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John Perilli: RI’s Real Spending Problem: We Don’t Spend Enough

Wednesday, February 19, 2014

 

Rhode Island needs to spend more money to stimulate the economy, believes John Perilli. Photo: Flickr/401(k)2013

Rhode Island's economy could use a good kick. The solution? Spend more.

Now don't get me wrong––this does not mean I'm against saving taxpayers money. The two ideas aren't incompatible. I don't think we should just throw away money at useless projects or doomed ventures. But for too long, Rhode Island has been in the business of scrambling for short-term savings only to starve ourselves out in the long run.

What we need is a new approach: a short-term boost of spending which could accelerate our economy. It wouldn't even necessarily be permanent, but it might just send down our chart-topping 9.1 percent unemployment and give us some economic growth to be proud of.

Stimulus Versus Stagnation

Whenever you hear about Rhode Island's "spending problem," it is always about how we spend too much. From state workers to social welfare, the complaint is always that Rhode Island is too gluttonous, and that we ought to cut back.

I'm here to tell you that's bunk.

Economics tells us that during a recession, the government's best response is to provide a boost of spending in the short term to stop the bleeding, and make up the deficits after the economy has recovered. This is about as close to empirical fact as things come in the field, and it has been proven many times over in practice.

Consider the United States's response to the Great Recession and the financial collapse of 2008 and 2009. Instead of sitting back and tightening our collective belt, newly elected President Obama pushed through an $800 billion stimulus package, which increased our 2009 federal deficit to an unprecedented $1.4 trillion but helped turn our economic freefall into a respectable recovery.

Compare this to Great Britain's response to the financial collapse. Rather than spend money to stimulate the economy, the conservative government of David Cameron imposed harsh austerity measures and deep budget cuts. And rather than bounce back, the British economy stalled, and in 2013 narrowly avoided sinking into not just a double-dip, but a triple-dip recession.

These are but two of a welter of examples, and I encourage everyone to check the cross-country data. But my conclusion is clear: Almost without exception, stimulus ends recessions, while austerity extends them.

Now, Rhode Island can't run massive deficits like the United States can: unlike the federal government, we're bound by a balanced budget provision in our state constitution that keeps our income and spending close, if not equal.

But we're still not using all the stimulus tools we have available.

In Rhode Island's Fiscal Year 2010 budget, enacted at the end of the 2009 General Assembly session, our total spending rose from $7.4 to $7.8 billion, a modest increase that reflected the stimulus money we received from the federal government. But between fiscal years 2010 and 2014, our budget rose only to $8.2 billion, an anemic increase of around five percent. Over those four years, that's only around a one and a quarter percent increase per year, not even keeping up with inflation.

When we talk about stimulus, total spending is important, but trends are even more so. And Rhode Island's stimulus record has been trending in the wrong direction.

A Tale of Lost Revenue

But rather than act, Rhode Island has constantly looked for ways to cut back. Through the 2006 income tax cuts for our state's wealthiest citizens, we have starved ourselves of much-needed revenue. And rather than put our money to good use, we've bungled it on handouts to undeserving companies like 38 Studios.

One of the most insidious effects of this slice-and-deal attitude is the dismal situation of our state workforce. Currently, Rhode Island has the second-lowest percentage of government employment in the US. Our 9.1 percent unemployment rate might mostly be the result of bad economic circumstances, but it is also somewhat our fault.

When workers lose jobs during a recession, their skills immediately start going out of date, making it harder for them to get a job in the future. As I've noted before, being out of work for half a year means you have about a twelve percent chance of getting back to work in any given month. But rather than give some of these workers jobs to keep up their experience, Rhode Island slowly throttled it's state workforce.

And where has that left us? Dead last in the nation.

Getting Back to Work

This year, though, it seems like the General Assembly might be turning a corner. The overarching theme of this year's session is "workforce development," and bills are already flowing in that are meant to help Rhode Island's workforce become competitive again.

To this I say: Good! Go even further! Let's take the self-imposed restraints off our revenue stream and get some real stimulus done.

Let's embrace Sen. Harold Metts's bill that would undo the 2006 tax cuts and raise our top income tax bracket back to 7.99 percent. This means we can boost revenue without costing anyone earning below $250,000 a dime, and without driving anyone out. Let's seriously consider a bill by Rep. Edith Ajello and Sen. Josh Miller that would regulate and tax marijuana. Regardless of where you stand on the moral issue of marijuana legalization, the fact remains that the drug could provide a fountain of desperately needed revenue.

Then, let's take this money and employ more state workers, retrain many others for new jobs, and repair our dismally ranked infrastructure. We could accomplish all of this––it's just a matter of doing it.

A Change of Attitude

I'm not out to write an economic treatise on exactly, step-by-step, how our state should proceed. Nor am I out to prescribe a panacea for our state's manifold problems.

But what I do aim to do is to provide an alternative perspective. To challenge the conventional wisdom that the best way to counter our economic slump is to cut our way out of it. To ask: Are we really, as infamous tax cut crusader Grover Norquist puts it, "starving the beast," or are we just starving ourselves?

 

John Perilli is a native of Cumberland, RI and a junior at Brown University. He is the Communications Director for the Brown University Democrats. The opinions presented in this article do not necessarily represent those of the organizations of which John Perilli is a member.

 

Related Slideshow: New England States With the Most State Debt

Prev Next

6. Vermont

Debt Per Capita: $12,566

National Rank: 36th Most

Total Debt (in thousands): $7,866,666

National Rank: 49th Most

Debt as a Percentage of Gross State Product: 29%

Prev Next

5. Maine

Debt Per Capita: $12,577

National Rank: 35th Most

Total Debt (in thousands): $16,717,250

National Rank: 42nd Most

Debt as a Percentage of Gross State Product: 31%

Prev Next

4. New Hampshire

Debt Per Capita: $13,951

National Rank: 27th Most

Total Debt (in thousands): $18,425,567

National Rank: 41st Most

Debt as a Percentage of Gross State Product: 28%

Prev Next

3. Rhode Island

Debt Per Capita: $17,960

National Rank: 16th Most

Total Debt (in thousands): $18,863,153

National Rank: 40th Most

Debt as a Percentage of Gross State Product: 37%

Prev Next

2. Massachusetts

Debt Per Capita: $19,493

National Rank: 12th Most

Total Debt (in thousands): $129,550,263

National Rank: 10th Most

Debt as a Percentage of Gross State Product: 32%

Prev Next

1. Connecticut

Debt Per Capita: $31,298

National Rank: 3rd Most

Total Debt (in thousands): $112,372,072

National Rank: 12th Most

Debt as a Percentage of Gross State Product: 49%

 
 

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Comments:

If the state paid public safety employees salaries more in line with States of the size and economy of Rhode Island, then you could hire more firefighters and cops, lower unemployment, and lower the pension deficit.

In Providence, Newport, Warwick, it is commonplace for Police and Firefighters to earn over $100k after just 3 years of service. That is twice as much as the same employees earn in Tampa, FL, or Charleston, SC.

You pay new hires $50k, and limit detail pay and overtime, then you can hire a lot more people. Providence already has 78 fewer cops on the street then last year alone.

What a mess

Comment #1 by George Costanza on 2014 02 19

Finally, an article on this site that makes sense and doesn't just spew tired Tea Party rhetoric. Refreshing.

Comment #2 by Jonathan Bainsworth on 2014 02 19

Some people were born in the wrong country.

Comment #3 by David Beagle on 2014 02 19

No too bright, eh?
RI is already #1 in gov't benefit expenditures. How's that stat working out for us? Exactly...not too good.
http://247wallst.com/special-report/2014/01/24/states-doling-out-the-best-and-worst-benefits/5/
A real stimulus would be to eliminate sales tax and put more money in our pockets.

Comment #4 by Odd Job on 2014 02 19

Obama's stimulus package pulled us out of recession? I'd say it just funneled other people's money to a few, and did little to stimulate anything but the wallets of a few. In New Mexico, for example, Obama's stimulus cost "$335,310 on average for each of the jobs it claims to have created or retained in New Mexico." Check out:

http://newmexico.watchdog.org/13554/335310-per-job-the-cost-of-the-obama-stimulus-in-new-mexico/

Beefed up government spending and control during recessions is economic gospel? Check out UCLA economists' study of FDR's policies that they say prolonged the Great Depression:

http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx

Many, many economists believe that WWII is what pulled the US out of the Great Recession -- not the New Deal.

My conclusion is that Progressive Democrats have a huge appetite for spending other people's money no matter what the economic climate. And that's about it.

Comment #5 by Art West on 2014 02 19

...out of the Great Depression that is.

Comment #6 by Art West on 2014 02 19

I'm not out to write an economic treatise on exactly, step-by-step, how our state should proceed. Nor am I out to prescribe a panacea for our state's manifold problems.

believe me. you didn't.

hard to believe in this day and age how a supposedly intelligent person could come up with this.

Comment #7 by john paycheck on 2014 02 19

Is that what they are teaching you at Brown University? RI has lead the way in taxes and spending and where has it gotten us. Your suggestion is to tax more and spend more. The logic that you utilize to connect the dots is obscure at best.

Comment #8 by Marie Dawn Christie on 2014 02 19

Left out of the pension "reform" debate is the effect on the economy. Politicians aren't looking beyond their nose and taking advice blindly from those with only their own interest at heart. Does anyone have any idea how much money will leave Rhode Island as a result of this legislation and the so-called settlement? What do they expect retirees to do? They planned their retirement around 3% COLAs. Now most don't have enough money to live on. No one knows how long they will live and suddenly they are living on a fixed income. One way to stretch that income is to move to another state that is friendlier to seniors and has a lower cost of living. Many southern states have no in-come tax or large tax deductions for seniors. Their property taxes are 20% of ours for comparable homes. Overall cost of living is cheaper. When these retirees are not paying state income tax, state sales tax, property tax, using local businesses, donating money and time to local charities, what will happen to RI's economy. The state is throwing away this generation and they will not just sit around and content themselves to live in their children's basement or over their garage.

Comment #9 by Fruma Efreom on 2014 02 19

They teach HISTORY at Camp Bruno? It wasn't FDR and his spendomatic policy which ended the "Great Depression" it was the MASSIVE economic consequence of WWII. BTW we ended THAT war with a national debt which has followed us ever since. Even FDR warned of the creation of a dependancy state. There are history majors at PC and URI who understand far more than this Ivy League barking seal.

Comment #10 by G Godot on 2014 02 19

George Costanza...no police or firefighter in the state earns 100,000 after 3 years. Most, even the brass, don't earn that much. The average chiefs salary is under 100,000.00. You are factoring in details and overtime. Overtime is what it is, particularly in policing. A cop can't go home at 11pm if a crime comes in at 1030. Details are a second job. The money from details is almost entirely paid by the private sector, not the city or town. So get over it.

Comment #11 by Dave Barry on 2014 02 19

"Let's embrace Sen. Harold Metts's bill that would undo the 2006 tax cuts and raise our top income tax bracket back to 7.99 percent. This means we can boost revenue without costing anyone earning below $250,000 a dime, and without driving anyone out."

How about, no, let's not. How about you actually do something useful like start a communication company here in RI, hire some people, and make a go at it.

Please, enough is enough.

Comment #12 by Ben Algeo on 2014 02 19

Looks like somebody took "Intro To Macro Economics".

Now is a historically cheap time to borrow. Unfortunately, Rhode Island already spends too much of our budget on debt service (paying off money we've already borrowed). Every dime we spend on DS comes out of other programs, like state workers, social services, pensions etc.

There are several bonds puts forward by Governor Chaffee. Most seem like good ideas. Find the money in the budget or forget them. We have to climb out of debt.

Comment #13 by Redd Ratt on 2014 02 19

This is yet another replay of the tired Keynesian argument of not spending enough and not spending it in the right places. This is your “new approach”? The Keynesian approach did not work after 2009. We incurred massive debt with one of the weakest economic recoveries in US history. Hardly seems like a respectable recovery. The fallacy with Keynesian economics is that governments never make up the deficits after the economy has recovered. To use your words this is “about as close to empirical fact as things come in the field, and it has been proven many times over in practice.” In your argument that the State should hire more employees you point out that RI does has a relatively low number of state employees but you fail to note that RI’s pension liability ratio to state GDP puts it at the sixth worst in the US. So while we don’t have as many public employees as other states those public employees cost us much more. Your recommendation to take this money and employ more state workers, retrain many others for new jobs is in part a recipe for disaster and in part extremely naïve. Hiring public workers does not create wealth and only worsens our sending burden. Retraining many others for new jobs begs the question of where do these new jobs magically come from.

Comment #14 by Michael Byrnes on 2014 02 20




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