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Published on March 7th, 2013 | by RLn Staff

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Austerity and the False Promise of Balanced Budgets

Sacrificing Democracy for the Bottom Line
James Preston Allen, Publisher

Pundits on the right and left chant balance budget like some religious mantra. In the recent Los Angeles primary elections, Republican candidate Kevin James accused the three leading mayoral Democrats of leading the city to bankruptcy because of a $200 million deficit. And the current mayor and city council have responded to the doomsday forecasts of Chief Administrative Officer Miguel Santana, by asking voters to approve a regressive half-cent sales tax. This, from the man who couldn’t even provide an answer when asked point-blank how much property the City of Los Angeles owned, or how much revenue the land generated!

The city, the school district and the state as well as the nation, are being driven by the false narrative that “austerity,” or cutting budgets to the bone, will cure our economic woes. And liberals as well as conservatives are arguing about just what to cut most! It only makes sense doesn’t it? You can’t spend more than you take in, just like running a small business, right? The mistake is that government is not like balancing your personal checkbook nor like running a small business. Nor should we concede that government on any scale should be run like a heartless corporation.

Pulitzer Prize winning columnist Paul Krugman recently wrote on this point saying, “The point is that the whole focus of budget discussion is based on a combination of bad economics and bad (and fundamentally dishonest) politics. We’re looking not so much at a Grand Bargain as at a Great Scam.”

In the the City of Los Angeles’ case, we are looking at a $200 million deficit in a budget of $6 billion, which is about 3 percent. Even the most risk adverse corporation could figure out how to leverage its existing assets to cover such a small percentage. Even a mom and pop business would use its overdraft or line of credit to cover this. But no, we either cut programs and jobs or we raise taxes. Both are wrong at this time.

From City Hall to the State House our various governments own hundreds of billions of assets that are either undervalued, not used or even leased. Just take into consideration amount of land owned by the Los Angeles Department of Water and Power for instance.

Even more significant than the real estate is the amount of money held in the various pension funds at all levels– the CALPERs pension fund is one of the largest investment pools in the world at $249.9 billion. The Los Angeles LACERS pension fund, one of several for city employees, has some $9.4 billion in investments. I wouldn’t recommend that these be used to pay pay for deficits, but I do suggest we reinvest these monies in needed critical infrastructure that the city needs now. The State of California could do the same, as could the Los Angeles Unified School District,  instead of paying to place a bond, borrow the money and pay it back at a guaranteed rate.

This form of “closed-circuit” investing recycles pension investments back into the city or district from which they are derived, thereby creating a direct benefit of economic expansion, job creation, and reinvestment in our own economy rather than Wall Street.

This form of government investing alleviates the pressure to raise taxes for special projects or to cut services because of the drain on the general fund to back fill the budget. If the city could get its hands around what it owns and manage its properties more productively and get its mind around what it’s doing with its financial investments, the city would probably generate a surplus in a few short years.

I frankly don’t think we have the people in government with the brains to figure this out, which maybe the best example of the failure of our education system to teach people to deconstruct problems or to remember their history. Clearly there are plenty of historical examples that would lead us to see that the only way out of a deep recession is to spend our way out not to cut our way with blade of austerity that will only cripple our courts, our schools and our democracy.

Balancing budgets with the current formulas will only extend the recession that plagues our governments but which seems to have eluded Wall Street only after they were saved by government investments.

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