Baseball Crank
Covering the Front and Back Pages of the Newspaper
October 29, 2008
POLITICS: Robbing Peter To Pay Peter

So Charlie Rangel and other New York Democrats want a federal bailout for state and local governments:

"Our hope is that the leadership of both parties will be able to confer and come back after the election, and see what we can do to provide assistance to our local and state governments, as we have been able to do for our banking and finance industry," Rep. Rangel said at the outset of a committee hearing Wednesday on stimulus discussions.

State governors and local officials testifying at the hearing put forward to lawmakers a wish list worth tens of billions to help shore up their finances. Their argument: we didn't create the financial mess, and we need Washington's help to get out of it.

"The failure of our federal regulatory system has caused too many innocent bystanders to suffer," said New York Gov. David Paterson at the hearing. "Just like the financial services industry, we need a partner in the federal government in order to help stave off an impending calamity and stabilize our fiscal condition."

New York faces a $47 billion budget shortfall over the next four years, and it is far from alone as states face unprecedented expenditures even as the economic recession shrinks their revenues.

This is nonsensical.

I was a grudging supporter of the Paulson Plan (a/k/a the "Wall Street bailout") on the theory that it was absolutely necessary at the time as a policy matter to restore confidence and liquidity in the financial markets, which have ripple effects for pretty much the entire rest of the world economy. One of the main policy arguments in favor of the Paulson Plan was that it was relatively minimalist and not really going to be a long-term money-loser for the government. One of the sounder political arguments against the plan was that casting it as a "bailout" of the unpopular financial industry would lead to a long procession of pretty much everybody else coming to Washington to ask to be bailed out of whatever was ailing them, at large expense and without any analogous hope that the taxpayers would get their money back. This has come to pass quickly, and the Rangel proposal is its reductio ad absurdum. Consider:

Q: Why Does New York State Need A Bailout?

A: Because it can't pay its bills.

Q: If New York Does Not Cut Spending or Get A Bailout, How Will It Pay Its Bills?

A: Raise state/local taxes on New York taxpayers.

Q: So, Who Will Pay New York's Bills If There Is A Bailout?

A: Federal taxpayers.

Q: Aren't Those The Same People?

A: Basically, yes. If states and cities aren't bailed out in equal proportion to the tax money they send Washington, then it's not precisely the same, it's a "spread the wealth" transfer. So it's possible that New York will get to soak the taxpayers of some other state, especially with Rangel chairing the committee; then again, the high cost of living in NY means that the state's taxpayers generally pay a high per-capita share of federal taxes and will pay a much larger share if Obama gets in and passes his tax plan. But in the aggregate, the burdens of state and local taxpayers are being relieved by ... those same taxpayers' federal tax dollars.

Q: What Is The Purpose Of This Shell Game?

To diffuse responsibility. If Gov. Paterson or Mayor Bloomberg raises taxes or cuts spending, they take the blame. But if the same dollars get laundered through the colossal federal budget, it's easier for the impact to get lost. The purpose is thus to ensure that taxpayers do not directly see where the money is coming from, and get to imagine that somebody else is paying it.

Of course, they could consider cutting spending. Presumably Gov. Paterson is asking for help because he has wholly eliminated non-essential spending from the New York State Government, right?

Obviously the other way to do this is, have the federal government use borrowed money, since the feds can borrow at a lower rate and with fewer state-law restrictions on borrowing. But the accountability point stands. Politicians should not spend money they can't afford to raise from their own constituents.

Posted by Baseball Crank at 6:26 PM | Politics 2008 | Comments (11) | TrackBack (0)
Comments

The federal government has reached the frightening point where people start to say "what's another trillion?"

Somehow, we've financed the Iraq War (one trillion); provided drugs to seniors without any comprehensive reform (another trillion); bailed out Wall Street (tbd - but close to a trillion in play); passed two rounds of tax cuts; guaranteed additional $300 billion for subprime home loans; sent out rebate checks to millions of Americans in effort to stimulate economy ($250 billion when additional stimulus included).

And none of these expenditures build up our infrastructure one iota (save maybe a few crumbs in the stimulus bill).

Will this country remain solvent through the final two months of the Bush presidency? Its gonna' be close.

Posted by: Patrick at October 29, 2008 9:06 PM

I generally agree with your post, but when you write, "Politicians should not spend money they can't afford to raise from their own constituents," um, you mean like how Bush paid for his war?

Posted by: Magrooder at October 29, 2008 10:03 PM

Bush represents the whole nation. He's accountable to the whole nation. I have a problem with too much spending, but the fact that some of it is financed by debt rather than taxes doesn't bother me. It's still federal debt for federal priorities.

Posted by: Crank at October 29, 2008 10:09 PM

I don't really disagree, but it is worth noting that it was Arnold Schwartzenegger who was the first to ask for this kind of bailout.

Posted by: Jerry at October 29, 2008 11:42 PM

That's not a recommendation in my book. Arnold has long since gone native in Sacramento.

Posted by: Crank at October 29, 2008 11:58 PM

Will this country remain solvent through the final two months of the Bush presidency? Its gonna' be close.

I believe the Democrat-majority Congress is responsible for the Wall St. "bailout", the guaranteed sub-prime loans and about half of the war expenses- or did they simply abdicate, and allow GWB to become a dictator?

Meanwhile, Dems opposed Bush's Medicare drug plan because he didn't spend enough...

All Gov't spending starts in the House of Representatives.

Posted by: Fletch at October 30, 2008 1:10 AM

Fletch -- The Six Year Reign of the GOP (2001-2006) will go down as the period during which America lost its competive edge -- that's not to say we won't regain it - but it's going to be tough slog digging out of GWB's mess.

And the most you can say about your party leading the country to the brink of bankruptcy is that the Democrats were complicit -- no wonder your party is in disarray!! The GOP should be ashamed of itself.

Posted by: Patrick at October 30, 2008 8:20 AM

"The GOP should be ashamed of itself. "

Who, in politics or the media should not be ashamed? Agreed on the GOP, Nancy, Barney and Harry have reason to hold heads high?
If they all suck, and they do, isn't that the fault of the citizen?

Posted by: dave at October 30, 2008 9:12 AM

It should come as no surprise that I, too, am not bothered by governments incurring debt to fund thier activities. But, when making a significant expenditure (and we are talking just direct monetary cost here, not lives lost or opportunity costs) the unwillingness to raise taxes shields the public from the true costs of the activity. "Paying" for the war through debts indicates knowledge that the public would never have agreed to make the expenditure. Yet another reason not to have invaded Iraq.

Posted by: Magrooder at October 30, 2008 10:07 AM

I'm not bothered -in principle- by governments incurring debt, but we have too much of it. Just paying the -interest- on our existing debt is already a major federal expense, the sixth highest expense to be exact:

In billions of $:
Defense 624
Soc. Sec. 617
Welfare 433
Medicare 391
Health 281
Debt Int. 249
Educ/Job 89

Source: http://money.cnn.com/2008/10/24/news/economy/spending/index.htm

Republicans who promise to go after the budget with a "hatchet" would do well to avoid incurring more debt and reduce existing debt.

Posted by: MVH at October 30, 2008 1:41 PM

I should add that I agree with the post. We don't have the money for that.

Posted by: MVH at October 30, 2008 1:50 PM
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