THE REAL VILLAIN IN WISCONSIN'S BUDGET CRISIS, AND WHY HE MATTERS | WisCommunity

THE REAL VILLAIN IN WISCONSIN'S BUDGET CRISIS, AND WHY HE MATTERS

Economist Dean Baker writes that the housing market meltdown -- which he largely blames on the incompetence of Alan Greenspan -- was a huge factor in the current budget deficits (which are really a reduced revenue problem) among the states. With respect to the fight over Scott Walker's attempt to de-bone public employee unions, Baker adds:

According to the Congressional Budget Office, the economy is operating at more than 6.4 percentage points below its potential level of output. If Wisconsin's state economy was 6.4 percent larger, and its revenues increased accordingly, it would have more than $4 billion in additional revenue in its coffers over the next two years. This increase in revenue would easily cover the projected deficit. This is even before we add in the savings from lower payouts for unemployment insurance and other benefits that would follow from a return to normal levels of unemployment. In short, there can be little dispute that Wisconsin's budget crisis is Alan Greenspan's work.

The allegations of the union bashers can easily be shown to be nonsense. Wisconsin's public sector workers are paid no more than their private sector counterparts. They tend to get somewhat better pensions and health care coverage, but this is offset by lower pay for comparably skilled workers.

Nor has there been an explosion of public sector employment under the period in which Democrats governed the state. The last budget prepared by former governor Jim Doyle projected 69,038 full-time equivalent (FTE) positions for the state in 2011, an increase of 1.4 percent from the 68,092 FTE number in 2003, the year when Doyle took office. It takes some very inventive arithmetic to make a 1.4 percent increase in employment over eight years into a bloated state workforce.

How does it change anything if we know that Greenspan (last seen being feted at the Brookings Institution) is the real villain in the Wisconsin budget crisis? First, it should turn the heat where it belongs: Washington.

The problem of the downturn is a lack of demand. A lack of demand is solved by spending money. We have to get our elected representatives to ignore the shrill whining of the Wall Street deficit hawks. We need sufficient stimulus from the public sector to overcome the falloff of more than $1.2 trillion in spending from the private sector that resulted from the collapse of the housing bubble.

If members of Congress are too intimidated to do what is needed to fix the economy, then Wisconsin's legislators should do what common sense dictates: follow the money. Rather than taking pay and benefits from schoolteachers and firefighters, it makes sense to take money from the people who have it. This means taxing Wisconsin's wealthy and its corporations. The tax increase only needs to be temporary, since the state budget should be fine once the economy recovers.

 

Published

February 20, 2011 - 6:33pm

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