The time for Keynes has passed
Adam Pagnucco responded to yesterday’s post regarding his take on the budget. Adam, unfortunately, still is unwilling to admit a few key points and still questions my more mainstream view of Maryland’s fiscal matters.
First, Pagnucco tries to shift most of the burden out of the O’Malley Deficit out of Maryland entirely:
Even casual readers of the news know that Maryland’s economy has suffered along with the rest of the nation. The causes of American economic stagnation are well known: a bursting real estate price bubble, resulting problems in financial markets and rising fuel prices exacerbated by a weak dollar. (The weak dollar is caused in part by immense federal budget deficits driven by the war in Iraq.) Those national problems affected Maryland.
I don’t think that either of us can dispute the impact that an unstable national economy has had on our state, particularly in light of the fact that neither Republicans nor Democrats in Washington have been willing to cut back on President Bush’s ridiculously unnecessary rate of domestic spending (which makes Lyndon Johnson look like Ebenezer Scrooge in comparison). But to say that the national economy is first and foremost the cause of the O’Malley Deficit is just factually incorrect, much like his next statement:
The slowing economy laid bare an underlying truth: the state had a structural deficit and was on track to spend $1.10 for every $1.00 it received in taxes. As I said nearly a year ago in a blog post ignored by Griffiths, the cause was two-fold: a 10% income tax cut in 1997 and billions of additional spending on education (commonly called the Thornton Plan) started in 2002. Both of these events occurred during the Glendening administration, but Governor Ehrlich did nothing to reverse them.
Only somebody trying to pull a fast one could make such a claim. To say that the income tax cut of 1997 was directly responsible for the currently shortfall is patently ridiculous. While Glendening pushed through the tax cut solely to take teeth out of Ellen Sauerbrey’s 1998 gubernatorial campaign, it was a correct move for the people and the taxpayers of Maryland. But once you cut taxes, you know the money isn’t there to spend. So, in a state where the budget is constitutionally required to be balanced, how can one blame a deficit on money that is not available to spend in the first place?
While I will agree that the Thornton Plan is part of our budget problem, to blame Governor Ehrlich for doing “nothing to reverse” it is also slightly ridiculous. It was Annapolis Democrats who railroaded the Thornton Plan through, a multi-billion dollar boondoggle where nobody wanted to articulate where the money was going to come from. Once Ehrlich was elected, Annapolis Democrats would never vote to repeal it because it was a convenient albatross to hang around Ehrlich’s neck when he couldn’t fund the increase in education in Baltimore City and Prince George’s County. It was the left who was responsible for fiscal silliness surrounding Thornton.
At this point, Pagnucco deviates into the absurd:
Griffiths implicitly assumes that tax hikes hurt the economy while government spending cuts do not. Here he demonstrates a basic ignorance of every macroeconomics course taught to college freshmen. From the perspective of economic growth, it does not matter whether the government implements a tax hike or a spending cut as a deficit reduction measure. Both reduce aggregate demand in the economy, especially when taking into account a reverse multiplier effect.
I didn’t implicitly assume anything. I will explicitly state that tax hikes hurt the economy while government spending cuts do not. This is part of the basic philosophy of the Austrian School of Economics championed by folks such as Milton Friedman and Friedrich von Hayek. It is their philosophies that have shown, time and time again, to be the best course of action for our nation. Keynesian Economics played a large part, for example, in the creation of the New Deal and the further economic devastation caused by its implementation.
Pagnucco, instead, champions the failed policies of Keynesian Economics, which champions a strong role for the state in a theoretical effort to increase economic growth. That Pagnucco would champion such a model is not surprising, for Pagnucco is employed by the United Brotherhood of Carpenters. Ergo, Pagnucco’s support for increased or maintained state spending, while understandably self-interested, is flawed and somewhat hypocritical.
Increasing or maintaining state spending helps Pagnucco and his employer, as in a closed shop state such as Maryland the preponderance of state capital construction projects wind up built by union shops. If taxes are cut and state spending is reduced, more capital will become available for the economy at large. There may be more constructions jobs available for a greater number of contractors, but since the free market is not bound to hire union workers at potentially inflated wages, it is in Pagnucco’s interest and his employers interest to maximize the amount of jobs available to union members, in this particular instance union carpenters. The problem is, while this may be beneficial to Pagnucco and his employer, it is a raw deal for average middle and working class families who are expected to pay higher taxes to cover the cost of this governmental largess. Which is why he concludes with this:
The best thing the state government could do to revitalize Maryland’s economy is to increase its investment in infrastructure, even if it means taking in additional revenues. The Montgomery County Chamber of Commerce recommended raising $600 million for the Transportation Trust Fund this year, a step that was unfortunately not taken by the General Assembly. The business community and building trades unions believe that infrastructure construction creates jobs, long-lasting physical assets and abundant opportunities for private sector growth. Those things in turn will stabilize the budget over the long term. If only conservatives like Brian Griffiths could agree.
While I would agree that our infrastructure needs greater attention, it would be completely foolish to again raise taxes in this economic climate. But once again, there is a way to address our infrastructure at a reduced cost, without increasing spending, and without raising taxes if we just again bring privatization to state building projects, particularly transportation projects. Pagnucco, however, would probably resist such an idea because, once again, it is not in his own self-interests.
Pagnucco and other liberals continue, however, to make one point clearly and painfully obvious to all voters and taxpayers here in Maryland. Liberals will stop at nothing to raise taxes and increase spending, particularly when it comes to their own self-interests and the interests of the special interest groups who support them.
Once again I ask: when are Maryland’s leaders going to put the interests of our working and middle class families first? When are we going to get the tax cuts and spending reductions our economy needs to grow?