COLUMN: An unbalanced state budget is what Missouri needs to grow

Thursday, July 22, 2010 | 12:01 a.m. CDT; updated 9:12 a.m. CDT, Thursday, July 22, 2010

Now that the latest legislative tea party is over and state employees are assured of funding another $150 million of corporate welfare, let’s pause for a post-recession scan of the economic horizon.

I say “post-recession” because, as you know, technically the recession is over. Thanks in large part to the $787 billion federal stimulus, our state and national economies are growing again, though painfully slowly. Thanks in large part to that federal stimulus, somewhere between 2.5 million and 3.5 million jobs have been saved or created in the past 18 months.

(The fact that a large majority of Americans tell pollsters they don’t believe the stimulus has worked doesn’t mean it hasn’t. Those poll results probably reflect several opinion-shaping forces that overwhelm mere facts. One of those is the vuvuzela-like ear-piercing buzz of partisan disinformation. Another is the reality that even with the stimulus the job market still stinks. A third is that journalists have done what we always do and emphasized the negative.)

Having said all that, here’s the really bad news: In a lot of places and for a lot of people, the worst is yet to come. Columbia, I’m afraid, is one of those places and an unfortunate number of our neighbors are likely to be among those people. We have yet to feel the full effect of the anti-stimulus.

That’s a term I first saw last month in an analysis by Ezra Klein, who writes about economics for the Washington Post. Klein quotes Bruce Bartlett, whom you may remember as the conservative economist who helped shape policy for Ronald Reagan and George Bush I. Here’s the Bartlett diagnosis:

“When the history of the current crisis is written, much of the blame will be placed on the sharp fiscal contraction of state and local governments. I think economists will view this as a preventable error equivalent to the Fed’s passive shrinkage of the money supply in the early 1930s.”

Of course, we’ve already seen a painful amount of fiscal contraction locally. Our local governments and the School Board have adopted bare-bones budgets, slashing desirable programs and eliminating positions. Even bigger cuts and more job losses are prescribed in the state budget for the next fiscal year.

The blows both area and statewide have so far been softened by the federal stimulus. We’ll lose that fiscal cushion by the end of next year.

Government – state, local, public schools and university – drives our regional economy. Not even the jobs promised by IBM and the new commercial laundry will change that. So the anti-stimulus will hit us hard.

That leads me to this modest suggestion: Instead of the balanced budget amendment many have urged on our national government, what we really need now is an UNbalanced budget amendment for the state. That would allow the state of Missouri to spend when it most needs to, with a built-in requirement for payback when times improve. (The latter is what’s missing at the federal level.)

The stimulus that has been so helpful was made possible by the federal government’s ability to operate at a deficit when the economy needs propping up. The anti-stimulus is made necessary by the constitutional requirement in Missouri, as in 49 of the 50 states, that the budget must be balanced every year. Since the days of John Maynard Keynes, most economists and policymakers have agreed that such federal flexibility is a good, even a necessary, thing.

Why wouldn’t it be just as good at the state level?

Yes, I know fiscal prudence is always desirable; and yes, it’s too bad the Bush II administration squandered the balanced budget Bill Clinton bequeathed.

But prudence isn’t the same thing as rigidity. I’m guessing that my idea will look better a year from now, when the budget axe bites deeper.

George Kennedy is a former managing editor at the Missourian and professor emeritus at the Missouri School of Journalism.

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Ellis Smith July 22, 2010 | 5:49 a.m.

Wherever John Maynard Keynes may be in the afterlife, he is probably smiling favorably. Rumor has it he's either in Hell or Purgatory. (Is one allowed to smile in Hell or Purgatory? Some of us will probably soon find out.)

(Report Comment)
John Schultz July 22, 2010 | 9:28 a.m.

If the bit about "legislative tea party" is a subtle dig at Tea Party types, have you forgotten the party affiliation of the governor that called the special session and proposed the corporate welfare for Ford? Or that the stimulus bill hasn't kept unemployment below the levels projected by the Obama administration (8% if I recall correctly)? And that was quite a nice dig on Dubya at the end of the column when federal budget deficits weren't even being discussed in the article. Focus, grasshopper.

(Report Comment)
Ellis Smith July 22, 2010 | 11:21 a.m.

According to CNN, John Maynard Keynes does currently reside in Hell. The good news for Keynes is that he has no lack of company!

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Allan Sharrock July 22, 2010 | 1:23 p.m.

How do you count a saved job George? That is all purely hypothetical created by the current administration. The last thing we need are elected officials from either party to claim their policies "saved" anything that isn't measurable. Just because a company says that thanks to the stimulus they saved a job doesn't mean it really was. There is zero accountability and does anyone really think the government is capable of auditing such claims?

(Report Comment)
Tom Judge July 23, 2010 | 9:11 a.m.

Since state governments can't affect the money supply, I don't understand what mechanism you're proposing to run an unbalanced budget. Just not pay the bills, or what? And wouldn't a trashed credit rating potentially start a death spiral for said state?

(Report Comment)
Dennis Frentzel August 4, 2010 | 2:18 p.m.

It wasn't Clinton that balanced the Budget it was the republican congress and lowering taxes is a much better way to stimulate the economy. If you wanted to give to a charity would you pick one managed by Nancy Pelosi. If so, I beg you to send me some money now. I promise it will be well spent. Oh, and while they cut taxes how about cutting costs too. The private sector and particularly small business is what provides jobs and prosperity... not the money grubbers in Washington.

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