Tuesday, June 29, 2010

What Things Can't We Afford Anymore?

The economic crisis and the desperate fiscal situation in a lot of states is really making us consider what things government should do, and what things it simply can’t afford to do anymore. There may be some things we might ordinarily like to do that states will have to stop doing in this climate. Here are some examples:

1. The approach to the drug war

Many states have already loosened medical marijuana laws to the point where it is relatively easy for citizens to get a prescription. California is thinking about going even further and legalizing and taxing marijuana in a referendum this fall. The tax is projected to bring in about one billion dollars a year. I don’t expect any drug including marijuana to be legalized any time soon on a wide scale. But I do expect to see states increasing the use of alternative punishments for non-violent drug offenders such as rehabilitation and community service so they can avoid spending thousands of dollars a year to imprison inmates. In normal times, people might want to really be tough on low level dealers and users in part because they legitimately fear the influence of such people on their children. With states contemplating raising taxes to plug huge shortfalls though, people might also decide however that they don’t want to pay more money for stiff drug sentences now.

2. Commitment to higher education

Many states like Michigan, California, Texas, Virginia, and North Carolina have built their flagship campuses into prestigious universities. Often these schools have been able to offer quality financial aid packages to students. Some cuts to financial aid have already happened. And I think further cuts will be coming. College students lack the political muscle of senior citizens and the sympathetic image of kindergarteners. This means that it might be easier to cut programs benefitting them than it would be to cut programs for kids or grandparents. Besides, college kids aren’t really kids, right? They’re adults. They can take on more loans if need be. A lot of citizens may wonder why their taxes should go up to help pay the tuition of 20-year old partying it up at night in Chapel Hill when they are struggling. Over time, this could lead to a “new normal” where college students can expect less help in attending college.

3. State bureaucracies

One of the biggest problems states are facing is pension obligations to police, firefighters, and teachers. Legally, states may not be able to get out of pension obligations. But citizens who are seeing their own 401ks suffer will be leery of funding pensions for public sector employees. State legislators may rework pensions to be more market oriented, and decrease public sector salaries. Now is as good a political climate as any to change those things.

In short, I think the economy might force some long term changes in state budgets. Do you think the changes are positive or negative?

Wednesday, June 23, 2010

All Aboard the Mitch Daniels Express

Indiana governor Mitch Daniels (who is that? some of you wonder) has now received attention from some prominent conservative publications. Does he have a realistic chance in 2012?

I think he does. If the economy does not improve substantially, Obama will be in real trouble no matter who the Republican is. Since deficits might be an important issue in 2012, Daniels can point to a robust record of balancing Indiana budgets and putting them in surplus before the economic crisis hit. He can also point to a good jobs picture in his state as well.

That begs the question though, of whether he has a chance to win the Republican nomination. He could be competing against better known names like Sarah Palin, Newt Gingrich, Mike Huckabee, and Mitt Romney. Even here, Daniels has a shot for a few reasons.

First, some of these people might not run in the first place, meaning that there will be some opening. Second, Daniels has time to build name recognition and an organization in two years. He can set up shop in Iowa and spend a good year campaigning there. With a solid showing there (remember he needs only to beat expectations) he can build some momentum for subsequent contests. Third, he has a major case to make that he is more electable than his rivals. He’s not distrusted by evangelicals like Romney is. He won’t put off moderate suburban voters in Pennsylvania and Ohio with his religiosity and social conservatism like Palin and Huckabee could. These voters might find his record as an executive and call for a truce on social issues appealing.

One thing that might hurt Daniels is his ties to the Bush administration where he served as Director of Management and Budget. This might make some tea partiers suspicious of him for serving in what many of them regard as a spendthrift administration. Independents and moderates long ago repudiated Bush and might not want to elect one of his lieutenants. But Daniels left several years ago, before the war in Iraq, hurricane Katrina, or the economic crisis which caused voters to sour on Bush. Moreover, I think by 2012, the election will be a verdict on Obama, not on Bush.

I think Daniels has a solid chance assuming favorable conditions in 2012.

Wednesday, June 16, 2010

We Should Approve New Stimulus Spending

The Obama administration is asking for another $50 billion in stimulus money to help states and local governments avoid layoffs of policemen and firefighters. Most commentators have spent considerable time evaluating the politics of the extra spending.

There is no doubt that the politics are tricky. Democrats are skittish about doing more deficit spending lest they conform to the conservative critique that they’ve ruined America’s finances. Republicans would like to show their base that they’ve really reformed after the Bush years and are in fact hawkish on spending. In an election year, these two factors might combine to keep the spending proposal from going through.

But I think there’s an opportunity for President Obama here. There is a good chance that the proposal will be defeated in this environment. By November however, other issues will come to the fore and Obama’s strategists will have a chance to focus Americans’ attention on new issues other than their spending fatigue. But what will happen in the meantime is massive layoffs of teachers and police.

In the next couple of years, Americans will see first hand the consequences. Student-teacher ratios will go up, and their children will have access to fewer extracurricular activities. Some of their childrens’ favorite teachers will in fact be laid off if those teachers are relatively new on the job. Moreover, as cities across the country fire cops, Americans might feel less safe, especially if crime rates spike up. Obama would then have an opportunity to paint conservatives as heartless tightwads who cut funding for students and put the lives of law-abiding citizens at risk.

Especially as it relates to crime, Obama has an opportunity to turn the tables on his political opponents. For at least a generation, Republicans have painted Democrats as soft on crime. If his spending proposals are defeated, Obama can go before audiences of law-and-order moderates during his reelection campaign and plausibly claim that Republicans took actions which made their communities less safe.

Still, I think we’ve focused too much on the politics of the spending. The real question should be, is this a good policy? I understand the concern about deficits. Some wonder, if we don’t stop this spending, will we ever get serious? But I think focusing on deficits here to the exclusion of every other consideration is misguided in this case. As much as $50 billion is, it is but a drop in the bucket of the overall deficit.

Besides, this money is for truly important purposes. Firing teachers and further straining school budgets puts the idea of a quality education for millions of children at risk. Maybe the idea of giving these students a good education to provide for their social mobility doesn’t concern you. But the potential economic consequences should. Children who have received substandard, shoddy educations will lack the skills to meaningfully contribute to the economy as adults. Here is a McKinsey study that shows just how much America’s education system costs the economy now. Firing thousands of teachers and slashing school budgets for America’s most vulnerable students is likely to exacerbate that cost. That leaves the ironic prospect that when the economic recovery begins in earnest, its continued improvement will be put at risk over concern about a relatively small supplemental spending bill. I can’t help but thinking that the understandable concern over deficits in this case is ultimately shortsighted.

Tuesday, June 8, 2010

Obama's Doing Just Fine

In the wake of the BP crisis and a sagging economy, some commentators have taken to saying that it is now clear that Obama is not up to the job and that he’s the 2000’s version of Jimmy Carter (who in my estimation wasn’t that bad). For the record, I think much of the criticism and handwringing is overblown.

There is little else Obama can do about the oil crisis. It’s been said many times that people know that he can’t just plug the hole himself. The federal government simply does not possess equipment or expertise that BP doesn’t. The only decent charge I’ve heard so far is that Obama has let certain measures like building barrier islands in the gulf channel get bogged down in the bureaucracy, which is unfortunate. But the main charge seems to be that Obama hasn’t shown enough emotion. The wisdom of the day is that he needs to show voters that “he feels their pain.” What exactly is Obama supposed to do though? Crying won’t cut it for a President. Neither will throwing a temper tantrum as it won’t appear natural on him and would hinder rational consideration of how to actually solve the crisis besides.

The economy is still not where we want it yet. But recovering from an economic crisis of this magnitude will take time. When Ronald Reagan took office amid a recession in 1981 (likely a less serious one than this), recovery didn’t begin in earnest until early 1983. Yet today the man is lionized on the right and fondly remembered in other quarters. Granted, we may have a double-dip recession as some economists fear, but right now I’m not ready to say Obama has failed to show sufficient leadership because the economy is still sluggish. Not coincidentally, Democratic strategists should take heart about the President’s political prospects. Just because his poll numbers have faltered in recent months doesn’t mean that he doesn’t have a good shot at winning reelection in 2012. If the economy starts picking up, I’m confident that he will win and that Democrats can win back some of the seats they lose this November.

Far from being ineffectual, Obama already has a considerable record of significant actions even if one disagrees with those actions. He won a nearly $800 billion stimulus package, the largest expansion of the welfare state since Great Society and the War on Poverty with the passage of Obamacare earlier this year, and the passage in both houses of a significant overhaul of financial regulation which a conference committee is working on this week. Progressives at least should take heart in how much Obama has been able to accomplish since taking office.

I think all of this hints at shortsightedness among the punditocracy, and assuming their posts and articles accurately represent public opinion, the average voter. People want results immediately, which is understandable. But I cannot join the bandwagon that says Obama isn’t up to today’s challenges. Give the man more time.