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Dozens of little Hoovers

David Levine, professor of business administration | October 7, 2009

Economic policy is full of challenging decisions where the right answer is unclear.  It is fortunate, then, that the tragedy of our current economic conditions makes one policy response very clear: We must help state and local governments maintain the spending they had planned a year ago.

Right now almost all of the state governors are cutting spending and/or raising taxes in an effort to close their state budget gaps.  The result of these dozens of little Hoovers — and of the hundreds of mayors who are following similar policies — is predictable and disastrous.  Just when the economy needs more jobs, state and local governments are cutting them.  Just when the federal government is putting tax cuts in the pockets of consumers to spend, state and local governments are reaching into those same pockets and extracting spending power.

The federal budget deficit will be a very large problem in a few years.  Right now, though, the problem is that the deficit is not large enough.  For this year and next, the federal government should be borrowing even more to help states and local governments maintain their spending without raising taxes.

There was some efforts in this direction in the Obama administration’s first stimulus package – but not enough.  The economy needs the Administration’s next stimulus package to grow these transfers by many billions – and for that next stimulus package to be enacted very soon.

Comments to “Dozens of little Hoovers

  1. I have to agree with Rob Fox on this issue. I find spending by the Federal government to be unfelt by the average American. I want the Federal government to cut my taxes so I can have more disposable income that I can put back into the market place via building my business and hiring people.

    I wish more people in government would have business experience. If more politicians owned a business prior to public office, I have to believe they would look at everything differently and we might not be in this situation. Like I alluded to before, I have a maid service company in Jacksonville and just about everyone I talk to feels that the Federal government is so out of touch and is just trying to build and protect its nest.

  2. On the one hand the state can do a lot in order to solve the problem of unemployment. On the other hand real education and empowerment can do also a lot for this. If people understand that (no matter if they have a high degree or not) they can start their own succesful business if they educate themselves and work smart on it, then this can be a big step out of the unemployment crisis.

  3. So let me try to understand: If I am in financial difficulty, I should borrow a bunch of money and spend my way back into prosperity? I realize that academia and government are over-steeped in Keynesian Economics, but still hold hope that some might take a serious look into the Austrian point of view. Statist central planning works great for bureaucrats who would be hard pressed to run a successful business. Obamanomics is replicating FDR’s New Deal on a mega-scale. A proper revisionist review of the FDR era and its aftermath reveals what damage was actually done to the country by his ill-conceived policies. We should not trust those who got us into this mess to fix it for us.

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