THE SHORTFALL AND THE FUTURE

Gov. Pawlenty believes that the State of Minnesota still spends too much money and again wants to swallow the idea that we can solve our budget shortfall without increasing revenue. We have to live within our means, he says.

He’s worried about the habit we have of living off our Federal credit card and so wonders if he should say no to federal money that would help soften the blow and put people to work. Marshall Helmberger puts it this way in the TimberJay:

Look who is suddenly born again on the hazards of deficit spending.

It’s the same party that has maintained for almost two decades now that deficits don’t matter— a dubious lesson they learned from their holy mentor, Ronald Reagan.

Minnesota’s own governor, Republican Tim Pawlenty, would rather see thousands more Minnesotans out of work next year than accept stimulus funding from the feds. We have to watch that deficit, after all. Three months ago, we had $700 billion available for the CEOs on Wall Street, but when it comes to $25 billion to save as many as a million blue collar jobs, many of them union, suddenly we can’t forget the deficit.

So the Governor will hold back funds for cities counties, cut post secondary institutions and cut the health and human services budget and set the stage for another cutting spree in the coming session. In his speech to the public announcing his unalottment proposal he tried to pre-empt those who might try to propose other ways of solving our problem by saying history shows those other solutions just don’t work. It is hard to know what history book the governor has been reading as he did not give any hard evidence to support his claim. The Governor doesn’t like to have to explain himself so I guess we’ll just have to take his word for it and assume he knows better. Not.

Rep. Rukavina did offer up a suggestion from the Minnesota History books as he described the last Democratic Governor to hold office:

In 1983, facing our highest unemployment and the worst economic downturn since the Great Depression Governor Rudy Perpich responded with the Minnesota Emergency Employment Development Act, an innovative plan to create new jobs for Minnesota workers.

The MEED program worked like this. Employers were given a six-month, $4 per hour subsidy for every new job they created for Minnesotans who were out of work. If the employee stayed on the job for more than 18 months, the employer never had to reimburse the state. The program exceeded expectations and was a critical element in the economic recovery, creating more than 21,000 permanent unsubsidized jobs.

Fast-forward 25 years. Minnesota is again faced with rising unemployment and a struggling economy. Just last month we learned of 7,500 more lost jobs and most economists believe it could get worse. We must approach our current situation with the same innovation and sense of urgency in which Perpich identified the core problem we must address – jobs for Minnesotans.

Contrary to what Gov. Pawlenty says, Nobel Prize winning economist Paul Krugman says in his opinion piece “Deficits and the Future”:

But the deficit worriers have it all wrong. Under current conditions, there’s no trade-off between what’s good in the short run and what’s good for the long run; strong fiscal expansion would actually enhance the economy’s long-run prospects.

The claim that budget deficits make the economy poorer in the long run is based on the belief that government borrowing “crowds out” private investment — that the government, by issuing lots of debt, drives up interest rates, which makes businesses unwilling to spend on new plant and equipment, and that this in turn reduces the economy’s long-run rate of growth. Under normal circumstances there’s a lot to this argument.

But who would argue these are normal circumstances. Local economist David Emery is concerned we may be in for a long recovery and he uses a medical analogy. “When specialists dealt with the anthrax scare they knew they had no cure so they concentrated on keeping the patient alive by treating the symptoms. In similar fashion Obama is right to keep the economy alive until the down turn passes. History tells that it may take ten years before there is a full recovery. But there is little else we can do.”

No one has a crystal ball here but it seems clear that we need to keep the patient alive.