In his latest column, which we published today, Paul Krugman takes to task state and local governments for slowing the economic recovery – by making budget cuts.
“The federal government has been pursuing what amount to contractionary policies as the last vestiges of the Obama stimulus fade out, but the big cuts have come at the state and local level,” the New York Times columnist writes. “These state and local cuts have led to a sharp fall in both government employment and government spending on goods and services, exerting a powerful drag on the economy as a whole.”
It’s no secret that Krugman is one of the true champions of Keynesian economics and has long argued that what the federal government has needed to do to get the economy back on its feet is to provide more stimulus money - not tighten its belt.
But what he fails to acknowledge in his column are two things: One, that state and local governments, by law, are not allowed to run deficits like the federal government. And two, state and local governments are also laboring under the huge financial burdens created by unsustainable pensions and other retirement benefits.
I doubt Stockton, which is facing bankruptcy, another $20 million deficit and a near mutiny of its city workers over attempts to trim pay and benefits, wants to hear that it needs to stop being “a powerful drag on the economy” and start spending money.
Last night, Sonoma decided to seek a half-cent sales tax to meet its financial challenges. Meanwhile, Sonoma County is facing a $16 million deficit while Santa Rosa is preparing to lay off four workers due to the governor’s decision to dissolve redevelopment agencies across the state. What choice do cities and counties have?
- Paul Gullixson