State needs a skilled work force

Posted Feb. 01, 2010, at 6:49 p.m.

If that first dip in the cold bath of recession wasn’t bracing enough, how about a second dip? Most of the mainstream media along with the financial markets are pronouncing the Great Recession over. I am not so sure.

I admit to ideological skepticism about this economy. Its central institutional structures, including obscene inequalities and a bloated, unregulated and subsidized financial sector, remain firmly in place. Nonetheless there are many signs that in other times would be taken by most citizens as cause for concern. Furthermore, the federal government and even most state governments including Maine have both reason and room to intervene more constructively than they have thus far.

Numbers for gross domestic product, or GDP, have shown modest improvement, but a real jobs recovery will require far more robust growth than we are likely to achieve. Even modest growth is unlikely. Conservative investment adviser and CNBC contributor John Mauldin points out: “Year to year comparisons of same store sales are mildly positive — but because many stores have folded, giving those that remain more sales.”

In addition he reminds us that inventories have gone about as low as they can. He adds: “The way GDP is figured, a reduction in inventory reduces GDP. That was a negative figure for most of this recession. Simply because inventories are not falling anymore, it is easier to get a positive GDP.”

The worst prospect may lie in what is yet to happen at the state level. Most of the business commentary assumes that current levels of consumer spending, modest as they are, will at least remain in place or slowly rebound. But the full effect of declining revenues at the state level has yet to be absorbed. Despite talk of a more confident consumer, most state treasuries are reporting continuing declines in sales tax revenues. Consumer credit fell $17 billion — the largest decline ever — over the year-end holidays.

Since most states cannot run deficits, services must be cut further or taxes newly increased. Some estimates place future cuts at around another $260 billion, with Maine facing a circa $400 million shortfall.

For merely a third of what the government has spent on TARP and for far less that the trillions going into Iraq and Afghanistan, the federal government could fill this gap. Funds targeted to restore crucial educational, health care, transportation and energy needs are an investment in long-term productivity and the best way to re-duce the burden of the debt.

The same conservatives who worship free markets and failed to anticipate the housing bubble now insist that only the private sector creates wealth. They might want to read a history of railways, the interstate highways, computers and the Internet. With so much unutilized human and physical capital, now is the time for govern-ment to fund investments in a modern, sustainable infrastructure.

Though states are more constrained, they have important choices. Maine Center for Economic Policy economist Dan Coyne points out that more deep cuts put some families’ needs against others and fail to create a stable economic future. Coyne advocates short-term surtaxes on incomes above $250,000 and sales tax increases on items or services used primarily by the wealthy.

Will such taxes make Maine uncompetitive? I doubt it. Maine needs a skilled work force to attract new, high-value added jobs. Further cuts to an already stressed community college system won’t get us there. Nor are such taxes inequitable. Our wealthiest residents have been disproportionate beneficiaries of the fed gifts that sustained many of the stocks in their portfolios.

A further consideration on behalf of a short-term tax increase to fund services lies in where the money goes. Lower taxes, especially for the wealthy, may be saved or immediately sent out of state for goods produced elsewhere. Maine government expenditures for community college faculty or school insulation at least starts the chain of spending locally. There is less leakage and Maine gets a better return on its dollars.

Common wisdom is that no state legislature will ever dare raise taxes. I don’t think that our job is to sit around predicting the future. That is a spectator’s orientation. Let’s make our case and see if we can change some minds.

John Buell is a political economist who lives in Southwest Harbor. Readers may contact him at jbuell@acadia.net.

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