Thursday, April 03, 2008

Can government really 'stimulate' the economy?

Gov. Ted Strickland, in his state of the state address, called for $1.7 billion in state spending to 'stimulate' the economy. Yesterday, along with House Speaker Jon Husted and Senate President Bill Harris (Republicans), he announced a revised plan for $1.57 billion - but with less reliance upon borrowing as a source of the funds.

SIDEBAR: Of course, most local elected officials are extremely supportive of this proposal because they see more state money flowing to their jurisdictions to cover the costs of roads, sewers and other infrastructure projects. That their constituents are the source of the funding for these projects seems to be missed, however.
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One of the sources of funding for this new spending is 'excess Ohio Turnpike revenue.' In my on-air discussion with Husted yesterday on NewsTalk 1370 WSPD, I asked him why any 'excess revenue' isn't going toward reducing the tolls. I really didn't get an answer, other than it was a great question and one that would have to be debated as the proposal goes forward.

The tolls for the Ohio Turnpike, which runs across the northern portion of the state from Pennsylvania to Indiana, have been a source of contention for those who live along the roadway for a long time. Failed promises to remove the tolls once the road was paid for, raising tolls in order to keep up with expansion and maintenance, truck traffic on local roads from those avoiding the cost, and other issues all combine to make the northern portion of the state feel animosity over just about any discussion of this thoroughfare. And then there is the state law which limits Turnpike revenue usage to projects within one mile of the toll road.

Politicians in Columbus may get more than an earful over this portion of the funding, in addition others. They're already seeing opposition from the anti-smoking groups over another source: using $230 million from the state’s anti-smoking efforts, leaving $40 million in what was expected to be a $1 billion endowment. Ohio Tobacco Prevention Foundation Executive Director Mike Renner has questioned the legality of the state taking this money.

Additional sources of funding to avoid borrowing include liquor sale profits and future general tax revenue transfers. Husted's explanation was that this is not a 'perfect' agreement, but it is better than borrowing. And he's right on that point, but he misses the bigger picture.

The overall business climate of the state is not a result of a lack of government spending.

Ohio has, for several decades, tried to 'stimulate' the economy (though elected officials didn't use that term) through targeted subsidies to politically popular industries, more infrastructure spending and other various programs designed to keep people and businesses in the state. Such efforts have not been anywhere near as successful as hoped. In fact, during all these efforts, the state's standing compared to others has fallen - except in the tax burden. Recent changes in the tax structure have helped somewhat, but not enough. And that's because government is continuing to spend.

Despite the fact that government spending hasn't worked, this stimulus package is just more more of the same, even if it's based upon borrowing only $400 million (instead of the original $1.4 million) to do so. As Dr. Samuel Staley of The Buckeye Institute said of the original proposal:

"Restoring Ohio's economic vitality will be difficult. ... the key will be in creating a policy environment where broad-based entrepreneurship and business investment is welcomed and nurtured.

Ohioans already spend nearly four months working off the cost of local, state, and federal government services. With the new debt the governor wants to heap on, taxpayers are destined to add another month working for the government. This leaves fewer and fewer dollars to fuel economic growth in the private economy. That's a recipe for driving away entrepreneurship and private investment, not keeping or nurturing it."


Husted has indicated that this new plan will allow the state to spend money more quickly than the original one would have permitted. Perhaps that's part of the problem: elected officials looking at government spending to 'quickly' do something, even if those 'somethings' will not have the desired effect of actually changing the economic environment in the state. Quick fixes might be 'quick' but are rarely a true 'fix' to the problem.

6 comments:

Tim Higgins said...

Maggie,

Isn't it typical that the only answer that government can come up with to a problem is more government. We have come to expect this from Democrats over the years (see New Deal), but it's disappointing that Republicans are now buying into it as well.

That they are using toll road taxes, liquor taxes, and the tobacco settlement money simply allows them the cover of banging on the big three vices: oil, liquor, and tobacco. They only way that they could have pandered more on this is to say that this economic package was passed to protect "the children".

The only stimulation that this package is likely to achieve is self-stimulation for state goverment officials. This is not a pretty picture.

Maggie Thurber said...

Oh, Tim...but it IS for the children...

One component is a public-private sponsorship of internships at various companies - with the thought of keeping our graduates in the state. After all, we spending thousands on their education - we need to keep them in the state.

When I told Husted that they'd stay if there were jobs available - and that had nothing to do with state-subsidized internships ... well ... you can imagine the non-answer.

I'll link to the pod cast yet today...

Tim Higgins said...

Maggie,

I listened to the show (as I always try to do) and the non-answer that was given. In spite of recent government paradigm shift however, I do not consider a person who has graduated from college a child. I venture to say that those who have done so would agree with me.

I believe, like you that "people" will stay where good jobs are to be had. I agree that internships are not jobs (especially in this case), but merely government subsidized hobbies.

Spending tax revenues does not create jobs or a business friendly environment (as you have often pointed out). Reducing the tax revenues collected has been proven to do so.

Ben said...

Looks like a bunch of smoke a mirrors to me.

Brian said...

Mr. Husted, I have say he is very typical of today’s politicians; lots of government time, no private sector experience. Husted wouldn’t be so quick to spend our money if he ever had to be accountable to a CFO or shareholder. Husted went from collage to a government bureaucrat position upon graduation, and then became a fulltime politician; and this is the number one Republican. Republicans used to be business types, and Democrats the big government types. At 40 something Husted has never worked outside government!

Also it should be pointed out that it was Husted that wanted to infuse the sinking Delphi Corporation with Ohio tax dollars so that this miss managed company could squeak another year out. Husted in his naive understanding of the situation was too quick to use our earned labor income for something as hair brained as this. And maybe it is not naïveté; it could be that he truly believes it’s the responsibility of government bureaucrats to save sinking businesses rather than creating the climate to keep them better ones.

One thing is clear though, the Ohio Republican Party needs to grow a new crop of politicians; clean house with the group they have now; establish a relationship with a think tank like the Buckeye Institute that has free market and limited government solutions to our states problems to help with policy issues; and most of all get rid of the leadership in Evans, Husted and Bennett. These are serious clowns that have no sense of fiscal responsibilities or conservative-republican ideals.

GaryLewis said...

Maggie:

I analyzed each piece of this proposal, and how it could potentially affect the city where I live, when it first came out and the governor wanted to bond the entire amount. You can read the analysis on my site: http://rightrunner.blogspot.com/2008/03/serious-questions-about-governor.html
The question I now have is: The existing revenue streams, that are going to pay for the lion's share of this proposal, are now being used for something. So, what programs are going to be cut so that revenue stream can be used for debt service? Furthermore, if whatever is going to be cut is not important enough to continue funding, why hasn't it already been cut to lessen the burden on Ohio's taxpayers?

Also note that I am my city's auditor (with previous private business experience)and I know first-hand if these programs will work or not. For the large part most of the items are government give-aways. Some will result in grand opening ribbon cuttings only to be followed shortly thereafter by a "going-out-of-business" sale.

This is a no-brainer bad idea. Forget the gimmicks. Make Ohio a more busines-friendly state, reduce taxes and let the free market do it's thing. It has worked time and time again and it will work in the future.

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