Plunging real estate values have devastating consequences for government finance.
Source: Challenge, Vol. 53, No. 6, November/December 2010
From the Editor:
Should the United States inject more stimulus into the economy through a second round of government spending? We present pieces on this critical subject, all of which question the need for austerity at this moment. The recovery since mid-2009 has not been strong by historical standards–those that followed similarly steep recessions in 1973-75 and 1982 were much more robust. The reasons are not hard to find. The extreme indebtedness of American consumers, the overreaching of the financial community, and the collapsed housing values have made it especially difficult to regenerate consumer and business spending. For more than a year, the unemployment rate has exceeded 9 percent.
In light of these factors, big spending by government, according to Keynesian economists, makes enormous sense. But largely because of major tax cuts, the country entered the recession with large budget deficits. The sharp reduction in tax revenues since then has expanded the deficit even further.
Now, a group of passionate and influential economists, policymakers, and private citizens has arisen to demand, not fiscal stimulus, but the opposite–out of fear of generating future recessions. These deficit hawks are effectively putting a lid on any new stimulus plans. The economist Robert Pollin challenges the deficit hawks in one of the most comprehensive pieces written on the subject and shows a way forward.
– Austerity Is Not a Solution: Why the Deficit Hawks Are Wrong
– When Is Austerity Right?: In Boom, Not Bust
Arjun Jayadev and Mike Konczal
– Absurd Austerity Policies in Europe
Philip Arestis and Theodore Pelagidis
– The Massive Shedding of Jobs in America
Andrew Sum and Joseph McLaughlin
– America and the Crossroads of Capitalist Globalization
– Rising Inequality, Public Policy, and America’s Poor
– How Well Have Americans Been Doing?
Stephen J. Rose and John Schmitt’s
– The Failure of Capitalism
From the press release:
The second quarter of 2010 represented the second period in a row that states reported overall gains in tax collections — following five straight quarters of decline — according to a new study by the Rockefeller Institute of Government.
Overall state tax revenues grew by 2.3 percent in the second quarter of 2010, according to the Institute’s latest State Revenue Report. Thirty-four states reported gains in revenue during the second quarter, with 12 showing double-digit growth.
Source: Andrew Ross, New Labor Forum, Vol. 19 no. 3, Fall 2010
From the abstract:
There have been very few silver linings to the Great Recession, but one of them has been the prospect of launching a new industrial revolution powered by renewable energy. In the absence of any other candidates, green industrial policies have been prioritized as a recipe for economic recovery and the key to job creation, whether for building and operating the new energy infrastructure, or weatherizing the existing built environment. The urgency of the climate crisis raised the stakes much higher. Shunning the call for sustainability would not simply be a missed economic opportunity. It would be tantamount to a death sentence for large portions of the world’s population. The desperation of the jobless may have been the proving ground for green planning, but a humanitarian calamity of epochal proportions would be its final verdict if the transition from dirty to clean did not turn out right.
The September employment report from the Bureau of Labor Statistics showed that total employment in the nation declined by 95,000 jobs. The declines reflected a loss from August to September of 7,000 state government jobs and 76,000 local government jobs. The cuts include positions in education and other areas.
The nation’s city finance officers report that the fiscal condition of the nation’s cities continues to weaken in 2010 as cities confront the effects of the economic downturn.
Local and regional economies characterized by struggling housing markets, slow consumer
spending, and high levels of unemployment are driving declines in city revenues. In response, cities are cutting personnel, infrastructure investments and key services.
Findings from the National League of Cities’ latest annual survey of city finance officers include:
– Nearly nine in ten city finance officers report that their cities are less able to meet fiscal needs in 2010 than in the previous year;
– As finance officers look to the close of 2010, they report declining revenues and spending cutbacks in response to the economic downturn;
– Property tax revenues are beginning to decline in 2010, after years of annual growth, reflecting the gradual, but inevitable, impact of housing market declines in recent years;
– City sales tax revenues declined dramatically in 2009 and are declining further in 2010;
– Fiscal pressures confronting cities include declining local economic health, public safety and infrastructure costs, employee-related costs for health care, pensions, and wages, and cuts in state aid;
– To cover budget shortfalls and balance annual budgets, cities are making a variety of personnel cuts, delaying or cancelling infrastructure projects, and cutting basic city services; and,
– Ending balances, or “reserves,” while still at high levels, decreased for the second year in a row as cities used these balances to weather the effects of the downturn.
From the abstract:
The impact of the great recession on inequality is unclear. Because the crises in the housing and stock markets and mass job loss affect incomes from across the entire distribution, the overall impact on inequality is difficult to determine. Early speculation using a variety of narrow measures of earnings, income and consumption yield contradictory results. In this paper, we develop new estimates of income inequality based on ‘more complete income’ (MCI), which augments standard income measures with those that are accrued from the ownership of wealth. We use the 1989-2007 Surveys of Consumer Finances, and also construct MCI measures for 2009 based on projections of assets, income, and earnings.
We also assess the level and trend in the functional distribution of income between capital and labor, and find a rising share of income accruing to real capital or wealth from 1989 to 2007. The recent economic crisis has diminished the capital share back to levels from 2004. Contrary to the findings of other researchers, we find that the labor share of income among high-income groups declined between 1992 and 2007.
From the abstract:
Wall Street hyper-speculation brought the global economy to its knees in 2008-09. To prevent a 1930s-level Depression at that time, economic policymakers throughout the world enacted extraordinary measures. These included large-scale fiscal stimulus programs, financed by major expansions in central government fiscal deficits. In the U.S., the fiscal deficit reached 9.9 percent of GDP in 2009, and is projected at 10.3 percent of GDP in 2010. But roughly 18 months after these measures were introduced, a new wave of opposition to large-scale fiscal deficits has emerged.
This paper reviews the arguments developed by various leading deficit hawks. In fact, they are not advancing one main argument or even a unified set of positions, but rather four distinct claims: 1) Large fiscal deficits will cause high interest rates, large government debts, and inflation; 2) Even if the current deficits have not caused high interest rates and inflation, they are eroding business confidence; 3) The multiplier for fiscal stimulus policies is always close to zero and has been so with the current measures; and 4) Regardless of short-term considerations, we are courting disaster in the long run with structural deficits that the recession only worsened.
From the press release:
New survey research announced today shows that local governments are now facing a fiscal crisis that will force job losses approaching 500,000 and significant cuts in much needed public services. Representatives from the National League of Cities (NLC), United States Conference of Mayors (USCM) and the National Association of Counties (NACo) jointly released the survey results at a press conference on Capitol Hill earlier today and were joined by several members of Congress offering their support to cities and counties during these difficult economic times.
From the abstract:
The challenges of baby boomers reaching old age, combined with a growing, more diverse population, will drive major changes, challenges and decisions in U.S. families, workplaces and communities, according to New Realities of an Older America: Challenges, Changes and Questions, a new report from the Stanford Center on Longevity.
The implications concern the entire society – young and old alike. Even though many of these changes could have been anticipated, the United States has continued to rely on social and economic policies and practices that were designed for a more youthful population. New Realities of an Older America frames the critical issues and underscores the urgency of effectively addressing the anticipated challenges with relevant public policies.