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Paging JM Keynes

January 11, 2009, 1:50 pm

I don't think I need to even bother expressing to my regular readers my utter disdain for this kind of trough-feeding:

Overall, the article notes "the mayors of all 641 cities [represented by the U.S. Conference of Mayors] are asking for $96.6 billion in federal funds for 15,221 municipal projects." Whole bit here.

Here is my question for supporters of this bailout garbage as an economic stimulus.  I understand that in Keynesian economics, government spending has a multiplier effect that causes it give a bigger boost to the economy than private spending  (I don't agree, but I understand that people believe this and understand the faulty assumptions that get them to this conclusion).

But under what economic theory are we operating now that says that having the federal government borrow or raise taxes to spend on municipal projects has a greater stimulus effect than having local governments do it?  None, of course.   What is happening is that a bunch of munipal government weenies are going to Obama and saying "we don't have the credibility, support, and or cajones to raise taxes.  You seem to be hot now, can you do it for us?"

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Category: Economics
  • http://thelibertypapers.org/ Brad Warbiany

    No, the real constraint on the Munis is the lack of a printing press, a restriction that Obama and the Feds don't have. States typically have to balance their books; the Feds do not. While your point about Obama's current "can do no wrong in the public's eyes" status isn't incorrect, it's clear that the Feds are willing to simply spend money they don't have, and don't have any incentive to balance their budget.

  • Jay

    "What is happening is that a bunch of munipal government weenies are going to Obama and saying 'we don’t have the credibility, support, and or cajones to raise taxes. You seem to be hot now, can you do it for us?'"

    Similar to Brad's comment... states and municipalities can only raise taxes today. The federal government can run a deficit (increasing taxes in the future).

  • http://goodmorningeconomics.wordpress.com jsalvati

    Brad is exactly right. Localities and many states have to balance their budgets in the short to medium term, while the Fed must only do so in the long run.

  • http://mjb.biglaughs.org m

    Wow, people actually believe Keynes' ideas? That's scary. I thought he just existed as an academic exercise...

  • Allen

    Didn't this same sort of thing happen with the New Deal? Didn't the Feds increase spending only to see states slash theirs?

  • max lybbert

    "I understand that in Keynesian economics, government spending has a multiplier effect that causes it give a bigger boost to the economy than private spending (I don’t agree, but I understand that people believe this and understand the faulty assumptions that get them to this conclusion)."

    According to http://gregmankiw.blogspot.com/2008/12/spending-and-tax-multipliers.html , recent data suggests that private spending (i.e. tax cuts) has a multiplier effect far larger than Keynes thought, and government spending has a multiplier far smaller (regardless of whether its federal, state or local).

    Unfortunately other economists haven't received the memo.

    The only differences I can see between the feds raising taxes and local governments doing so are (1) the feds can redistribute wealth across state lines, and (2) he who pays the piper calls the tune. These governors and mayors may be surprised when cashing their checks comes with several strings attached.

  • Jason

    Not only does Barry have the power of the printing press, but he can also take money from my wealthy neighbors in West Virginia and transfer it to those poor people in San Fransisco. Kind of like taxing Toyota to bail out GM.

    The mess is an annoyance to me (debt free and cash flow positive at 48) but a major concern for my 75 year old mother, who doesn't have a spare decade or two to wait out Great Depression II.

  • Jeff

    And don't forget, ratings agencies will lower the credit worthiness of state and local entities. I'll wait for it to snow in hades before the federal governments bond ratings are ever lowered.

    Jeff

  • The other coyote

    Thanks for expressing in one paragraph exactly what had been rolling around in my head.

    Related topic - If you're ever out of Ipecac, try visiting grants.gov and read up on what utter rubbish the federal gvt is wasting your money on.