I just don't get it

[Guest]

The past few days the Daily Sun had had lengthly articles about the dire situation in Florida's budget. The many proposals to fix the problem target mainly spending cuts in many areas with education looking like it may take the biggest hit. When spending cuts are imposed the results will be more and more people will be laid off, unemploy't will rise, less taxes will be collected and the recession will deepen. Then we hear more details of Pres elect Obama's plan today: in one breath "lower taxes and cut spending" and the next a massive spending program to get people back to work. So states like Florida and Calif are cutting spending by massive program cuts (my son just lost his job as a youth counselor in Calif) and somehow (I asume by printing more $$$$) the feds are going to rescue us from the recession by doing just the opposite) but still "cut spending and cut taxes". I'm so confused by the math in all of this "I just don't get it". How will the fed "cut spending and cut taxes.... and, implement a massive spending plan" at the same time?

[Guest]

I wrote much longer response on the current economic plans in another thread here, "Are you glad you voted for him?..." I think it was called. Read that as well as the following.

Our current dire situation at both the federal and state level is the result of a dramatic slowing of the economy. The states can't "print money" like the federal government because state constitutions prohibit deficit spending. If revenues decline, states have no alternative except to cut spending. The problem is even worse for the states. If they desired to start major infrastructure projects to create employment, increase tax revenues, re-starting their local economies, with the current freeze-up of the credit markets, there are virtually no buyers for the state or local revenue bonds that they would use to fund the projects. And there are certainly no buyers at all for state or local bonds, the proceeds of which might be used for short-term operating expenses.

The bottom line is the the federal government has to provide the solution to the economic problem. The federal government is not constrained by prohibitions on deficit spending--we would have all been much better off if the Congress and administration in 2001 hadn't permitted the PayGo requirement of the federal budget expire, but that's another story. The federal government can create huge amounts of additional debt--essentaily "printing money" in an effort to get the economy re-started. Their grants will flow to the states and localities and hopefully will have the desired effect of reducing unemployment and re-starting local and state economies.