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Congress Enables 50 Little Hoovers

by: Brian Leubitz

Thu Jun 03, 2010 at 13:53:24 PM PDT

Today, Congress made a potentially devastating economic blunder: they cut state aid:

With the federal deficit a growing political liability, lawmakers in Congress are backing off plans to send more aid to financially strapped states, putting in jeopardy billions of dollars that California and others were counting on to balance their budgets.

The potential loss of funds is a significant setback for Gov. Arnold Schwarzenegger and state lawmakers, who may not see nearly $2 billion in federal assistance that they intended to use to help bring California out of the red.

The money was to be California's share of $24 billion in proposed assistance, mostly to cover healthcare spending, spread among all states. Budget experts say that is enough to wipe out about one-fourth of the combined state budget shortfalls. (LAT)

The outlandish comparisons to Greece are taking their toll. Fear and panic are running rampant, while good policy is taking a beating. The economy still hasn't recovered; it's chugging along listlessly.  Meanwhile, the states are facing massive budget gaps and are looking at being the next wave of layoffs.  The $24Billion would have prevented much of that. Instead we get this.  Jean Ross nails it:

"This is a serious problem," said Jean Ross, executive director of the California Budget Project, a Sacramento-based nonprofit. "The fear of deficits seems to be overtaking Washington. They are not realizing the bigger threat is the economy could slide back into recession as a result of state and local budget cuts."
Brian Leubitz :: Congress Enables 50 Little Hoovers
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Congress is worse than stupid (0.00 / 0)
Spain is starting to realize they made a huge mistake with their recent austerity plan. People who freak out about the deficit and use it as an argument to cut spending are repeating the very same mistakes made by Herbert Hoover, and are guaranteeing we will see a double-dip recession.

I hope every single Blue Dog loses in November. Don't care who replaces them.

You can check out any time you like but you can never leave

Forget Hoover. (0.00 / 0)
Roosevelt made the same mistake in 1936/37 and it resulted in just such a double dip.

By the way, conservatives point to WWII as the event that really ended the Depression, but have any of them considered that the war is a MASSIVE Federal jobs program?

[ Parent ]
Deficit Vultures (0.00 / 0)
The reason Roosevelt made the mistake is that he listened to the deficit vultures of the day.

What ended the Depression (as in got the economy back to full employment) was massive deficit spending, starting with the Lend-Lease program.  It just so happened the deficit spending was for a war (one that was entirely justified, of course).

Conservatives never seem to mention the substantially higher taxes that went along with the war.  Odd, that.

[ Parent ]
Forget the Federal Government its been captured... (0.00 / 0)
 Its time to break bread with those that wanna do business in California and that's the Chinese and the Germans. If morons in Congress wanna compare California which is the majority of the US GDP with Greece which is 2% of EU GDP, then let them.

This is not being explained by the media and they don't care.

We should streamline how we do business with South America, Europe and Asia.

We have our own food, water and electricity, why can we symbolically break away from the Union and do things ourselves? This is not a rant similar to Rick "Good Hair" Perry in Texas, this is about making the largest economy in America work for Californians.

This fake concern for deficits is ridiculous and is going to far. If they really were concerned about deficits they would cut military spending, which will never happen and that's why Empire crumble...


Deflation anyone? (0.00 / 0)
When comparisons were made to the Great Depression at the start of this mess, my first thought was that the country will be in danger of falling into a deflationary spiral.  Looks like Congress is doing its best to make that happen.

This story shows just how ingrained the conservative economic arguments are in our economic thinking.  Ever since Friedman, Laffer et al advertised their monetarist and supply-side theories, they have controlled the debate, even though their theories did not pan out.  Nobody on the Democratic side wants to make the case for more stimulus and spending by the feds, even though there are strong economic shoulders (James Galbraith and Paul Krugman to start) to stand on.

We're in for a world of hurt, and Congress is going to try to make it sound like a good thing.  It isn't.

But it is a good thing (0.00 / 0)
If you are one of the wealthy people who can buy a congressman, picture the benefits of deflation:  All the little people who carry debt, they lose, since they end up losing jobs, and all their security against debt goes up for auction...  Meanwhile, if you are one of those people with assets and no debt, this means you can buy up even more assets at an even lower price...

We've been so dogmatic against inflation for almost all of my adult life...  But I've been thinking in the back of my head a steady moderate rate of inflation may not be such a bad thing, particularly for a society that thrives on credit.  The concept of being "house poor" after taking a mortgage is eased faster, if inflation results in a moderate growth in earnings, since that debt is fixed, disposable income increases to be spent on more items...  

I also recognize some of the fallacies (higher interest rates) but looking at what the inflation scolds have produced, I'm not sure that's so bad.

[ Parent ]
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