Morning Must Reads:The Pain Caucus in Europe and Pennsylvania

Paul Krugman leads off this morning with a review of the havoc created in Europe and here at home by what he calls the Pain Caucus.

Specifically, in early 2010 austerity economics — the insistence that governments should slash spending even in the face of high unemployment — became all the rage in European capitals. The doctrine asserted that the direct negative effects of spending cuts on employment would be offset by changes in “confidence,” that savage spending cuts would lead to a surge in consumer and business spending, while nations failing to make such cuts would see capital flight and soaring interest rates. If this sounds to you like something Herbert Hoover might have said, you’re right: It does and he did...

Now the results are in — and they’re exactly what three generations’ worth of economic analysis and all the lessons of history should have told you would happen. The confidence fairy has failed to show up: none of the countries slashing spending have seen the predicted private-sector surge. Instead, the depressing effects of fiscal austerity have been reinforced by falling private spending. The point is that we could actually do a lot to help our economies simply by reversing the destructive austerity of the last two years.

That’s true even in America, which has avoided full-fledged austerity at the federal level but has seen big spending and employment cuts at the state and local level. Remember all the fuss about whether there were enough “shovel ready” projects to make large-scale stimulus feasible? Well, never mind: all the federal government needs to do to give the economy a big boost is provide aid to lower-level governments, allowing these governments to rehire the hundreds of thousands of schoolteachers they have laid off and restart the building and maintenance projects they have canceled.

Speaking of the Pain Caucus, Governor Corbett is touring the state to defend his budget proposal. He was in Pittsburgh on Friday and the good people at One Pittsburgh rolled out the red carpet for him. 

"I'm actually trying to act like you, a business," Mr. Corbett said to John Stanik, the president and CEO, after touring the company's Findlay site, where ultraviolet light technology to clean water is developed...Mr. Corbett, who has been traveling around the state this week promoting his budget, reiterated his commitment Friday to not raising taxes and explained his thinking regarding higher-education funding, a part of his budget proposal that has received sharp criticism.

Under his proposal, the 14 state-owned universities would see a 20 percent reduction from the current budget. Three state-related schools -- the University of Pittsburgh, Penn State and Temple -- would see a 30 percent cut. The schools also saw sharp cuts in state funding this year.  "In the overall scheme of things, that's not as bad as it could be," [Corbett] said. "It could be a lot worse."...

Most of his comments focused on higher education, but Mr. Corbett also took questions on transportation funding, an especially controversial issue in the Pittsburgh area. The Port Authority has begun planning for a 35 percent reduction in service that will happen in September without a solution to the statewide transportation funding shortfall. When he unveiled his budget proposal, Mr. Corbett said transportation funding was "not a budget item." He said transportation is too large and must be handled as its own separate topic. On Friday, he provided no solutions or details about possible answers to the Port Authority's funding crisis beyond saying he has "had some preliminary discussions behind the scenes" with legislators.

As Michael Wood has pointed out the Governor has made the state budget shortfall worse by allowing corporations making record profits to pay even less in taxes.  The result is more budget cuts than necessary and a vision of shared sacrifice in which tax cuts are targeted at the affluent while most of the actual sacrifice is borne by the most vulnerable in our society. 

This morning the Pittsburgh Post-Gazette reviews the impact on the disabled from the failure to provide more transportation funding.

Allegheny County is reeling from the Port Authority's proposal to increase fares, reduce operating hours and eliminate bus routes as a means to address a projected $64 million deficit in the upcoming fiscal year. Part of that proposal is a 35 percent reduction to ACCESS, the paratransit program for people under 65 with disabilities..,service cuts...threaten to squelch the independence that many people with disabilities have worked hard to attain and that the community champions. Further, the cuts would dismantle a 32-year-old system of accessible transportation that is lauded as one of the most efficient and effective in the nation...

Karin Thum, 34, would lose service completely. She moved from eastern Pennsylvania in 2009 to live at The Gatehouse, a residential help young adults transition to living on their own. Ms. Thum uses ACCESS for a wide range of activities, including transportation to her volunteer job at a hospice center.

Ms. Thum and her fiance, John Fitzgerald, 24, also a Gatehouse resident, plan to move to their own apartment in May and would like to remain in the Wexford area where their jobs are but which is not included on the new service map. "We rely on ACCESS," Mr. Fitzgerald said. "We wouldn't be able to go anywhere without it."

While fare increases and reduced hours concern ACCESS users, the drastic change in the service area has people most alarmed. People like Jeff Hladio, 30, who would not be able to ride from Bridgeville to his job at the Pennsylvania National Guard facility in Coraopolis...

Marilyn Golden, senior policy analyst and transportation specialist at the Disability Rights Education and Defense Fund in Berkeley, Calif., said Allegheny County's ACCESS system "stands out as a leader" among paratransit systems across the nation and is widely emulated. In 2005, ACCESS won the U.S. Department of Transportation's "United We Ride" award.

Finally Nancy Folbre has a wonky but excellent post about the importance of taking into account both the costs and benefits of tax policy. 

Most discussions of taxes and benefits treat either one or the other in isolation. This is not helpful. Imagine telling investors what they pay for shares of a company without explaining what they get in dividends or capital gains, or explaining the costs of insurance without specifying the benefits.

What both investors and taxpayers should focus on is the difference between costs and benefits, appropriately discounted to reflect differences in their timing...

..economists Antoine Bommier, Ronald Lee, Timothy Miller and Stéphane Zuber..explicitly takes the benefits of public education into account. Their analysis reveals a much more sustainable intergenerational contract from which most Americans directly benefit. By their calculations, increasing public investments in education have more than offset the increased tax burden of support for the elderly. In other words, benefits received both early and late in life add up to more than the value of taxes paid.

I’ve described a similar way of looking at intergenerational transfers in two earlier posts, one offering a simple estimate of “tax payback year,” calculating how many years it would take average taxpayers to repay the value of public spending on their education and another summarizing research (to which Ronald Lee and Timothy Miller also contributed) on the economic contributions of parents — who, after all, are raising future taxpayers...

We pool investments in a very important set of productive assets – the capabilities of the younger generation – and the payoff helps provide for our health and security in old age. Adults have an incentive to invest in public education because public pensions allow them to capture part of the returns.


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