I mention this because we are in the middle of a deficit crisis here in Illinois. Both raising taxes and cutting spending will be disastrous for the Illinois economy. Now granted, the notion of the Illinois economy is a bit artificial. We are part of a national economy. Economic units are determined by where the money comes from. Illinois is not sovereign because we do not have our own money.
So if we can neither cut nor tax, are we doomed? Well, not if we can borrow. Borrowing would not be disastrous to our local current economy. It may or may not be bad for a future economy, but not the current one.
But there are limits to borrowing or running deficits in other words. The constitution is one of the limiters of deficits. The easiest answer would be to borrow from the federal government. But they would have to agree to a loan. Actually we'd prefer a hand out. It would help us and them.
There is another outside the box approach. Create our own money. We would call it vouchers. We would make vouchers local legal tender for paying things like license fees and taxes. It could free up the other kind of money for the rest of the economy. It might need some additional complexities, but it could work. It would probably work best if we had a state bank like North Dakota, but that's another discussion.
Sovereign governments whose debts are paid in its own currency, are not like you and me. They are not fiscally constrained or required to balance their checkbook. Nor should they if it weakens the economy or increases unemployment. The government can spend without risk of going broke because the debt is owed to itself. Yes, this can create inflation when unemployment is low and there is too much money chasing too few goods. But that should not deter government from stimulating the economy when unemployment is 10 per cent, underemployment is 20 per cent, manufacturing is slow, housing is in a shambles, core CPI is below 1 per cent, and the economy is teetering towards outright deflation. Deficits should be increased and sustained at a high level until unemployment and overcapacity begin to retreat. Economists know that consumer deleveraging is a long-term project, which means that government stimulus will be required for a very long time. Get used to it.
Being on multiple legislative e-mail lists, I received alerts yesterday advising me that the enormous hole in the state budget had been patched, again, through the practice of "fund sweeps." This phrase, one of those like "credit default swaps" that makes ordinary taxpayers' eyes glaze over, means that money sitting in various "special funds," instead of being used for the purposes for which it was intended and collected, will instead be diverted into the General Funds pool. Think of it as if you'd set up a special savings account for your childrens' education, or had a cookie jar in the kitchen where you put pin money to save for an upcoming wedding, but instead, when things are tight, you dip into it to pay your electric bill.
Interestingly, not one of the e-mails I got detailed which funds were being raided. So I checked. The bill itself, which got completely amended about a dozen times, is online. As a public service I am listing the funds, the amounts diverted, and a link to the bill at the end of this post (below the fold).
The list is mind-boggling. First, the total: $224 million in raided funds. That's a lot of lettuce.
Second, the sources. Probably you had no idea that we had 300 different funds to plunder, with opaque monikers such as the "Auction Regulation Administration Fund" from which we're plucking half a million bucks, the "Professions Indirect Cost Fund" from which we're diverting $2 million, or the "Subtitle D Management Fund" that will involuntarily donate a quarter-million dollars to this year's spending. Probably you also have no idea what all those funds do. I wonder if our legislators do.
