DMI Blog

Amy Traub

A Reasonable Budget for Hard Times

In the end, Governor David Paterson did what the economists recommended. For months, experts like Nobel Prize winner Joseph Stiglitz have pointed out that during a recession, policymakers can accelerate a recovery by raising the level of total spending in the economy. State budget cuts worsen the economy by reducing total spending, while raising taxes on wealthy households harms the economy less because these households typically spend little of their total income. The conclusion? New York’s economy will benefit the most if the state closes its budget gap by taxing the rich rather than cutting services. Preserving services also shields those hit hard by the bad times. Readers of the DMIBlog know I’ve had a bit to say about this myself, occasionally in print. The new state budget deal, imperfect though it is, puts this logic into practice.

None of which is to say that the Governor and legislative leaders simply opened their eyes to the pure light of economic rationality. As even the plan’s fiercest opponents admitted, it was intense grassroots organizing by the Working Families Party and its allies that carried the day, building a political force powerful enough to take on wealthy individuals and corporate interests – and win.

Needless to say, those hoping to balance the budget with harsh cuts in services to the New Yorkers already being hit hardest by the recession are not taking this quietly. My favorite line is the New York Post’s bitter observation that “education and Medicaid -- areas of top concern to the unions that control the WFP -- won larger outlays than last year.” That's a curious world view: educating our children and providing medical care to the poor are narrow special interests, but everyone benefits when we protect the wealthy from having to chip in during the lean years. (Given that perspective, I too hope to be called a shady octopus by the New York Post someday).

Critics are correct in noting that the budget process lacked transparency. Closed-door negotiation by Albany’s legendary “three men in a room” is a lousy way to make public policy, as DMI has argued. It’s also the way New York State budgets have always been negotiated. Last year, the process included some more democratic window-dressing, which the negotiators skipped this time around. In the final analysis, we have yet to achieve the real procedural reform we need. A truly open and democratic budget process is valuable in its own right. It would also prevent opponents from mixing legitimate complaints about secrecy in with absurd ideological rants.

One final shortcoming of the state budget agreement: it fails to resolve the financial crisis at the Metropolitan Transportation Authority. DMI will have more on that shortly.

Amy Traub: Author Bio | Other Posts
Posted at 8:18 AM, Apr 01, 2009 in Economy | New York | New York State Tax Policy | Tax Policy
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