John Buell

Happy Days Aren’t Here Again

If that first dip in the cold bath of recession wasn’t bracing enough, how about a second dip? Most of the mainstream media along with the financial markets are pronouncing the Great Recession over.

I am not so sure. I admit to ideological skepticism about this economy. Its central institutional structures, including obscene inequalities and a bloated, unregulated and subsidized financial sector remain firmly in place. Nonetheless, I think that there are more reasons than ideological bias to be apprehensive about our economic future.

Government retrenchment from the jobs creation business may be the greatest current risk to the economy. There are many signs that in other times would be taken by most citizens as cause for concern. Furthermore, the Federal government and even most state governments have both reason and room to intervene more constructively than they have thus far.

Numbers for gross domestic product (GDP) have shown modest improvement, but a real jobs recovery will require far more robust growth than we are likely to achieve. Even modest growth is unlikely. Conservative investment advisor and CNBC contributor John Mauldin points out: “Year to year comparisons of same store sales are mildly positive — but because many stores have folded, giving those that remain more sales.” In addition he reminds us that inventories have gone about as low as they can. He adds: “the way GDP is figured, a reduction in inventory reduces GDP. That was a negative figure for most of this recession. Simply because inventories are not falling any more, it is easier to get a positive GDP.”

The worst prospect may lie in what is yet to happen at the state level. Most of the business commentary assumes that current levels of consumer spending, modest as they are, will at least remain in place or slowly rebound. But the full effect of declining revenues at the state level has yet to be absorbed. Despite talk of a more confident consumer, most state treasuries are reporting continuing declines in sales tax revenues. Consumer credit fell $17 billion, the largest decline ever — over the year- end holidays.

Since most states cannot run deficits, services must be cut further or taxes newly increased. Some estimates place future cuts at around another $260 billion.

For merely a third of what the government has spent on the Troubled Asset Relief Program and for far less that the trillions going into Iraq and Afghanistan, the federal government could fill this gap.

Scare talk about large deficits hides the fact that deep recessions rather than profligate government are the cause of the widening deficits.

Deep recessions increase government’s burdens and decrease its revenues. But interest rates on long-term US bonds remain very low by historic standards. Our government can afford to borrow.

Funds targeted to restore crucial educational, health care, transportation, and energy needs are an investment in long-term productivity and the best way to reduce the burden of the debt.

The same conservatives who worship free markets and failed to anticipate the housing bubble now insist that only the private sector creates wealth. They might want to read a history of railways, the interstate highways, computers and the Internet. With so much unutilized human and physical capital, now is the time for government to fund investments in a modern, sustainable infrastructure.

Though states are more constrained, they have important choices. Here in my home state of Maine, Maine Center for Economic Policy economist Dan Coyne points out that more deep cuts put some families needs against others and fail to create a stable economic future. Coyne advocates short-term surtaxes on incomes above 250,000 and sales tax increases on items or services used primarily by the wealthy. Many states do not tax a variety of business services used primarily by the wealthy and could do so.

Will such taxes make a state uncompetitive? I doubt it. Modern economies need a skilled workforce to attract new, high value added jobs. Further cuts to an already stressed community college systems are counterproductive. Nor are such taxes inequitable. Our wealthiest citizens have been disproportionate beneficiaries of the Fed largesse that sustained their portfolios.

A further consideration in behalf of a short- term tax increase to fund services lies in where the money goes. Lower taxes, especially for the wealthy, may be saved or immediately sent out of the state or often the country for goods produced elsewhere. State government expenditures for community college faculty or school insulation at least starts the chain of spending locally. There is less leakage and states get a better return on their dollars.

Common wisdom is that no state legislature will ever dare raise taxes. I don’t think that our job is to sit around predicting the future. That is a spectator’s orientation. Let’s make our case and see if we can change some minds.

John Buell lives in Southwest Harbor, Maine, and writes regularly on labor and environmental issues. Email jbuell@acadia.net.

From The Progressive Populist, March 1, 2010