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Sunday, June 13, 2010

The wrong policy at the wrong time

If Chuck Lacasse had gotten his pink slip four days earlier, Uncle Sam would have covered most of his family's health insurance while he looked for a new job.

But Congress allowed emergency health care assistance for unemployed workers to expire May 31, and seems unwilling to renew it despite pleas from President Barack Obama.

On Saturday night, the White House released a letter Obama sent to congressional leaders of both parties asking for nearly $50 billion in emergency aid to state and local governments to fend off "massive layoffs of teachers, police and firefighters" and to prevent a possible double-dip recession.

Obama is 100% right. States and cities have been hit hard by the recession both in lower tax revenues and in higher unemployment insurance and health care costs. States and cities are for the most, reluctant to raise taxes to offset these deficits so the scissors are out in full force cutting and cutting.

The result is an estimated 300,000 teacher layoffs not to mention police, firefighters and other city and state employees. The result will be that the modest job gains of the past few months will be reversed and spending will drop.

Obama has asked for $60 billion in emergency aid to states and cities to stem the bleeding. Republicans, who have suddenly discovered the religion of deficit reduction after their own bout of profligate spending under Bush are unanimously opposed to it. Enough moderate Democrats have joined the bandwagon to give the bailout little chance of ever passing.

Beyond the economic impact is the social impact that will be felt for years. Declining education standards will be inevitable if these cuts are made. Cutting health care costs could merely shift the cost burden from providing people coverage to paying for emergency room visits being used by people as a last resort.

I have mentioned this before but will do it again. After World War II the deficit as a proportion of GDP was far higher than it is today. If this current lot had been in power back then they would have cut spending. Instead the government invested in G.I. Bill which allowed returning veterans to go to college for free. Prior to the war, college was the exception but became the expected. These educated GI's became the backbone of the phenomenal growth of the 1950's and beyond. Imagine where we would be if that bill was killed by today's deficit hawks.

The same could be applied to the Marshall Plan which allowed Europe to get back on it's feet so much faster to become a valuued trading partner for America. It could also be applied to the building of the Interstate highway system which allowed goods to be moved far faster and far more efficiently.

Instead the deficit hawks want to ignore every economic principle and lead the country back into economic recession and social stagnation.

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