Wednesday, May 25, 2011

I Don't Think The Plan Is Going To Come Together

Because I am a vain human, I checked my blogger stats today.  I noticed that I had a few page views from this South Dakota War College post.  SDWC had quick hit about the opt out vote.  In the comments, Cory linked to this post about Paul Dorr so it's pretty obvious why a few folk came over.

Representative Bernie Hunhoff also weighed in on the results in the comments section.  "Some small retailers would have seen taxes rise $1,000 on up to $7,000 for a hardware store owner. Add that to the blue collar laborers making $10/hour and the seniors on fixed incomes and you’ve got a tough electorate."  I may have to use the "tough electorate" comment when I teach understatement during Dakota STEP test prep.

Hunhoff also writes
Democrats . , . . came up with a three-year plan that used some reserves, used some “sweeps” from excesses in cash flow accounts, used some of the earnings … not the principle, the earnings … off the $860 million in trust funds, implemented some selective cuts, curbed corporate welfare, etc. We could have frozen education spending until state revenues grow, as they are doing. It’s still a solid and workable plan.
In a subsequent comment he adds, "we had bi-partisan support until the powers-that-be dropped the hammer on it."

I'm unsure how any proposal in South Dakota, a one party state, can be considered bi-partisan.  Republicans dominate executive offices.  The Democrats in the state senate could caucus in a soccer mom's mini van.  Only four house Republicans, if memory serves, voted to oppose Governor Daugaard's final budget. I'll depress my Democratic friends by mentioning that redistricting will probably not make the situation any brighter.

I'm also less sanguine than Hunhoff about the growth providing enough funds to help schools, pay state workers, and do the other business of state government.  Were I a betting man, I would guess that everyone will just be happy preserve the status quo and not slip back.

Like the national GOP, South Dakota's Republicans sold the budget on the premise that austerity now would produce growth later. 

On today's Frum Forum Noah Kristula-Green writes, "Conservatives and Republicans have attempted to find empirical evidence to support their belief that economic growth can come with austerity.  They frequently cite a study done by Harvard economists Alberto Alesina and Silvia Ardagna."  Green continues,
The study looked at what the best ways for countries to reduce their deficits have been: whether through spending cuts or revenue increases. Their data shows that over the long-term, spending cuts are a better way to bring long-term deficits under control. A second study by Alesina went further and argued that “large, credible and decisive” cuts can be immediately followed by “sustained” growth.
America's problems must be solved.  Nationally, Republicans will pass an austere budget like the one proposed by Paul Ryan.  South Dakota has already passed one.  The state and federal budgets will harmonically converge and we'll get--let's be honest--austerity.  

Green thoughtfully reads more than the abstract and casts a wee bit of doubt on that theory.  (You'll have to excuse me; I'm not as good at understatement as Representative Hunhoff.)  Green writes,
So what’s problematic with Alesina’s results? Alesina has indeed found cases where reducing spending was followed by economic growth and reduced deficits. The problem: he found very few cases. More specifically he found 9 examples out of 107 attempts to reduce spending.

Even if we are more generous with our parameters, the data is still not an overwhelming majority. If we are only interested in times where reducing spending was followed by an economic expansion, the result is 26 cases. If we are interested in the number of times that reduced spending was followed by successfully reducing the deficit (doesn’t mean the economy had to grow!) we find 21 cases in his data. [italics in orginal]
Green concludes,
So the evidence for Republicans is much less heartening. It seems that reducing spending only causes economic growth in a minority of cases, and that in those cases, the reduction in spending needs to be off-set by a monetary policy that is expansionary. The GOP currently is in denial about how big the economic growth from spending cuts will be and opposed to monetary stimulus due to the intellectual capture of the party by gold-standard and hard money advocates.
The South Dakota Legislature doesn't have much influence on monetary policy, and the evidence behind the national party's theory which has been applied at the state level seems pretty thin.  I doubt that the next session will produce any more bi-partisanship or the growth necessary to move the state beyond austerity.

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