No state has defaulted on its loans since the Great Depression. But the New York Times warns that states and municipalities could be closer to that rare and grim fate than ever before. Federal stimulus cash is drying up in 2011, just as states face what might be their most crushing budget shortfalls, as weak tax revenue fails to provide for large spending demands. If they cannot close the gap with spending cuts and tax increases, they may be forced to revisit their promises to bond holders.
Why we need public spending
Source: David Hall, PSIRU, Business School, University of Greenwich, November 2010
From the abstract:
Public spending plays a vital positive role in economic and social development, contrary to rightwing political views. It supports half the jobs in the world – twice as many in the private sector as in the public sector – and is crucial for investment in infrastructure, the provision of key services, and creating greater equality. It is also the main way of financing action on climate change. Deficits have arisen because of the need to deal with the economic crisis, and because companies are failing to pay their fair share of tax burden. The IMF’s call for deep cuts in spending should be resisted.
The Role of Government in Democracy and the Economy: The Disconnect Between Public Perception and Reality”
Source: The War Against Public Services And Public Employee Unions, Albert Shanker Institute, presentation transcript, June 2011
From the abstract:
The American Recovery and Reinvestment Act of 2009 (ARRA) contains provisions that are intended to boost economic activity and employment in the United States. Section 1512(e) of the law requires the Congressional Budget Office (CBO) to comment on reports filed by recipients of ARRA funding that detail the number of jobs funded through their activities. This CBO report fulfills that requirement. It also provides CBO’s estimates of ARRA’s overall impact on employment and economic output in the third quarter of calendar year 2010. Those estimates–which CBO considers more comprehensive than the recipients’ reports–are based on evidence from similar policies enacted in the past and on the results of various economic models.
CBO blog post
From the summary:
Putting our nation on a path of broad prosperity will require generating new jobs, investing in key areas, modernizing and restoring our revenue base, and greatly increasing the cost efficiency of the health care system. Achieving these goals, however, will require an informed and engaged public to help set national priorities.
The following report puts forth a blueprint that invests in America and creates jobs now, while putting the federal budget on a long-term sustainable path. We document the hard choices that need to be made and suggest specific policies that will yield lower deficits and a sustainable debt while preserving essential initiatives and investments.
The National Institute on Retirement Security presentation at the International Foundation of Employee Benefit Plans 56th Annual Employee Benefits Conference.
From the summary:
In January, 37 governors, many of them new, will take office facing daunting challenges, including many immediate needs for which there is precious little time or money to meet. But at the same time, they have an opportunity to lead their states, and the nation, into the next economy, which must be driven by exports, powered by low carbon, fueled by innovation, rich with opportunity. An economy with those characteristics will also be metropolitan-led.
Deeper budget cuts and more public sector layoffs will not re-balance and re-start our economy. Only wise, strategic investment does that. States should, therefore, do three things to revive their state economies and lay the groundwork for future prosperity:
1) Invest in new ways to support the assets that drive the next economy.
2) Cut to invest to jumpstart the transition to the next economy.
3) Leverage investments through smart metropolitan strategies.
From the press release:
The Unemployment Insurance (UI) system helps the population most directly affected by recessions–those who have lost jobs through no fault of their own. This focus makes it one of the most effective targeted tools for maintaining American families’ purchasing power and keeping the economy on track during an economic downturn. Unemployment creates a snowball effect where people who have lost their job reduce their spending causing businesses to lose money and others to lose their jobs. Unemployment insurance acts to reduce this effect by helping the unemployed to continue to purchase vital goods and services for their family.
– Unemployment Insurance Benefits and Family Income of the Unemployed
Source: Congressional Budget Office, November 17, 2010
– New CBO & DOL Studies Underscore Need For Full‐Year Renewal Of Unemployment Insurance
Source: National Employment Law Project, Press Release, November 18, 2010
From the summary:
GAO’s annual fall update of its long-term simulations underscores the need to address the long-term sustainability of the federal government’s fiscal policies. While the economy is still fragile and in need of careful attention, there is wide agreement on the need to look not only at the near-term but also at steps that begin to change the long-term fiscal path as soon as possible without slowing the recovery. With the passage of time the window to address the long-term challenge narrows and the magnitude of the required changes grows. The federal government faces long-term fiscal pressures that predate the economic downturn and are driven on the spending side largely by rising health care costs and an aging population.
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