NY Times Krugman on State Spending Cuts

For many here in Washington State, the grim reality of the national economic crisis hit home on December 18th, when Governor Gregoire released her 2009-11 budget proposal. The budget contains $3.4 billion in spending cuts that will dramatically reduce funding in the areas of health, education, and social services to try to deal with a projected $5.5 billion deficit.

Many states are facing similar budget problems. According to the Center on Budget and Policy Priorities, a national think tank in Washington, DC, 44 states are experiencing budget deficits that could amount to more than $350 billion in 2010 and 2011. And at least 30 states are imposing budget spending cuts that are likely to harm their most vulnerable residents.

This op-ed by Paul Krugman in the NY Times argues against drastic spending cuts by state governments. He cites cuts in programs such as South Carolina’s juvenile justice program, which will force young offenders out of group homes and into prison and the decision by a committee that manages California state spending to halt all construction outlays for six months.

Now, state governors aren’t stupid (not all of them, anyway). They’re cutting back because they have to — because they’re caught in a fiscal trap. But let’s step back for a moment and contemplate just how crazy it is, from a national point of view, to be cutting public services and public investment right now.

Krugman, who is a professor of Economics and International Affairs at Princeton University, notes that the nation is no less able to pay for these and other vital programs than it was before the recession. "Our capacity hasn’t been diminished; our workers haven’t lost their skills; our technological know-how is intact," he writes. "Why can’t we keep doing good things?"

Part of the reason is that revenue is reduced because private spending is down. And almost all states, including Washington, are obligated to balance their budgets. But instead of draconian cuts in spending, perhaps now is the time to consider new ways to increase revenue.

Krugman points out that public investment makes sense during tough economic times:

In fact, the true cost of government programs, especially public investment, is much lower now than in more prosperous times. When the economy is booming, public investment competes with the private sector for scarce resources — for skilled construction workers, for capital. But right now many of the workers employed on infrastructure projects would otherwise be unemployed, and the money borrowed to pay for these projects would otherwise sit idle.

And shredding the social safety net at a moment when many more Americans need help isn’t just cruel, he says. It adds to the sense of insecurity that is one important factor driving the economy down. Aid from the federal government may also help states to afford vital programs and new projects. Certainly, that would help.

One thing is clear, Washington legislators will have their work cut out for them when they return to Olympia on January 12th. Let's hope all ideas and solutions to our budget woes will be considered.