Harold Meyerson’s latest Washington Post column, “A Page from the Hoover Handbook,” is, as far as economic illiteracy goes, one of the worst I’ve seen in a while.
It may be impolite to point out others’ mistakes. But we can learn from them in doing so. In that spirit, and with no disrespect to Meyerson, let’s take a look at where he went wrong.
Democrats want the federal government to give grants to states. Republicans want those grants to be loans instead. Meyerson very strongly sides with the Democrats here. But there is no intellectual reason to prefer one side over the other. Both sides favor the same thing.
Here’s why. Suppose the Democrats win. The money goes to states as a grant. It is transferred from taxpayers to the federal government. Then the federal government transfers it to various state governments.
The federal government’s debt then increases by the amount of the grants. Bond buyers loan the federal government the money. Taxpayers then repay the bond buyers’ loans in the future.
Now suppose the Republicans win. The money goes to states as a loan. It is transferred from taxpayers to the federal government. Then the federal government transfers it to various state governments. Sound familiar?
State government debt then increases by the amount of the loans. Bond buyers loan the state governments the money. Taxpayers then repay the bond buyers’ loans in the future. Only the names change. Meyerson has no real reason to favor grants over loans. Only partisanship.
State governments have spent themselves into trouble. The way out of trouble is to spend less. If a family hits hard times, they cut back their spending. Now several state governments have hit a rough patch. But they want to cut back our spending. Not their own. How is that fair? How does that help the economy?
