Thursday, March 5, 2009

Old logic and new

The Education of a Supply-Sider

What Western New York could have taught Paul Craig Roberts long ago

Erie County government could experience a major windfall due to the Obama stimulus package. As much as $74 million in new federal money for Medicaid—which today costs Erie County about $200 million a year—could arrive between now and 2010.

Senator Chuck Schumer has already announced significant aid to some Upstate counties. And although we don’t yet know what the New York State budget will look like, it’s a good bet that federal rules will prevail. Erie County, which has one of the lowest property-tax rates in New York State, will receive a big windfall.

So will Niagara County. So will every county government in New York State.

Thus the national discussion about economic priorities will have a highly visible local dimension. We already know that several tens of millions of dollars will go into various sewer, school, and road construction projects. We know that almost $75 million worth of new buses for the NFTA is in the package.

But there’s also going to be money coming directly to Erie County government, which saw its local-share Medicaid bill rise from around $119 million in 2000 to around $200 million in 2008. That increase in cost is the largest reason why the sales tax here is high. Counties have no choice about whether to pay the bill: The State of New York just comes into the county account every Tuesday and pulls out the money it calculates it needs. County officials in 2005 had no choice but to come up with the money to pay the bill. They cut some services, reduced some expenses and raised some revenue; their only choice was whether to raise the revenue through the property tax or to raise it through the sales tax.

Should the Erie County sales tax rate be reduced now that the brand-new Obama money is coming?

Probably not. A short-term increase in federal assistance will be offset, at least a little, by slumping sales tax receipts, as consumer purchases erode during the recession.

Should the new money go to a fund to bolster and secure culturals, parks and other quality-of-life amenities that have been proved to enhance the regional economy? Yes, and it can happen if legislators take action.

The new-found money could help finish the computerization of local-government operations, so that personnel and other costs shrink in coming years, leaving more funds for the stuff that helps us live better.

But here, as across the nation, as the nation’s economic slump continues at least through 2010, the debate about spending versus tax cuts will rage on.

A fundamental debate

As dire warnings of further erosion continue, as Warren Buffet opines that things are definitely going to get worse, the Right is getting downright nasty.

But strange utterances are emanating from unlikely sources.

Republican politicians who helped George Bush spend down the Bill Clinton surplus now speak most stridently against Barack Obama’s infrastructure investments and direct cash help to the unemployed, and insist that only tax cuts will prevent the economy from falling even further.

“We need tax cuts,” we now hear. Incomes are down. Consumer spending is down. Whole industries and the regions they dominate are down, but still we hear that the best remedy for economic recovery is to spend less, even as the instrumentalities of wealth creation erode from lack of maintenance or waste resources because they’re obsolete.

We are living through a time of fundamental debate over whose economic theories should rule our policies.

How curious, then, to discover that one of the heroes of supply-side economics, a prolific writer named Paul Craig Roberts, seems to have discovered that the ideas he so disdained—ideas like fiscal stimulus—deserve his praise.

The geography of ideas

We in Buffalo all remember Jack Kemp, the California-bred quarterback who ran for Congress from the Buffalo suburbs in the 1970s on a platform of “We need tax cuts.”

Kemp was the political architect of supply-side economics. Paul Craig Roberts was one of the principal theorists of that movement, which was led by Californians and Sun-Belters who ascribed magical properties to the phrases “tax cuts” and “free trade,” and made of them a national economic policy.

Back in those days, Roberts produced scholarly calculations about how cutting the tax rates of high-income taxpayers would create economic growth. First from the pages of the Wall Street Journal, then later as deputy secretary of the Treasury, Roberts lent much intellectual legitimacy to the utterances of politicians. It was Kemp who brought Ronald Reagan to the supply-side tent. Once there, they all listened to evangelist Roberts.

If only Brother Roberts had visited Western New York before the “We need tax cuts” phrase became national policy. Roberts is now publishing articles that could just as well appear in Mother Jones or The Nation as in the obscure conservative journals in which he tries to convince his former colleagues that they are wrong about taxes and trade.

I thought of him the other day as I drove from Lockport to Lewiston.

The first piece of political theory you see in Lockport is the Erie Canal, the nearly 200-year-old relic of an earlier era’s “fiscal stimulus” that was the instrumentality that created so much wealth for so long for so many.

The next thing you see the huge, sprawling Delphi auto-parts plant, where a small fraction of the workforce of yesterday works for a small fraction of the wages of yesterday.

Roberts started noticing in the mid-1990s what other conservatives like Pat Buchanan were noticing: that working-class Americans were working at jobs that paid a whole lot less than their old jobs, because so much American manufacturing was no longer being performed in America. (The Left started noticing this just a tad earlier, when many of us on the Left, such as union members, started losing our damned jobs.)

“The pressure of jobs offshoring, together with massive imports, has destroyed the economic prospects for all Americans, except the CEOs who receive ‘performance’ bonuses for moving American jobs offshore or giving them to H-1b work visa holders,” Roberts wrote in a recent essay entitled “How the economy was lost.”

“Lowly paid offshored employees, together with H-1b visas, have curtailed employment for older and more experienced American workers. Older workers traditionally receive higher pay. However, when the determining factor is minimizing labor costs for the sake of shareholder returns and management bonuses, older workers are unaffordable. Doing a good job, providing a good service, is no longer the corporation’s function. Instead, the goal is to minimize labor costs at all cost.”

Why didn’t Roberts and the supply-siders see this back in the 1970s and 1980s, when steel companies, automobile manufacturers, and even cutlery makers started disinvesting in the US and shifting production overseas?

Driving further west toward Canada, I saw another couple of public inputs, huge pieces of American national policy that re-shaped the landscape and created American power in the world: the secret, unacknowledged monument known to the Manhattan Project, a toxic waste dump in a fenced-off area of Lewiston; and finally, happily, the imposing taxpayer-financed creation known as the Niagara Power Project, which for almost 50 years now has been supplying hydropower to millions of users.

Enduring investments in our infrastructure—like the Erie Canal, like the Power Project—helped create the wealth that made America the world’s greatest power. The hard science of the Manhattan Project, and its ugly consequences, remain with us.

But the politics of tax-cutting, and the rhetoric of globalism, just won’t go away. I’m happy for Paul Craig Roberts that he has lately come around to seeing what the consequences of his theorizing helped make happen. Sadly, like Pat Buchanan, much of his analysis these days is tinged with anti-Israel rhetoric, so whatever political utility he may have had to the Left as a “turnaround” story is gone.

Earlier, I’d stopped for a snack at Smokin Joe’s, on the Tuscorara Reservation in Lewiston. Folks chatting over eggs and home fries were actually talking about the president’s plan. It was clear that they were not interested in theories. From what I heard, they just want to see something real and enduring happen. Folks are saying, “Build something with our money,” and “Take care of our healthcare.” I did not hear “Cut my taxes.” But maybe I’m just tired of hearing that.