Running on Empty

Abstract

Since the official ending of the great recession in June 2009, policymakers, analysts, and pundits alike have gone through a monthly ritual of anxiously awaiting the release of official government estimates of economic activity and employment. In poring over such data, these observers have sought some signal that a sustained improvement in our economic prospects is in the offing. However, recent data releases have provided few signs of life. Instead, these data depict an economy that has exhibited fits and starts, much like a worn-out engine gasping for an injection of new fuel and a change of spark plugs. As of this September writing, the report of zero net job growth in August and the finding that one in six Americans now lives below the federal poverty line have left the impression that we are indeed on empty, awaiting some visionary public policy intervention to jump start our national economy back to life. The characterization of our economy as running on empty applies not only to the national level. It also reflects the desperate circumstances of states and municipalities and, at a more level, the problems of families who are living on the edge, waiting for relief from the drastic turn in their economic status brought on by events largely beyond their control. Perhaps most discouraging is the sustained ideological standoff of our body politic that has replaced facts and serious debate with sound bites and innuendo, and has rejected compromise. In speaking of the challenge of deficit reduction and of our economic malaise, Friedman (2011) has observed that the only surplus in ready abundance is that of political venom. In this commentary, I drill down from our concern with our national economy and take a more micro perspective. I focus on the difficulties states and municipalities are experiencing, the implications for accessing health care and education by our most vulnerable citizens, and the prospects facing our seemingly abandoned middle class, and I consider the challenge in making real progress in the near term on these compelling concerns. States in the Lurch While there is considerable disagreement as to when, how, and to what degree we should address the national fiscal problems that have been exacerbated by our recent economic meltdown, there is by contrast a striking consensus regarding the fiscal dilemma faced by state governments. Constrained by constitutional amendments requiring balanced budgets, states have experienced shortfalls in revenue that severely compromise their ability to provide essential public services to their citizens. Although state revenues from major sources have increased since the first quarter of 2010, after a period of quarterly declines that began at the end of 2008, revenue was still 7.8% lower in the second quarter of 2011 than three years earlier (Dadayan 2011). With any kind of tax increases anathema to many politicians, and with the initial federal stimulus spending directed to states now complete, states are in the difficult position of waiting for a revival in economic activity to provide adequate revenues. As states confront this revenue need, reports suggest that they are considering some unconventional alternatives. For example, several states are thinking of legalizing internet gambling and taxing it as a quick fix for their fiscal woes, even though the federal Department of Justice has sought to limit such gambling activity (Richtel 2011). In the meantime, many state governments are being forced to propose draconian tradeoffs that, at best, will preserve minimal levels of public services. One consequence of state retrenchment in spending has been the layoffs of 500,000 public service workers beginning in January 2009, further exacerbating the dismal national employment picture. As regards specific implications for public welfare, actual and proposed state budget cuts have targeted Medicaid enrollment, unemployment assistance, state and local police and fire protection, public facilities such as libraries and recreational facilities, and spending for education, among others. …