The Exodus Of The Governors

With Bill Richardson and Janet Napolitano now ensconced in Barack Obama's cabinet, and with perhaps Kathleen Sebelius perhaps joining them as Secretary of Agriculture (I don't know if that will please the foodies who want a "sustainable choice"), the number of Democratic governors leaving in the middle of their second terms rises to three. That's 3 out of 28 Democratic governors, which seems to me to be a high number. From a party-building standpoint, this doesn't seem to be a great idea, particularly in Arizona, where a Republican Secretary of State will now replace Napolitano as Governor, and Kansas, where there's a conservative Republican legislature and Sebelius vetoed a lot of bad bills. However, as FMguru noted in the comments the other day, this is a bad time to be a governor. Revenues from state taxes and property taxes are way down, and budget gaps are growing. In fact, Arizona has the biggest budget deficit in the nation, at a whopping 24% of total spending. And balanced budget amendments demand that either taxes rise or services get cut. There's no way out of the mess (save for a more generous stimulus package to state and local governments than I expect) and the pain will be deeply felt. These governors are leaving at the right time for their credibility.

The question is whether the Republican governors, who are stuck at their posts, will make good choices or drown the government in the bathtub, which would have catastrophic consequences.

In the wake of a dreary election for Republicans, the quest to find their new leaders is on, and the party's governors think they can fill the void. The problem is their states are heading for budget difficulties that may compel the governors to swallow hard and either propose or accept tax increases.

And there is no better way to alienate the base of the Republican Party than to push for, or acquiesce to, tax increases.

"This is a tremendous opportunity to separate the sheep from the goats," said Grover Norquist, president of Americans for Tax Reform. "The guys who turn around and say 'I can't rein in spending, I must raise taxes'...are going to have a hard time."

It must be so easy to be a mewling child like Grover Norquist, playing to the selfish fears of his base, acting like a three year-old at the mall. This crisis will hopefully domesticate him, so that he might pee on the furniture a bit, but he won't be much of a problem anymore.

By the way, his Governors aren't listening to him anymore.

Among the states led by Republicans, Florida may have the biggest headache. Gov. Crist faces a $1.7 billion mid-fiscal-year shortfall, according to the Center on Budget and Policy Priorities. Meanwhile, tax revenue in the state, which doesn't have an income tax, plunged 8.2% in the quarter ended in September from a year earlier as sales took a hit, according to the Nelson A. Rockefeller Institute of Government. Seeking to balance the budget, Gov. Crist has said he would consider a cigarette-tax increase of 50 cents a pack.

A similar situation is playing out in Mississippi, where Gov. Haley Barbour, widely viewed as a star among Republicans, proposed a 24-cent-a-pack cigarette-tax increase and a host of other tobacco-related fees. The combined fees, if implemented, are projected to create $80 million in revenue for a state with a roughly $24 million midyear shortfall.

It's called reality, and it's hitting governors in the face. The real problem is all the balanced budget amendments, which paralyze states and force cuts at the worst possible time. But poor Grover probably was a cheerleader for them as well, so he's going to have to take the tax hikes like a good little boy.

What The Hell Are We Going To Do About The Economy?

Paul Krugman is concerned, and when he gets concerned, I start to get concerned. After opening the week by stating that the economy looks to be falling off a cliff, now he appears doubtful that even a major investment in infrastructure will do the trick:

Two points:

1. The economy is falling fast. We’ll see what tomorrow’s employment report says, but we could well be losing jobs at a rate of 450,000 or 500,000 a month.

2. Infrastructure spending will take time to get going — a new Goldman Sachs report suggests that projects that are “shovel-ready” are probably only a few tens of billions worth, and that a larger effort would take much of a year to get going. Meanwhile, it’s very questionable how much effect tax rebates will have on consumer demand. So it may be hard for stimulus to get much traction until late 2009 — and that’s even if Congress goes along, which may be a problem given all the bad analysis and disinformation out there.

He wonders if we're not headed for double-digit job loss before things right themselves.

And we may be. But we certainly WILL be if we don't use a substantial amount of stimulus money on aiding state and local governments. They're basically going to have to cut their way out of all this loss of tax revenue from the early unemployment and property value losses, and that will mean less state employees, cops, firefighters, teachers and nurses. Keeping them up and running will at least staunch the bleeding and keep the cycle from spinning downward (less state revenue means more cuts means more unemployment means less state revenue means more cuts). In addition, as Ed Kilgore says:

I'd go further than Matt on this subject and observe that states have significant control over some of the "automatic stabilizers" that he's attributing to the federal government (e.g., Medicaid, SCHIP and transportation programs); without some new assistance, states may not only counter-act the "automatic stabilizers" but could actually subvert them. That's clearly what some Republican governors like Mark Sanford have in mind when they call for abolition of federal "mandates" rather than federal assistance: let us completely decimate Medicaid beyond what we are already allowed to do, and we'll be fine!

So an effective stimulus package must not only provide heavy assistance to state and local governments; it must also be sufficiently conditional to ensure that the Mark Sanfords of the world don't use the money to cut taxes as well as services.

Absolutely. The other part of this is that the states are obviously much closer to knowing what infrastructure projects are ready to go, and any money left over from fixing their budget holes could be easily directed to those spending projects. Obama appears favorable to this idea.

It's not a handout or a bailout, insisted the host of the economic forum, Democratic Gov. Ed Rendell of Pennsylvania, president of the National Governors Association. Rather, it's the "best remedy for getting America back to work," Rendell said.

"We think that we can create literally millions of new jobs and at the same time lots of orders for concrete and steel companies and asphalt companies and lumber companies and the like," Rendell said [...]

Obama on Tuesday pledged to move as quickly as possible on a stimulus package that could hasten an economic turnaround, beginning at the state level.

"I recognize that every single one of you is struggling to come up with a budget at a time when you're facing great and growing needs," said Obama, who asked the governors for the meeting. "More and more people are turning to you for help for health care, for affordable housing, to prevent foreclosures even as the credit markets are tightening and tax revenues are making it more difficult to provide that help."

Just as a corollary, I want to add that just because we're focusing on the spending side of the equation for now (and the neo-Hooverists who want to balance the budget in the midst of a deep recession are insane), that doesn't mean we can't look toward the future and come up with some revenue streams and sensible cutbacks as well. Scrutinizing federal agencies with an eye toward streamlining makes some sense, but that's not going to really have much of an impact beyond the margins. There are some other options:

• If we're not going to institute a windfall profits tax on the oil companies, we can at least roll back the subsidies that they clearly don't need, even when oil is below $50 a barrel. This savings can be plowed into the green jobs aspects of the stimulus.

• Let's come up with a legitimate way to deal with offshore tax cheats. I hate the idea of amnesty, but if losing a little in penalties and maybe a bit of the tax owed means that the government's coffers get replenished, I say we go for it. This actually worked fairly well in California with a similar type of program. We're talking about $30-40 billion annually.

• As Joseph Cirincione makes clear, there's a major budget cutback that would be simple and have pretty much no side effects - cut the nuclear weapons budget and reduce stockpiles to the level where we can only destroy the planet 100 times over instead of 1,000.

We must, of course, spend what we need to defend the country. But a good part of the military budget is still devoted to programs designed for the Cold War, which ended almost 20 years ago. This is particularly true of the $31 billion spent each year to maintain and secure a nuclear arsenal of almost 5,400 nuclear weapons, with 1,500 still deployed on missiles ready to launch within 15 minutes.

We can safely reduce to 1,000 total weapons, as recommended by Senator John Kerry and other nuclear experts. That reduction would save over $20 billion a year, according to the Center for Strategic and Budgetary Assessments.

We're in bad shape, but we do have options.

Get Ready For The Suck

The new kind of trickle-down in the US economy is the trickle of job losses in the shaky manufacturing and construction sectors into scale backs in consumer spending, which will lead to job losses in retail. Which is exactly what's happening. Circuit City, a really crappy store which treats their workers like garbage (they fired a bunch of them a couple years back for making too much money), filed for bankruptcy protection today. DHL in Wilmington, Ohio is pulling up stakes, a move suggested during the Presidential campaign (John McCain and staffers like Rick Davis were instrumental in putting the DHL sale to a German company through, and this was the inevitable result). That's basically a whole city you're about to see go under.

The spiral downward cannot be counteracted without massive stimulus, and soon. Paul Krugman had a good idea over the weekend, to aid state and local governments who might otherwise lay off teachers, cops, firefighters and state employees:

State and local governments operate under fiscal rules that lead to booming spending and tax cuts when the economy is strong and the reverse when the economy is weak. This is bad governance: services are cut precisely when people need them most. It’s also bad macroeconomics: it exacerbates the business cycle.

Right now, we’re seeing a sharp drop in state revenues, which is going to lead to big cutbacks in spending and tax increases at exactly the wrong time.

Obama mentioned aid to state and local governments in his press conference yesterday. Indeed. This is a very quick form of fiscal stimulus, because it’s not about starting new spending, it’s about sustaining current spending. It should be done immediately.

But what if Bush says no? Congress should pass the aid plan anyway, and Obama should promise to sign it as soon as the current tenant vacates the White House. That way states will know that the money is coming, and be able to budget accordingly.

That's pretty urgent, as state budgets get revised and workers either lose their jobs or keep them. A new wave of job loss is not what we need right now.

Krugman also offers a word of warning about how to best understand the Roosevelt era - we didn't have ENOUGH spending at key moments.

The political lesson is that economic missteps can quickly undermine an electoral mandate. Democrats won big last week — but they won even bigger in 1936, only to see their gains evaporate after the recession of 1937-38. Americans don’t expect instant economic results from the incoming administration, but they do expect results, and Democrats’ euphoria will be short-lived if they don’t deliver an economic recovery.

The economic lesson is the importance of doing enough. F.D.R. thought he was being prudent by reining in his spending plans; in reality, he was taking big risks with the economy and with his legacy. My advice to the Obama people is to figure out how much help they think the economy needs, then add 50 percent. It’s much better, in a depressed economy, to err on the side of too much stimulus than on the side of too little.

In short, Mr. Obama’s chances of leading a new New Deal depend largely on whether his short-run economic plans are sufficiently bold. Progressives can only hope that he has the necessary audacity.

Indeed.

We Need To Be Bold

Digby pointed yesterday to David Broder's none-too-subtle warning that the next President had better not get any funny ideas about investing in the future or giving those among the least of society a hand or anything. Obviously we need to get through the next 22 days and usher in a Democratic President. But this is an absolutely vital discussion that we need to be having right now.

Unsurprisingly, Broder's concern trolling about the economic downturn and the debt reflects mainstream Beltway opinion of the moment. There's a reason why the story about the US debt clock needing extra digits got so much attention. Call it neo-Hooverism, as Matt Yglesias has taken to doing. Throughout the debates serious guardians of the discourse like Jim Lehrer and Tom Brokaw have hounded the candidates about what parts of their agendas they would cut or scale back in the midst of the slowdown. Here's Michael Scherer of TIME following their lead.

Neither candidate has the courage to speak straight with the American people about our nation’s fiscal problems. Asked about the financial crisis, McCain talked about energy independence, hitting the same talking points he used in July. Obama talked about the need to give tax cuts to the middle class, and expand spending programs, a proposal he put forward last year. Both men have proposed policies that will lead to an increase in the deficit, according to independent analysts, even without a dramatic economic downturn, which looks increasingly inevitable. Neither man has shown any clear intention to tell Americans to face head on the hard economic times that await us. This is politics. The candidates are playing it safe, not telling voters anything they don’t want to hear. They choose to demagogue Wall Street instead.

This is precisely the opposite of what needs to be done in a recession. In fact, the crisis facing the states right now is emblematic of this idiotic mindset. When the economy slows, tax revenues decrease. The demand for social services increases. So more is needed while less is earned. This leads to deficits, and because of balanced budget amendments at the state level (thank God we don't have them federally), spending cuts are implemented. This shrinking of state and local spending shrinks the economy. Which prolongs the recession and prolongs the pain. That's what the Beltway chattering class is RECOMMENDING.

The federal budget is not a family budget, as Brian Beutler ably explains.

When times are hard at home, after all, you scrimp and save and avoid exorbitant expenditures. You keep working hard and hold on to the belief that prosperity will return sooner than later. Maybe under different circumstances you take out a loan and start a business and hope it's successful enough to make you rich and famous--but now you have children. You really want them to go to college. And so you can't in good conscience take on the risk.

But countries aren't like households. When times are tough the last thing they need is for their governments to freeze out discretionary spending. And, paradoxically, the Great Men of History who so badly want to be president wouldn't be doing their countrymen any favors by choosing this particular moment to suddenly restrain their vision.

In response to a recession, spending to increase job creation and investment is a completely normal, Keynesian reaction. The idea that the bankers must be bailed out at all costs but that there's no cash for the ordinary stiffs who would benefit from a thorough stimulus package is bunk. It's also dangerous to the health of the economy and our future standard of living.

If you don't start spending at the federal level, more bridges will collapse and more roads will become unpassable. More state unemployment funds will become insolvent. More catastrophic effects of the climate crisis will unfold. More Americans will lack quality access to health care. More Americans will be out of work and lost when they could be put to work for our collective future benefit.

The Beltway attack on the progressive agenda, through the lens of fiscal responsibility, is only the beginning. The Pentagon is going to demand a large payoff at the same time its defenders will call for budget austerity, because as everyone knows military spending is magic spending that doesn't exist in any temporal form.

Pentagon officials have prepared a new estimate for defense spending that is $450 billion more over the next five years than previously announced figures.

The new estimate, which the Pentagon plans to release shortly before President Bush leaves office, would serve as a marker for the new president and is meant to place pressure on him to either drastically increase the size of the defense budget or defend any reluctance to do so, according to several former senior budget officials who are close to the discussions [...]

“This is a political document,” said one former senior budget official, who spoke on the condition of anonymity. “It sets up the new administration immediately to have to make a decision of how to deal with the perception that they are either cutting defense or adding to it.”

If there's one place where budget hawks can go to find wasteful spending and unnecessary expenses, it's the Pentagon. But of course then "the troops" are disrespected by discontinuing weapons systems that the United States hasn't used since the mid-1950s.

Furthermore, sometime in the next year some wingnut publisher is going to release a book with a title like The FDR Depression, arguing that Roosevelt's policies actually prolonged the agony and deregulation and tax cuts would have been the proper answer to the country's woes.

This is a coordinated attack. And to fight it we're going to have to stake out some pretty solid territory right now in order to get what is desperately needed for the country and its people.

First of all, we have to have a legitimate stimulus package in place, one that's targeted to those steps which would have the best impact on the overall economy. Nancy Pelosi is already talking about something that would provide $150 billion to state and local governments for expanding public works, extending unemployment benefits and food stamps programs. That's not enough, but the targets are pretty solid. Investing in infrastructure provides a tangible benefit for the future while creating jobs now. Funneling money to the states stabilizes their budget and decreases the risk to program cuts. And the biggest "bang for your buck" in economic stimulus comes from spending increases like extending UI and food stamps and aiding state governments, not tax cuts which supposedly will trickle down. The White House thinks the luckie duckies can get their own job and shouldn't be bailed out, and House Republicans want a "stimulus" as long as it does nothing to stimulate the economy:

Rep. Roy Blunt, the Missouri Republican who serves as House minority leader, said he would support a stimulus plan if it did not include massive public works spending and budget bailouts for states that overspent on health care and other social programs.

“A stimulus plan that makes sense is something that I’ll be helpful with,” Blunt said, also on ABC television.

Furthermore, you have to find big solutions that can increase economic output, create jobs that expand the industrial base so we don't keep relying on pushing paper to make a living, and legitimately tackle the global challenges that threaten to overwhelm any short-term band-aids. Fortunately, such a solution already exists.

But in the medium to long term, once the immediate problems in the financial sector have been ironed out, we need a planned transition towards a cleaner future, not a headlong collapse into a new depression. That means – contrary to the suggestion of the "all growth is bad" school – that we need to grow our way out of this economic mess. A return to Keynesianism could be a good thing for the environment, if government-backed spending and investment drives growth in areas where it is desperately needed, especially particularly clean energy. The old days of environment versus jobs are over – we don't need to sacrifice quality of life in order to stimulate the economy.

A green recovery providing millions of jobs and avoiding the catastrophe of unchecked global warming is our only hope of maintaining our sliding global stature. The one saving grace of the past few weeks of debates has been that this question was finally asked in front of a national audience:

Sen. McCain, I want to know, we saw that Congress moved pretty fast in the face of an economic crisis. I want to know what you would do within the first two years to make sure that Congress moves fast as far as environmental issues, like climate change and green jobs?

This must happen quickly and boldly and Senator Obama needs to be pushed. His energy policies are good but insufficient. His renewable targets must be larger - his target of 10% of all electricity from renewables by 2012 has already been exceeded this year. When energy has come up on the campaign trail, Obama foregrounds with talk of "clean coal" and "safe nuclear" power, which is fine for triangulation but terrible for the planet.

Obama's four-part plan today to restore American jobs is solid, and also needs to be bigger. He supports immediate investments in rebuilding America's infrastructure to create a million new jobs, extending UI and suspending taxes on benefits, creating a two-year holiday on penalties for withdrawing from 401(k) and IRA plans, LIHEAP funding supplements, and a 90-day foreclosure moratorium, among other measures. The job creation incentives in here are fine, and relief to those who need help is crucial.

But this is a time to think big. We have to grow our way out of the economic depths. We have to use the money we'll spend wisely enough to create external benefits for the next 50 to 60 years, to wire America like we electrified America in the 1930s, to fix the roads and bridges the way we built them then, to create a new, clean energy grid to replace the old one that served us well. We can not only face the biggest challenges in the world and create a sustainable economy at the same time, but they can complement each other. And we can say "hell no" to those Wise Men of Washington and the conservatives they enable, whose ideas on budgets and fiscal responsibility and supply-side economics have been totally discredited. We need only to have courage in crisis, and a willingness to lead the way.

Who will show it, if not us?