Dateline Milwaukee

Two items in today’s news. The first is that the Comptroller of the City of Milwaukee proposed the privatization of Milwaukee Waterworks, the public utility that provides drinking water to the citizens of the city. Note: I am currently in the city doing research in the American Geographical Society Library at the University of Wisconsin, Milwaukee. The second piece of news is that General Motors is closer to bankruptcy as the company was unable to reach a deal with its bondholders to swap debt for equity. The federal government, unwilling to let the company sink into oblivion, will continue to prop it up. The federal government will end up owning almost 70 percent of the famous company.

Two very different government trends. On the one hand local government, loaded with debt, responds by selling assets, cutting budgets and laying off workers. On the other hand federal government, also loaded with debt, prints more money, spends money and makes major investments through the stimulus package.

The country is experiencing two very different policy responses to the economic crisis simultaneously. At the local and state level we are in the world promoted by the conservative economists--cut deficits and reduce spending. At the federal level we have a return to Keynesianism--never mind the deficit for the moment, just spend the damn money. So while I receive a tax credit from the feds, the State of Maryland cuts my wages.

It is proper to try a variety of policy responses to a major economic crisis. But should we be pursuing such contradictory aims? We are now in the confusing world of market economics doctrine at the local and state levels with Keynesian spending at the federal level. When we get out of the crisis, proponents of both policies will accept credit and assign blame to the other. The Keynesians will say that the recovery was hampered by the actions of state and local governments while the Republican right will point to the rash spending of the feds.

In an ideal world where thought experiments do not have social consequences, we could designate a few states to try the right wing policy and not accept any federal stimulus. In the real world, the governor of South Carolina, earlier this year in a bid to burnish his credentials for a Presidential run, initially refused any federal stimulus money. He was voted down by popular feeling that rightly put welfare before ideology.

The root of the paradox is the federal structure that is much lauded across the land but clearly has its limitations, nowhere more acutely than in the present crisis where one level spends while the other cuts. We have competing economic polices, and because we will be unable to fully test just one, the doctrines will remain untested. This competition will remain even after one worked and the other one didn’t. Since we are employing both at the same time, we will never really be sure which one works the best.