There are two recent stories that highlight the challenges facing the national economy, and that implicitly show the impossibility of a national solution to Whitewater, Wisconsin, or any other small town.
One has probably read that U.S. Representative Ryan of Wisconsin said that he thought of “the stimulus as a sugar high.” See, Top Republican: Obama’s stimulus little more than ‘sugar high’ for economy. It’s been that for us, in this small part of America.
In a different story, a commentator from the other side of the Atlantic suggests a solution for what ails America (and Europe and Asia). Looking at the problems of sluggish growth and high unemployment, Ambrose Evans-Pritchard suggests a solution:
Investors are starting to chew over the awful possibility that America’s recovery will stall just as Asia hits the buffers. China’s manufacturing index has been falling since January, with a downward lurch in June to 50.4, just above the break-even line of 50. Momentum seems to be flagging everywhere, whether in Australian building permits, Turkish exports, or Japanese industrial output.
On Friday, Jacques Cailloux from RBS put out a “double-dip alert” for Europe. “The risk is rising fast. Absent an effective policy intervention to tackle the debt crisis on the periphery over coming months, the European economy will double dip in 2011,” he said.
It is obvious what that policy should be for Europe, America, and Japan. If budgets are to shrink in an orderly fashion over several years – as they must, to avoid sovereign debt spirals – then central banks will have to cushion the blow keeping monetary policy ultra-loose for as long it takes.
The Fed is already eyeing the printing press again. “It’s appropriate to think about what we would do under a deflationary scenario,” said Dennis Lockhart for the Atlanta Fed.
I don’t know what federal fiscal policy will be after the November elections, and no one else knows, either. What’s clear, however, is that there’s no independent monetary solution for state or local governments to offset necessary budget tightening. (If the federal government has spent all she can spend, and must cut back to prevent disaster, there’s sure to be cuts for state and local governments with no local offset of a looser monetary policy that localities obviously don’t have.)
There’s still a way out, for Whitewater and other towns with too many public projects and too few private jobs: a change to a climate of low regulations. Low when compared to present levels, and lower than nearby communities. That comparative advantage will attract investment and bolster local businesses.
Evans-Pritchard’s article is dramatically entitled, “With the US trapped in depression, this really is starting to feel like 1932. Although he accurately notes grim statistics (“US workforce shrank by 652,000 in June, one of the sharpest contractions ever. The rate of hourly earnings fell 0.1pc. Wages are flirting with deflation.”), there are few who think a depression is possible.
If further budget cuts at the local level are necessary (and overdue), there’s still much to be done, by which we could boost the comparative attractiveness of the city. That boost will not — and finally cannot — come from more public projects, but from a significantly more limited and less bothersome local government.