Friday, August 11, 2017

EDITORIAL >> Professors’ sleight of hand

We have all learned to beware of politicians boasting of magical potions for setting everything right, most recently the governors of Kansas and Louisiana, who promised economic miracles if people elected them and followed their prescriptions of big tax and spending cuts. Their states sank into desperate fiscal crises and they left office with approval ratings approaching single digits and even Republicans declaring good riddance.

Beware, too, of imported eggheads with imported agendas who promise economic miracles if politicians will adopt their prescriptions—usually lower taxes on businesses and rich people, more tax loopholes, fewer restraints on polluting industries and a lot less spending on kids and health care and assistance for the disabled, elderly and poor.

We’re speaking again of the Arkansas Center for Research in Economics up the road at Conway, which is associated with the school of business at the University of Central Arkansas. It was funded at the outset by the Koch brothers, the Kansas billionaires who spend fortunes every two years electing right-wing Republicans to Arkansas offices and influencing legislation, and now by other unnamed wealthy investors.

It produced another piece of “research,” now circulated by Republican lawmakers and conservative economic groups, that purports to show how Arkansas can escape its wilderness of poverty and desperation.

“There’s Nothing Natural about the State of Government Spending in Arkansas,” said a policy group touting the study.

Although one of the poorest states, the professors’ research shows, Arkansas spends more money per capita than most nearby and other “competitor states.”

The professors explain how Arkansas got into the predicament of exorbitant taxing and spending and suggest a way out and into the promised land of growth and prosperity. In short, cut taxes and spending and change state laws and the Constitution to make it hard or impossible to ever raise them again.

They try to explain how Arkansas got into the situation, going back to the Great Depression. The problem is that they really don’t have a clue about Arkansas history. Their historical research, if they grasped it or were truthful about it, proves the opposite of all their theses.

See, the professors said, back in the depression Arkansas became the only state in the 20th century to default on its debt (Arkansas, by the way, also did it in the 19th century), starting the state on a path of reckless taxing and spending. Right and wrong.

Here’s what happened. Arkansas had the lowest taxes and spending per capita in the union when the Depression hit and then it started cutting taxes and spending even further, a remedy proposed by Gov. J.M. Futrell when he ran in 1932. So the state didn’t have money to pay its bonded debts and defaulted, could not pay teachers and could not contribute anything to match federal aid for food and relief for people trying to recover from vast floods and droughts. It was the only such state in the union, and finally the Roosevelt administration announced in 1935 it would end food assistance to Arkansas and quit paying Arkansas teachers their pittance on March 15, the deadline for Arkansas to impose some taxes so that it could do just a portion of what the other 49 states were doing to keep people alive and society functioning through the Depression.

Fearing riots and marches on Little Rock like the Washington marches, Futrell asked the legislature to levy a sales tax (the state’s first) and taxes on liquor and racing.

The professors mentioned the Futrell amendments (Amendments 19 and 20), adopted in 1934. But those are exactly the kinds of things the professors are advocating now. One virtually prohibited the state from going into bonded debt and the other set up nearly impossible thresholds for raising taxes (three-fourths of legislators in both houses).

Thanks to the amendments, it takes three-fourths of the members of both houses of the legislature to appropriate a dime for any purpose other than education and highways (and, of course, Confederate pensions). None of the other 49 states have such a high threshold for spending and taxing.

The professors offered no tougher scheme than either of those for holding down spending and taxing.

They didn’t ponder this question either: If low taxes, absurdly low spending, meager government services, no business regulation and no controls on pollution or defrauding consumers are the key to growth and prosperity, why had it not worked by 1929 or 1933? If economic theorists did such rankings then, Arkansas would have ranked first in business climate. Even in 1970, when Governor Winthrop Rockefeller, a Republican, tried to raise taxes across the board to put the state on a path to growth, poor Arkansas ranked dead last in per-capita taxes.

The keys to their whole nostrum are charts showing the state government of Arkansas spent more per capita than most surrounding states and other poor states with which it competes for industry—the South mainly. But they use a little sleight-of-hand. The comparisons track only spending on public services by the state government, not local governments.

Every state in our federal system is different. In many states, local governments—schools, cities, counties and other entities—raise and spend money on the same services in far greater proportions than Arkansas. Local taxes in Arkansas, including school districts, are among the lowest in the country. We have among the country’s lowest property taxes, a major source of funding for schools and other services. To cite only the state government’s huge support for public education by calculating only the state’s unusually outsized role—mandated by the state Constitution, by the way—is simply dishonest.

While the professors claim Arkansas is spending far more than other states on education, the latest figures show that only six states in the country pay their teachers less. The aforementioned Kansas and Louisiana, where foolish governors crashed the states’ economies with tax and spending cuts, were just above us in 2015.

Judging median personal incomes, the states with the most robust economies all tax and spend far more than Arkansas. They are the upper Atlantic states, lower New England, and the states of Alaska and Hawaii. Government taxing and spending, as every objective economist knows, are simply not the only or even the major arbiters of growth and poverty. It is far more complicated than that, as Arkansas has a thousand experiences to verify.

Professors may be paid to provide lawmakers with solutions helpful to their patrons, but the rest of us should remember that happy and painless remedies come with a terrible price.

Ernie Dumas is the dean of Arkansas political reporters.