• The Left-Wing NC Justice Center’s latest policy brief includes policy recommendations in preparation of the next recession
• Policies are more of the same big-government programs they advocate for in all situations; policies which would increase government dependency and prolong the recession.

 

There’s an old adage that goes “when your only tool is a hammer, every problem looks like a nail.”

So it goes for the big-government advocates at the Budget & Tax Center (BTC), a project of the NC Justice Center. Be they healthy economic times, recessionary, or in recovery mode, the policies are always the same: bigger government and less freedom.

In their latest brief, entitled “Lessons for Next Time: How North Carolina can prepare for an economic downturn,” their policy prescriptions for the next recession are quite familiar.

According to the brief: “To minimize the harms in the moment of a downturn and to reduce barriers to long-term growth prospects, public policy has a critical role to play.”

Citing a study that assumes government stimulus helps the economy, then simply calculates how much, the BTC brief claims that government stimulus responses kept the last recession from being worse.

But this is Monday-morning quarterbacking at its worst.

Recall the predictions by President Obama’s economic advisors upon initiation of the federal stimulus plans that the stimulus would prevent unemployment from exceeding eight percent. Reality, of course, painted a much more dire picture, with national unemployment peaking at nearly 10 percent, and remaining above 8 percent thru 2012.[i]

Undeterred by this blatant undermining of credibility, the BTC brief insists that the main problem slowing recovery after 2011 was the “pulling back on this response too early.”

As a result, their policy prescriptions for the next recession largely mimic the failed responses from the last one. They include:

Lengthening and increasing unemployment insurance (UI) benefits

This policy would have two primary effects. First, it would require higher UI taxes on employers. Making it more expensive for businesses to hire people is the last thing you’d want to do during a recession when hiring workers should be encouraged, not discouraged by higher taxes.

Second, more generous unemployment benefits and extending the period over which benefits can be received incentivizes more unemployment. Greater rewards for not working will result in more people not working. Even the New York Times resident left-wing economist Paul Krugman acknowledges that extended unemployment benefits will likewise extend higher levels of unemployment. In his 2010 economics textbook “Macroeconomics,” Krugman stated “Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect.”

The bottom line: at a time when policy should encourage employers to hire and employees to return to work, the BTC’s policy recommendations would do the exact opposite and hamper labor market improvements.

 

Medicaid Expansion

The problems with Medicaid expansion are well documented. Moreover, programs like Medicaid are counter-cyclical. This means that during downturns, enrollment increases which increases expenditure demand at a time when tax revenue is down. Medicaid will be a fiscal disaster during normal economic times. For instance, Gov. Roy Cooper’s recently-released budget plan estimated that expansion would cost the state in excess of $400 million per year – and that is assuming enrollment doesn’t exceed projections like it consistently has in other states.  During recession, an expanded Medicaid program will be a complete budget-buster.

 

Expanded Food Assistance Programs

Just like Medicaid, these programs are counter-cyclical, with rising funding demands squeezing reduced tax revenue. How will these be paid for? Most likely, the legislative response will be higher taxes, which is poison to economic recovery.

 

Debt-financed, “shovel-ready” infrastructure jobs

The brief also recommends the state government having infrastructure jobs at the ready to be activated and funded with borrowed money when the recession hits. During a recession, interest rates would indeed typically be lowered. But with the state government entering the market for borrowed funds, private businesses seeking to invest and facilitate economic recovery would be crowded out. Scarce resources like heavy equipment and construction labor would likewise be tied up in politically-chosen projects and as such unavailable for market-based uses by private investors.

Such diversions of scarce capital would serve to slow economic recovery, and saddle future taxpayers with larger debt service payments – making the next recession even more difficult to weather.

 

Conclusion

“Lessons for Next Time: How North Carolina can prepare for an Economic Downturn” offers a lot of bad advice whose real impact would be to prolong a recession, slow recovery and harm low-income people the most. Such ideas are rooted in a mind that views more government as solution to every problem and every problem as pretext to expand government. Increasing government dependency is the surest way for left-wing liberals to expand their power.

Such ideas stand in sharp contrast to the ideas of the Founders. Nowhere do we hear government talked about as an economic engine, or a source of “free” goods paid for by others. Rather, the Founders saw government as the means to protect and secure the rights of citizens.

It’s a distinction that shouldn’t be forgotten.

[i] James Pethokoukis, “A Big (and updated) version of the biggest, most important chart in American politics” American Enterprise Institute. Accessed online March 13, 2019 at: http://www.aei.org/publication/a-big-and-updated-version-of-the-biggest-most-important-chart-in-american-politics/