BostonHerald]

Whilst candidate Romney was jumping the gun, Chen had not requested asylum, and the Administration and the Chinese government were obviously negotiating a deal that would allow Chen to leave China and not have to go through the asylum permission process.  Win. Win.   From the Department of Unsolicited Advice:  In diplomatic processes it is always better to restrain the lip and not shoot from the hip.

## Austerity never begat prosperity, and the French may be finding that out?  See: “The French Election and Austerity in the Eurozone,” The New Yorker. Local election results in Great Britain weren’t pretty for the Austerity promoting incumbents either.  [NYT]  Meanwhile, “Misery Builds for the EuroZone,” Reuters.

## Employers added 115,000 jobs last month (a number less than some Wall Streeters wanted) therefore we have the Administration chasing “analysts expectations.” [Bloomberg] And when we compare the Obama Administrations efforts with those in the Eurozone Austerity Sphere:

“The improvement in the U.S. contrasts with some of the other major economies. Joblessness in the 17-nation euro area increased to 10.9 percent in March, the highest since April 1997, from 10.8 percent a month earlier, data showed this week.”  [Bloomberg]

## A Citizens United tale if there ever was one.  Check out the chart indicating money flowing into the Scott Walker campaign coffers in Wisconsin. Note the number of $250,000+ donors and their locations.

## Chart of the Day:

This doesn’t have to be complicated.  Higher wages create demand. Demand means sales.  More sales mean more jobs.  Austerity never begat prosperity.

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Filed under 2012 election, Economy, Foreign Policy, Nevada politics, Obama, Romney