Friday, May 28, 2010

Senator Mitch Herbert Hoover McConnell

Real state and local government purchases (2005$) had fallen from $1543.7 billion per year as of 2007QIV to $1537 billion per year as of 2009QIV and then dropped to $1521.7 billion last quarter. Economists understand the problem with state governments needing to annually balance their budgets and one of the big concerns is that such pro-cyclical fiscal policy could undermine much of the Federal fiscal stimulus – a phenomena known as 50 little Herbert Hoovers. We also have a remedy for this problem known as Federal revenue sharing if those in Washington, DC have the wisdom and courage to adopt such a sensible move.

While such wisdom and courage has been in short supply, Christina Romer makes the case for an emergency spending bill that prevent the layoff of school teachers:

The emergency spending bill before the House would address the education crisis facing communities across America -- and the jobs of hundreds of thousands of teachers are at stake. Because of continued high unemployment, state and local budgets are stressed to the breaking point. Many states and localities are drastically cutting education spending. This year school districts in Hawaii went to only four days of instruction a week. In many other districts, officials are ending the school year early to save money. Most worrisome, hundreds of thousands of public school teachers are likely to be laid off over the next few months. As many as one out of every 15 teachers could receive a pink slip this summer, the White House Council of Economic Advisers estimates. These layoffs would be spread throughout the country -- in urban, rural and suburban districts. Such layoffs are terrible for teachers, for communities and, most important, for students. For the families directly affected, layoffs mean not only lost wages but often lost homes and postponed dreams. Because unemployed teachers have to cut back on spending, local businesses and overall economic activity suffer. And the costs of decreased learning time and support for students will be felt not just in the next year or two but will reduce our productivity for decades to come. Additional federal aid targeted at preventing these layoffs can play a critical role in combating the crisis.

Alas, the leader of the party of no has the following concern:

"This is fiscal recklessness. And that's why even some Democrats are starting to revolt," Senate Minority Leader Mitch McConnell (R-Ky.) said in a speech on the Senate floor. "Far from doing anything about our own looming debt crisis, Democrats only seem interested in making it worse."

His call for fiscal restraint in a time when unemployment is high given weak aggregate demand can be seen as follows – far from doing anything about our weak economy, Republicans only seem interested in making it worse. OK, the Senator from Kentucky might be allowed to have one vote on fiscal policy matters even if his views on fiscal policy as dumb as those we have learned to tag as Hoover economics but why should we allow him to effectively block any action by Congress?


TheTrucker said...

When will they finally tell the truth? When will they tell the American people that money has no intrinsic value and that taxation is what keeps the money scarce and supports its value? The government is _NOT_ fiscally restrained in its activities if it simply creates the money and applies correct tax policies. We _NEED_ some wage inflation and dollar devaluation or we need import duties. Or both.

Why can't Johny learn??? Is his calculus stopping him from using his alleged mind? If money deteriorates in value (LTV) then rich people who refuse to invest will get poor as the money stuffed in their mattress will slowly become worthless. Seems simple enough to me. The incentive to invest is do it or end up poor.

Buying a home is a very good investment when the inflation monster is loose. All we need is some decent wages and the crash is over.

Martin Langeland said...

If us slaves get the idea that money is a con job, Pharaohs loose their power. As Biff said: "You wouldn't want that to happen, would you?"

HooversGhost said...

"... with state governments needing to annually balance their budgets and one of the big concerns is that such pro-cyclical fiscal policy could undermine much of the Federal fiscal stimulus – a phenomena known as 50 little Herbert Hoovers."

Doubly wrong--such policy would be counter cyclical not procyclical.

Hoover was not committed to small government or to balanced budgets. Federal govt spending increased 50% during his term and the govt went from having a large budget surplus to running a large deficit.