- Paul Krugman: Leaving Children Behind
- Fed Watch: Commodity Shock
- links for 2011-02-27
- "It’s Time for Leadership"
Posted: 28 Feb 2011 12:33 AM PST
Budget hawks are confused by the meaning of "putting children first":
Leaving Children Behind, by Paul Krugman, Commentary, NY Times: Will 2011 be the year of fiscal austerity? At the federal level, it's still not clear: Republicans are demanding draconian spending cuts, but we don't yet know how far they're willing to go in a showdown with President Obama. At the state and local level, however, there's no doubt about it: big spending cuts are coming.
And who will bear the brunt of these cuts? America's children. ... Consider, as a case in point, what's happening in Texas, which more and more seems to be where America's political future happens first.
Texas likes to portray itself as a model of small government, and indeed it is. Taxes are low, at least if you're in the upper part of the income distribution (taxes on the bottom 40 percent ... are actually above the national average). Government spending is also low. ...
But here's the thing: While low spending may sound good in the abstract, what it amounts to in practice is low spending on children, who account directly or indirectly for a large part of government outlays at the state and local level.
And in low-tax, low-spending Texas, the kids are not all right. The high school graduation rate, at just 61.3 percent, puts Texas 43rd out of 50 in state rankings. Nationally, the state ranks fifth in child poverty; it leads in the percentage of children without health insurance. And only 78 percent of Texas children are in excellent or very good health, significantly below the national average. ...
It's not a pretty picture; compassion aside,... how the state can prosper in the long run with a future work force blighted by childhood poverty, poor health and lack of education.
But things are about to get much worse. ... For months, Gov. Rick Perry had boasted that his "tough conservative decisions" had kept the budget in surplus while allowing the state to weather the recession unscathed. But after Mr. Perry's re-election, reality intruded — funny how that happens — and the state is now scrambling to close a huge budget gap. (...achieved with an overwhelmingly nonunion work force.)
So how will that gap be closed? Given the already dire condition of Texas children, you might have expected ... high-income Texans, who pay much less in state and local taxes than the national average, to be asked to bear at least some of the burden.
But you'd be wrong. Tax increases have been ruled out...; the gap will be closed solely through spending cuts. Medicaid, a program that is crucial to many of the state's children, will take the biggest hit, with the Legislature proposing a funding cut of no less than 29 percent... And education will also face steep cuts, with school administrators talking about as many as 100,000 layoffs.
The really striking thing about all this isn't the cruelty — at this point you expect that — but the shortsightedness. What's supposed to happen when today's neglected children become tomorrow's work force?
Anyway, the next time some self-proclaimed deficit hawk tells you how much he worries about the debt we're leaving our children, remember what's happening in Texas, a state whose slogan right now might as well be "Lose the future."
Posted: 28 Feb 2011 12:24 AM PST
Commodity Shock, by Tim Duy: How quickly the world can change. Just a few weeks ago, incoming data suggested room for optimism. And, in large measure, continue to do so. Regional manufacturing reports have been largely solid, while initial unemployment claims declined during the month, ending last week just a hair above the 400k mark. Even consumers appeared a bit brighter, with confidence rising to its highest level in three years (still low, but the right direction). To be sure, there were some setbacks as well. The revisions to 4Q10 GDP were disappointing, although I would still focus on the final demand figure rather than the headline. Non-defense, non-air capital goods declined sharply, almost erasing the previous month's surge. But an up-and-down pattern has been a persistent feature of that data series in recent months, suggesting little to worry about in the context of other generally positive manufacturing indicators.
Posted: 27 Feb 2011 10:01 PM PST
Posted: 27 Feb 2011 09:12 AM PST
The GOP's plan to cut Pell Grants, Head Start, and other such programs won't do much to solve our budget problem, and it's likely to slow the economy's recovery. But it does help to complete the process of turning tax cuts for the wealthy into cuts to social programs:
The Budget Fight Continues, NY Times: In defense of their bill to slash federal spending by $61 billion over the next seven months, House Republicans claim they are trying to make the economy grow and create jobs. In truth, such deep and sudden cuts could derail the recovery, without ever addressing the real sources of budget deficits — mainly explosive health care costs and incessant high-end tax cuts.
The question is whether the Obama administration and the Senate can prevail against the false rhetoric. ...
In a recent report, economists at Goldman Sachs estimated that the House cuts would reduce economic growth by 1.5 percentage points to 2 percentage points in the second and third quarters of 2011. That would devastate employment. ... [Update: see here for corrections to these numbers.]
The cuts also would be off point. All of them come from discretionary spending, a sliver of the budget... Over the past decade, Pentagon spending has accounted for almost all of the increase in discretionary outlays... Aside from defense, there is not a lot to cut prudently.
Which leads to the strongest argument of all against the House Republican bill — most of the cuts would be counterproductive. Annual spending on education through high school is cut by 12 percent... (since the cuts would be squeezed into the rest of the current budget year, they are even deeper on an annualized basis).
Those cuts include reductions to Head Start that would remove 218,000 children from the program and cuts to elementary education that would hit 2,400 schools and nearly one million students. Pell Grants for college would also be cut by nearly $6 billion. Transportation investments would be cut by 9 percent, or $8.1 billion... Americorps and other community-service programs would be eliminated, although their benefit to society surely exceeds their $1.2 billion cost. Since national service programs are matched by $800 million from foundations and other sources, that would be lost, too. ... Financial regulators would endure deep cuts that would cripple their ability to carry out the Dodd-Frank financial reform law. That's asking for another financial crisis.
Given the need to placate House Republicans, some cuts are inevitable. Senators can turn to President Obama's budget for 2012 as a template for cutting while preserving priorities. It's time for leadership.
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