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Stephen Gottlieb: Paying For The Virus

In his discussion of the financial consequences of the pandemic to New York, Gov. Cuomo has not mentioned that New York isn’t permitted to borrow the money it needs. The reason is a New York State constitutional prohibition. Many states prohibit borrowing except for capital expenses. When states were permitted to borrow for current expenses, they ran up large debts and the practice needed to be stopped. So, many state constitutions barred the practice. With some exceptions, New York requires a law to be submitted to the voters for specific purposes. The Governor does not have the time to satisfy New York’s constitutional rules. For the moment, he’s stuck.

The same prohibition does not apply to the federal government. Economists understand that fiscal stimulus is an important tool for dealing with economic downturns. But clearly the feds have misused it, giving large tax cuts to the wealthiest people and corporations, cuts not used by the beneficiaries in any way that would stimulate the economy but that did significantly increase the national debt. That was the kind of misbehavior that led states to take the power away.

This, however, is an example of a time where deficit spending is completely appropriate. Dealing with the virus is expensive. The feds provided some relief, though politics has affected who got what. But there is an additional problem – with a large part of the workforce ordered to stay home and businesses shuttered, there is a very large downturn in tax payments flowing to government. The federal government can borrow to fill that gap and it can provide relief to the states. But most states can’t help themselves. The result, as usual, is that this becomes another way for Republicans to force everyone to cut what they spend on services – in this case, because the big budget item is education, the feds are forcing states like New York to cut funding on schools. Whoopie – isn’t that great planning for the future.

The Federal Reserve is trying to stimulate the economy but chairman Powell has been very clear that the Fed cannot solve our problems because the financial system is not the main problem, not even close. There are supply side, demand side and income problems. The Federal Reserve’s tools provide little help on the income side. It’s a little too simple to say that the Federal Reserve has no fiscal powers because it can lend to the federal government, but it can’t force the federal government to borrow, or to put that in its budget. So unless Congress and the Administration decide that there is a need to help the states meet the costs of running their school systems and other necessary services, the states are stuck doing what Republicans always want them to do – cut their services to the people. If they do that, then rich folk won’t have to bribe their kids ways into college because only the rich will have kids sufficiently educated to go to college, and all the disparities in America will get even bigger.

Grabbing all the goodies for fewer and fewer people seems to be the dream of those who finance Republican campaigns, but I can’t see why any of the rest of us would accept it – unless Trump pulls the wool so far over people’s eyes that the people don’t understand that he and his Republican friends are using the epidemic to make most of us even worse off than we were before.

Steve Gottlieb’s latest book is Unfit for Democracy: The Roberts Court and The Breakdown of American Politics. He is the Jay and Ruth Caplan Distinguished Professor Emeritus at Albany Law School, served on the New York Civil Liberties Union board, on the New York Advisory Committee to the U.S. Civil Rights Commission, and as a US Peace Corps Volunteer in Iran.

The views expressed by commentators are solely those of the authors. They do not necessarily reflect the views of this station or its management.

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