The Recession Proof Economy and other Liberal Economic Myths

Isaac Smith tries to climb his way out of his remarks about the “conservative” General Assembly by making some more odd points, the first of which is by again talking about the myth of a recession proof economy:

Of course, Brian’s point (I think) is that the tax increases are exacerbating the recession’s effects in Maryland, which is debatable; certainly the Washington suburbs have been doing better than the national average in terms of employment, and Maryland’s unique economic features make it more resilient to downturns generally. Things could get worse, however, if the state made the draconian kind of budget cuts that Brian and other Republicans have been clamoring for. As I’ve noted before, budget cuts during a recession are actually more harmful to the economy than tax increases, since it exacerbates the problem of falling consumption by reducing consumption even further.

And yes, that was the point I was trying to make; that an already bad economic climate is being made worse by Annapolis Democrats. Of course, liberals in Annapolis always try to fall back on the idea that Maryland’s economy is recession proof due to the shear number of federal jobs and federal spending that is tied into the Montgomery and Prince George’s County suburbs. The fact of the matter remains that despite this “unique economic feature” as Isaac likes to call federal spending, federal workers can also be disproportionately harmed by higher taxes and higher spending at the state level. Just because their jobs are “recession-proof” doesn’t mean that the diminution of their purchasing power thanks to higher taxes and the higher price of goods and services is going to be stopped, too.

As far as budget cuts during a reccession harming the economy, that just make little sense. The preponderance of the additional spending proposed an enacted by the O’Malley Administration deals with increasing the size and largesses of government, not the reduction of capital projects that are already budgeted and under contract. This is further exacerbated by the fact that much of the spending cuts and the diminution of purchasing power could have been avoided if spending were cut in the first place since the spending cuts could have provided relief from the “need” for higher and higher taxes. And besides, remember what happened when Roosevelt tried to spend his way out of a massive economic downturn. The type of spending that Isaac suggests is the type of spending that bankrupted the Soviet Union.

I am heartened by the fact that Isaac realizes that the elimination of balanced budget requirements in Maryland is foolhardy, but I could not disagree more with this reasoning:

Ideally, what you would want is for the state to build up its rainy-day fund during boom times and spend it down during bust times (what’s known in economic jargon as countercyclical fiscal capacity), so that there’s some stability in the functioning of government programs. Unfortunately, Maryland’s rainy-day fund went dry in 2007, so that option is closed off.

No, ideally what you want to do is have a government that only takes as much money from its citizenery as it needs to provide the most basic of services; schools, fire, police, etc. I’m pretty sure I didn’t volunteer to make an interest free loan to the State Government in order to stash away money for pet projects when times are rough. Should there be a rainy-day fund? Yes, but only for actually fiscal emergencies to meet the most basic of collective services, not just for the sake of out-of-control spenders trying to balance the budget when tax revenues fail to meet expectations.

And finally, we get this:

I’m hoping, then, that if the recession persists, as seems likely, Congress will push for greater federal aid to the states, which would allow programs like Medicaid and unemployment assistance — which are high in demand during a recession — to get to more people who need it.

Actually, the last thing we need to do is for Congress to start doling out more money to the states. States should be able to find ways to fund these programs out of their own fiscal houses and not rely on additional federal assistance above and beyond what is already in place. The state budget should have adequately prepared for increases in Medicaid and unemployment claims when the General Assembly adopted it last week, but I’m sure that pet projects were more important to legislative leadership than this already existent spending.

The argument that Maryland does not spend enough and that we should continue to maintain current spending levels during the O’Malley Recession flies in the face of responsible government, and I find it hard for Smith and others to continue making spurious arguments for the continuation of this reckless fiscal posture.

(Crossposted)






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