Thursday, June 10, 2010

We need jobs, not budget cuts

In order to help the economy grow, national, state and local governments need to maintain and to create jobs.  This policy is called Keynesianism.   Interestingly candidate Meg Whitman proposes exactly the opposite – cut jobs and reduce taxes for the corporations.   That is Reaganomics.
County revenues and state revenues are down. There has been a  nearly 30 percent drop in sales tax for Sacramento County over the past five years. Property tax funds an  large  share of county budgets, and plummeting real estate values have meant even less income for counties to pay their bills.  State cutbacks have been severe cutting some 16 billion from schools in the last two years.
 The reality is that almost all of California's counties are facing significant budget shortfalls resulting in cuts in programs, services and staffing.  And, some 42 of the states have severe budget crises.
 California and other states  have budget restrictions that prevent deficit spending, yet, according to Keynesian theory  we need deficit spending to get out of this recession.  The cutbacks at the state and local levels around the country are negating the value of the federal stimulus of 2009.  We must  stop the cutbacks at the state and local level.
Paul Krugman,  won the Nobel Prize in Economics in 2008 and is well known for his regular columns  in the New York Times.  He has republished The Return of Depression Economics with an update- the Crisis of 2008.  Krugman, a Professor at Princeton,   argues that the crisis is endemic.  It has been growing since the 1990’s.  He describes  particularly the 1994 Peso Crisis in Mexico , the East Asian Crisis, and the  US stock market bubble of 2001/02.  He could have well added the Russian Crisis of 1998.
The 2007/2009  U.S. economic  crisis was severe in part because of the   growth of finance capital as a  dominant actor  in our economy .   Finance was in crisis, not the production of goods and services.  Since the 1980’s,  in the age of globalization,  U.S. finance capital and financial services grew as a percent of the total profits in the economy  while manufacturing  declined.  At the same time, while the financiers made billions from stock options and bonuses, the average wage of working families remained stagnant, thus they had limited  money to use to buy new products.  And, when they did buy, the products were often manufactured in China or Vietnam and their production stimulated  those economies, not the US economy.

Krugman argues for  a return to Keynesian understanding of this crisis in developing a response to the current loss of  jobs and thus loss of demand.   That is, the government must stimulate economic recovery by investing in jobs and infrastructure  even though  the increased globalization  of the economy makes a national Keynesian  response less effective.   In  the New York Times Krugman  frequently  argues that the stimulus of 2009  was too timid to jump start the economy .   Since the government has not  provided  a major economic  stimulus,  because of Republican opposition in the Senate,  we are suffering  a sustained  crisis as state and local governments  cut  public services and lay  off public workers. Unless there is  significant public investment and  changes in policies and financial regulations, the crisis will repeat again and again.
The deep, agonizing, unpopular cuts being imposed on states and local communities, including  lay offs of sheriffs, teachers, health care workers, child protective services, and the loss of the services which they provided make matters worse, not better.  Neither the government, nor the legislature  caused these cuts, they were created by the grand theft on Wall Street. Major banks and corporations looted the economy creating an international meltdown.  Now, they have been rewarded with bail out money.  The crisis was not caused by students, teachers, public employees  nor recipients of social security.   The major bankers, finance capitalists in the U.S. robbed the banks and the federal treasury in 2008/2009.  They took hundreds of billions of dollars out of the economy.
  This crisis ,caused by the greed and avarice of the financial class and aided by the politicians of both major political parties,  has forced the cutting of  higher education, of k-12 education, and of welfare systems.
We  need  a federal stimulus to create jobs to overcome the cut backs of the finance capital robbery.    For a start,  the federal government should provide funds to hire teachers and  police officers.  They should fund a major portion of Medicaid. Such funding would provide the states with financial flexibility to fund other necessary programs such as services to the blind, the disabled, the elderly.
The prior federal stimulus  of 2009 ARRA  was too small.  The Senators kept the stimulus small to gain the needed 3 Republican votes to pass the bill in the face of a potential filibuster.  A  new stimulus should not  bail out  Wall Street and the banks, but should be an investment to create and protect jobs.   WE need a Keynesian stimulus.  When governments create jobs   workers pay taxes.  Taxes fund further economic growth.  The most direct way to deal with the current budget deficit is to grow the economy, not to cut workers and programs.
 And we  must regulate the banks.  Wall Street should not be allowed to rule and to ruin our country – again as they did in 2007-2009.    We need some return to the Glass Steagal system of separating banking from the gambling of investment houses and hedge funds.  The current financial reform legislation does not contain a return to the Glass Steagal restrictions.
To achieve this stimulus we need to  return some democracy to our political system.  It is out of balance.   There is far too much power in the hands of an oligarchy.

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