Revenue Sharing? How About Revenue Withholding?

It is time to bring back true general revenue sharing — temporarily — to stimulate the economy. Hundreds of articles in political science and public policy journals have studied past efforts, and analyzed the concept of fiscal federalism, without establishing general revenue sharing as a fundamental pillar of Keynesian stabilization policies. This lapse is understandable: most of these articles were written before the current economic crisis, the most serious since the Great Depression. — Schiller
In the absence of revenue sharing and in the context of a reality with dark implications, I can foresee state and municipal governments finding creative ways to divert revenue that would otherwise go to the federal government and retaining it at the local level.  It sounds like a radical move and it probably contains some highly controversial elements. The fact remains, as Schiller points out, that we are not getting the results we need when we need it. We are not getting the action we need where we need it. Time has run out. In order to restore services, jobs and encourage liquidity in the capital markets, state and local governments are going to need to reach for innovative solutions, including like Wall Street did, issuing their own currency. Local government support of local community banks and credit unions together with existing agencies that already have numerous powers that have rarely if ever been used is the only option left to avoid an economic catastrophe that seems to be obvious to most citizens but completely obscured in Beltway analysis and decision-making. — Garfield
EDITOR’S COMMENT:  In the article below this world-famous economist whose analysis has been proven to be accurate and useful looking at trends that extend over 100 years, is sounding an alarm. Will anyone listen? This economist has proven the obvious: housing prices have a direct index relationship with median income. If people are making less money they must seek less expensive housing. We have an overbuilt housing market fueled by a delusional artificial infusion of fake liquidity. Neither the sale of existing homes nor the sale of new homes is going to have any positive effect on the economy for the foreseeable future. The only solution, as Schiller points out, is to cut through all the red tape and instantaneously put as many people to work creating actual products and projects that add value to our society. Each day we wait we get closer to the edge of a cliff that most of us at least fear is present, but which policy makers are ignoring at our peril.
The stability of our society and the prospects for our economy are the stakes in this gamble. The people making the decisions and the people who influence those making decisions do not believe they will be affected by a  negative outcome either way. I don’t think that they are correct. But whether I am right or wrong, the fact appears to be that our decision-makers appear largely derived from a group of people whose analysis is based on theoretical long-term models rather than the current emergency.
August 28, 2010

The Case for Reviving Revenue Sharing

By ROBERT J. SHILLER

PROTRACTED unemployment is eating away at millions of people. And the economy’s failure to create enough jobs for them is part of a vicious circle that could keep turning for years to come.

In my last column, I called for big, temporary government programs aimed directly at putting people back to work. But how might we best accomplish this? The clock is ticking, and we don’t have time to create new national organizations to employ people. Instead, the most efficient approach is to use existing organizations for specific ideas and projects.

State and local governments as well as nonprofit and other organizations need to be mainstays in this effort. We need to enlist their help — without telling them exactly what to do. As for a framework, think of the general revenue sharing program adopted by Congress in 1972.

In his 1971 State of the Union message, President Richard M. Nixon advocated general revenue sharing to offset the tendency for power to be concentrated in Washington. Give local governments the money and “put the power to spend it where the people are,” he said.

Support for the idea was not confined to Republicans. A leading Democrat, Senator Hubert H. Humphrey, supported it in 1972, saying that federal taxes were more progressive than state and local ones and that federal money could be spent more effectively by people with local knowledge than by “some agency head in Washington.”

General revenue sharing came under attack in the Reagan years, and Congress ended it in 1987, arguing that by breaking the link between taxation and local needs, it encouraged higher taxes.

We are in a different time now. State and local governments are in severe fiscal trouble, and their constitutions often prevent deficit spending. In these circumstances, the federal government, which does not face such constraints, needs to raise revenue for them.

Legislation providing the states with $26 billion, which President Obama signed into law this month, took an important step in this direction. It did not create true general revenue sharing, because it tied the funds to specific needs — mostly hiring teachers and paying for Medicaid. But it did free states to use other resources as they saw fit.

It is time to bring back true general revenue sharing — temporarily — to stimulate the economy. Hundreds of articles in political science and public policy journals have studied past efforts, and analyzed the concept of fiscal federalism, without establishing general revenue sharing as a fundamental pillar of Keynesian stabilization policies. This lapse is understandable: most of these articles were written before the current economic crisis, the most serious since the Great Depression.

The need for a Keynesian revenue-sharing program is clear. After Congress approved stimulus legislation in 2009, Lawrence H. Summers, head of the National Economic Council, said that “it’s harder to spend $300 billion within a year on quality projects than you might think.” And no wonder the task was tough: decision makers in Washington were removed from local needs.

Martin Shubik, a professor of mathematical institutional economics at Yale, has proposed creating a “Federal Employment Reserve Authority,” a permanent agency that would do extensive research and maintain a detailed list of ready-to-go public works projects should a recession come. That’s a great idea, but we do not have such an agency now, and, if we did, it might still suffer from a Washington bias.

Now, local governments are laying off a wide variety of employees, including teachers, police officers and social workers. So why don’t we embrace general revenue sharing? Unfortunately, when faced with a need for stimulus, members of Congress seem to prefer to start their own projects, for which they are likely to get more credit from voters. Local governments, meanwhile, which are more likely to know where spending is really needed, remain in deep trouble.

It’s time for the public to assert loftier expectations. We need to respect existing government bureaus and organizations for their ideas, and get down to the business of financing important jobs temporarily, and on a huge scale. This will avert more layoffs, and perhaps give cities and states time to recover to the point they can pay local employees from local revenue.

When the administration of Franklin D. Roosevelt began its vast job creation program in 1933, it had to accept certain practical realities, which limited the immediate stimulus that could be provided. Foremost among them was that the government had to work largely within the framework of existing organizations — whether state and local governments, the military or nonprofit groups — which provided much of the economy’s infrastructure.

Economic stimulus is not a matter of turning on the money spigot, as some economists are wont to describe it. It is about getting the widespread cooperation of dispersed organizations to provide jobs, at least for as long as the economy is weak.

When the Roosevelt administration and Congress created the Civilian Conservation Corps in 1933, it was done within the framework of the Army. There seemed to be no other organization that could move hundreds of thousands of young men into wilderness encampments where they could work on conservation efforts. But the Roosevelt C.C.C. placed no more than a half-million people in jobs. We need to reach further than that.

Labor unions, which represent workers who naturally fear displacement by people in new jobs, might seem to be an obstacle. But unions do have an idealistic base, and working union members have sons and daughters and friends and relatives who are unemployed. The unions need to be consulted if new jobs are to be created in a relatively nonthreatening way. In a savvy move, President Roosevelt made a union leader the head of the C.C.C.

The concept of general revenue sharing can also be extended to the nation’s nonprofits, including charities and foundations. The government has long given support to such organizations, but usually in the form of narrow grants. But broader general revenue grants could be made in times like these.

Millions of people need jobs, and there are organizations that could help put them to work. It’s time to move forward.

Robert J. Shiller is professor of economics and finance at Yale and co-founder and chief economist of MacroMarkets LLC.

19 Responses

  1. It’s been interesting to see all the posts on this one … my comments and opinions on this subject are really irrelevant and do not matter …

    What matters is the arguments I make in the book are powerful … CLOUDEDTITLES.COM … coming soon.

    The “secret weapon” for the quiet title actions has been fulfilled and will be included in the book. You’re gonna love it!

  2. to Dave Krieger:

    I am sorry that you are so upset about the monarchical system of government. I come from Holland; we have a monarchical system there and it seems from all outside appearances to be working rather well. So does Norway, so does Sweden, so does Denmark, so does Spain, so does Monaco.

    Something for you folks to think about.

  3. While I understand the feeling of, “Let’s get back to business, it’s about the courts,” understand that this particular thread on this forum is about economic policy. There are several other threads open to particulars of case matters.

    The web of deceit woven throughout our system of modern economics is an issue that deserves equal attention. As BSE keeps saying, it’s time to stop paying the banksters, and that’s a very clear clarion call that would do wonders towards fixing this mess. Bring them to their knees.

    ” In reality, the reason why you lost money is because the game is rigged. The House always wins in the end. The suckers are the ones who think there are rules. Like Wall Street, Vegas exists to separate you from your money. Wall Street may seem all powerful, but like Vegas it has an Achilles Heel – if the people don’t feed the beast it will starve. If the greed of The House gets too extreme, and the rigging of the games becomes too obvious to ignore, people will stop gambling at the casinos and in the stock market. The House goes broke.”

    http://www.dailykos.com/storyonly/2010/8/30/897474/-The-Revenge-of-Main-Street

    As long as the banksters are considered true and actual creditors, there’s no fixing this situation. When they are seen for what they are, criminals who are poisoning our way of life, from big government to local communities, we’ll finally be able to move to the next level, organizing a new system that doesn’t allow usery and it’s resulting slavery in any form.

  4. Sorry about that, …….it does us no good to rant and rave about all this injustice, as it clogs up the constructive discourse which is a hallmark of this site. We are being pulled in 101 different directions due to the enormity of this fraud, so it is hard to concentrate. Getting back to the basics should be the focus of all posts. Judges and lawyers, for instance, have no knowledge of the originator to sponsor to depositor to trust etc. and the LEGAL REQUIREMENT for all intervening assignments, notarizations,endorsements,closing dates of the trust: This is fairly straightforward and will all fit on one sheet of paper. If it isn’t in the courthouse records, the foreclosing entity is barred from proceeding. Period. I have spoken informally with over a dozen attorneys, none of whom has any knowledge WHATSOEVER regarding the difference between a securitized mortgage vs. a local bank held mortgage,or old fashioned mortgage or whatever you want to call it. They have all fallen under the spell of the media mantra,”deadbeats, bought too much house, using their homes like ATMS, the economy is down, they lost their jobs, irresponsible borrowers,etc”. No more ranting and raving, please-let’s get on with it.

  5. I know that most people reading and posting here are furious regarding the horrifying fraud and illegalities in the courtrooms, the legal system at large,etc. However it does us no good individually or as a group to rant and rave a

  6. We all got screwed. All you have to do to retaliate is to be a Patriot and Stop your mortgage payment. They can not foreclose on everyone. It is that simple.
    No government is bigger than the people, no bank is bigger than the people. Neither is Wall Street.

  7. Why don’t we start a bankster University, most Ivy league colleges and universities produce hundreds, thousands of banksters.

    They screwed up the country and were bailed out, we got screwed and got shafted

  8. I LIKE THIS ONE BY NEIL GARFIELD

    IT IS FRAUD THAT GOT US INTO THIS MESS AND IT IS THE PROSECUTION OF FRAUD THAT WILL GET US OUT OF THIS MESS.

    NEVERAGAIN

  9. IS’NT THEIR AN OLD AMERICAN SAYING

    IF YOU CANT BEAT THEM JOIN THEM.

  10. THE BASICS IS THAT WE THE TAX PAYERS GAVE OUR TAXMONEY TO THE GOVERNMENT WHICH IN TURN GAVE OUR TAXMONEY TO THE BANKS THAT IN TURN ARE
    1. FORECLOSING ON US

    2. THOSE OF US PAYING OUR MORTGAGE TAKING IT FROM US WHILE ALEGEDLY COMINGLING OUR FUNDS. TO COVER UP THE FACT THAT THEY ARE BEING PAID 2-3 TIMES + INTEREST AND FEES FOR THE SAME PROPERTY.

    AMERICA IS A GOOD COUNTRY. WHERE DO I SIGN UP TO BECOME A BANKSTER?

    NEVER AGAIN

  11. Let us get back to basics. We have huge issues with the law firms that are promoting the foreclosures – on behalf of some unidentified entity. Need to stay focused. Believe this is not a judicial problem – but fraud in representation.

    Immigrant issue has nothing to do with this. And, it has nothing to with the “system” – we know the “system” was flawed. The current issue is fraudulent foreclosures – and who is responsible. Whoever is responsible would like nothing better than for us to argue among ourselves.

    Stay focused.

  12. Did the legal and “illegal” immigrants create the exotic financial instruments that propelled the debacle?

    Did these people became engaged i high finance?

    Of course not, most do not even bother to participate in the political process because for one the “illegal” aliens cannot vote and the legal immigrants cannot vote either since they do not have US citizenship.

    They are used as political pawn by both sides. The republicans are hypocritical since the only immigration amnesty was given during the Reagan years and Clinton erased the ability of any immigrant to adjust their status within the USA, hence creating the huge backlog we have today, propelling not only illegal immigration but also forcing a great deal of people to remain in the shadows when in the past they would be highly productive.

    The same lenders that gave us our toxic loans also created mortgage programs for illegal immigrants so they could as well buy and refinance their homes. Reasserting the mindset that they did not care if these people paid or not for their homes, they knew these people could not remain in the USA legally, but they had sold the structured notes and their profits would offset any loses if any.

    Citi, BOA, Wells Fargo, Wachovia, and many others had special programs. If we are going to vilify some people let us do it in a way that we include in the process all the crooks that have created the myth of the American Dream.

    We we need to keep our focus and not to fall pray to the demagoguery that is rampant today. The issue is that if justice is served for all of us, we would have enough money to jump start the economy and grow it like rabbits.

    If you start talking immigration, you leave another issue off the table that is more worrisome. I do take my hat off the Arizona Governor and her cronies that have taken the whole mortgage mess and economic disaster in the state of the news and have populated the pages of the media with immigration crap. Literally forgetting about the thousands of people who are losing their homes. And of course most people would think that the financial disaster is due to the immigrant population.

    As for services most federal and state services in most states of the union require citizenship proof or legal immigration verification. With the exception of schools and hospitals.

    We are not losing or we are not in danger of losing our homes and futures due to the immigrant alien cleaning offices in your town. We are losing our homes thanks to the highly educated, highly paid, and highly corrupted financiers that labor in most financial institutions and enterprises throughout America and that is a fact you can take to the bank!

  13. You folks are all missing the underlying problem here. It’s not about throwing money at the problem, or not. It’s not about concerns over creating debt, or not. It’s about a system, as Neil laid out very well above, that is so broken as to be altogether unfixable. Shattered beyond repair.

    Only when the financial industry is stripped of its abilities to commandeer our entire economy will this problem be able to be wrestled to the ground and tamed. Webster says to commandeer is to seize for military purposes. The financial industry has commandeered our economy completely for their own gain, to play with as if it’s a huge board game, and we are all the pawns.

    I’m afraid that since they own our government in its entirety, and the fact that they’ve effectively re-written all of the checks and balances that are supposed to be in place as firewalls, the only way to reset this game is through financial collapse.

    Only then will the true “owners” on this country, meaning you and me, not corporations, be able to re-claim what was and is rightfully ours. We will be employed building things that actually whizz and spin, things that are meaningful and improve our condition. Paper pushers and hedge fund managers need not apply.

  14. WE ARE IN TROUBLE BECAUSE

    1. NO MANUFACTURING

    2. SCHOOL SYSTEM DOES NOT TRAIN KIDS TO PRODUCE.

    3. WE EVEN OUTSOURCE CUSTOMER SERVICE.

    4. UNTIL WE HAVE A BUILDING BOOM MOST OF THE WORK IS DONE BY ILLEGAL ALIENS

    5. LOOK AT THE MOVIES THEY TEACH KIDS HOW TO PARTY NOT GO AND STUDY OR HAVE MEANINGFUL RELATIONSHIPS. THEY TEACH ARE CHILDREN TO BE STUPID DRUNK AND DRUGGED.

    BOTTOM LINE

    WE ARE LAZY AND HAVE BEEN CORRUPTED BY THE INVENTION OF PHONY MONEY BEING LOANED BY BANKSTERS THAT HAVE CORRUPTED EVERY PART OF OUR SOCIETY AND GOVERNMENT.

    NEVER AGAIN

  15. KRIEGER BAD ARGUEMENT. LETS MOVE ON WITH THE REAL ISSUES.

    ITS LIKE BLAMING MARTHA STEWART AND MADOFF FOR THE BAD ECONOMY A SMOKE SCREEN

    ITS LIKE THE MOSQUE ISSUE AND BRING G-D BACK TO AMERICA ALA GLENN BECK.

    WHEN THE REAL ISSUE IS THE LARGEST PONZI SCHEME PERPETRATED BY THE BANKS AND THE UNITED STATES GOVERNMENT HEADED BY BOTH BUSH AND OBAMA GIVING THE BANKS OUR TAX PAYER MONEY IN ORDER TO FORECLOSE ON OUR HOMES AND BUSINESSES.

    WHAT THE POOR MEXICANS OR MADOFF HAS DONE IS ZERO COMPARED TO THE DAMAGES THE BANKSTER HAVE DONE TO THIS COUNTRY.

    IN EUROPE THE KINGS ROYALTY WOULD HAVE THE JEWS BECOME TAX COLLECTORS AND GIVE OUT LOANS (THE JEWS WERE NOT ALLOWED TO OWN LAND SO THIS WAS ALL THEY COULD DO) WITH INTEREST. AND THEN BLAME THE JEWS.

    MR KRIEGER DONT FALL FOR THE SMALL SMOKE SCREENS.

    NEVER AGAIN

  16. Okay … let me re-phrase my earlier comments …

    It’s true, this country was first settled by foreigners. Our founding fathers were “foreigners”. They set up a constitutional republic, which is slowly being replaced by a democracy that feeds off of special interests,

    Mr. Van Eck’s comment eluding to a monarchial system would remove the checks and balances that were designed to keep the republic from outside influence. Even George Washington remarked that one of the biggest problems America faces is to mind its own business. I think we can all agree that America has failed in that regard.

    Unfortunately, A Man, the foreigners are being used for votes to keep politicians in office because they are being told … come to America … look at all the free handouts you get … all you have to do is vote for the politicians giving you the handouts and keep them in office and you’ll keep getting free handouts. I don’t regard foreigners as scapegoats; I regard them as “tools” being used by politicians to further their own ends. It seems selfish, I know.

    We also don’t know exactly how much money gets sent back to the respective countries these foreigners come from, but I have had personal relationships with many of them and some of them are truly proud to be here while others see American citizens as “dogs”. How then are we supposed to react? Keep turning the other cheek until we can’t feed ourselves? If these foreigners contribute the way you acknowledge they do, then why does Wells Fargo have a bank in Mexico?

    They are tracking deposits and spending outside of this country. While I do not particularly indulge myself as being “rascist”, a lot of our hard work here in America is being used against us by the very people we put in office. A monarchy will only shift the power to a figurehead, and then if the figurehead so chooses, to turn this country into a socialist dictatorship. Absolute power corrupts absolutely. So, we are all being used to further someone’s political gains here; not just foreigners.

    If you really want to argue another great issue, argue Social Security … I view that as “welfare for seniors”. You give them a dole, then you threaten to take it away, shift their comfort zone that they’ve become accustomed to, and watch them scream bloody murder. Socialized medicine isn’t any different. It’s not working well in Sweden or Israel, what makes you think it’s going to work here?

    The word “retirement” is NOT in my vocabulary. The mess in America that was created in large part by people who expect handouts all the time, foreigners or welfare recipients, are being played for votes. As long as we stay on the path we are on, you won’t be able to retire either.

  17. TO MR KRIEGER STOP SCAPE GOATING THE FOREIGNERS. TODAY THE UNITED STATES DOES NOT HAVE A FOREIGNER PROBLEM. IF ANYTHING CANADA DOES. THEY ARE ACCEPTING ALL THE FORIEGN ENGINEERS ETC… AND BUILDING MICROSOFT AND OTHER HIGHEND FACILITIES ON THE AMERICAN BORDER LIKE IN VANCOUVER WHICH IS CLOSE TO SEATTLE.

    THE STOCK MARKET AND HOUSING MARKET IS GONNA TANK WITHIN TWO MONTHS ANYWAYS.

    STOCK MARKET AROUND 4k-6k AND THE HOUSING hIGHEND IS GONNA TANK.

    EVERYBODY KNOWS THAT GOVERNMENT SPENDING WILL GET US OUT OF THIS RECESSION.

    I HOPE WE WILL DO IT IN A MUCH MORE EFFICIENT WAY THAN WAR……..

    WHAT GOT US OUT OF THE LAST GREAT DEPRESSION.

    1. THE BUILDING OF OUR INFRASTRUCTURE IN STH 30’S HOOVER DAMN THE NATIONAL PARKS ETC…

    2. WORLD WAR 2 = GOVERNMENT SPENDING.

    3. THE HOUSING GRANTS TO THE VETERANS.

    ETC………….

    WISE GOVERNMENT SPENDING. NOT GIVING MONEY TO THE BANKS SO THAT THEY CAN FORECLOSE ON OUR HOMES AND BUSINESSSES.

    HITLER WOULD BE PROUD OF AMERICAN BANKSTER AND THEIR DEUTSCHE BANK BIG BROTHER UBBER ALLES.

  18. Mr. Krieger’s unfortunate negative comments about “foreigners” is not productive to the debate. those “foreigners” contribute much more to society and the economy than they take out. I remind you that both the Brooklyn Bridge and the George Washington Bridge in New York were designed and built by “foreigners.” For that matter, so was the Southern Pacific railroad.

    There is a perfectly good reason that State Governments should not have revenue sharing: state governments are notorious for hiring authoritarian personnel who are motivated to place businessmen under ‘compliance.” I once ran a factory (employed 42) with a high power bill. I installed my own generator to make my own power. The State Revenue dept sent around a woman of 26 who looked at the generator and decreed that the fuel had to pay the “diesel road tax” of 27 cents/gal. Hey, the generator is bolted to the floor! What road? Too bad, here’s your (retroactive) tax bill. The tax of $8,500/month ate all the income. I shut the factory down. Bye-bye 42 jobs, including my own.

    This is what you get from State Government abusers. And if you “revenue share,” you create the fuel for the State to go hire more abusers. Nor is there any incentive to change. Only when you drastically curtail the funds flows to State governments do you see structural changes in State behavior.

    Sadly, the same is true for the Federal Government. And that is why I conclude that the country would be better off with a monarchical system. The two-party system has brought abuse to the heads of the populace; having failed us, and no structural change likely, it might as well be scrapped.

  19. Another Keynesian supporter … oh puhleeez …

    I took economics in college as part of my coursework. The big argument in class was always whether or not throwing money at a problem was the answer to making the problem going away, or incentivizing businesses to hire more workers by reducing tax burdens on them. Clearly this is all political and a by-product of a failed two-party system.

    Every time the balance of power shifts in Washington to the left, tax and spend philosophies get propounded and welfare programs are used to stimulate political interest at the polls. When it shifts to the right, taxes get reduced and the power controls shift more towards authoritarian behavior (like we need another war to stimulate the economy).

    We have tried both of these methods over the years and both methods continuously are failing to do anything. So this economist’s take is to throw money at a problem, hoping it will go away, definitely leftist thinking. Considering where he is a professor, understandably so.

    Professor Dr. Gary North, a Reagan economist, also stated that social security was a giant Ponzi scheme that was eventually going to fail at some point. The “right answer” from the government is to keep spending us into more debt so we can subsidize a program that is doomed anyway. But messing with someone’s comfort zone is certainly NOT the way to get their vote. And that is what all this is about. Who’s in power and when they’re in power, how much can they impact society. Obamacare is a negative on businesses and consumers because it penalizes them. Welfare-driven consumers always think they’re getting something for nothing; not realizing that when Obamacare actually takes effect, you will see socialized medicine at its finest, which means long lines of patients being seen by doctors who have no incentive to keep practicing because their income and workloads are all regulated. Cradle to the grave care is NOT this government’s responsibility; it is the individual consumer choice. Any time the government wants to revenue share, there are strings attached. If you accept federal funds for one program, you have to agree to implement some sort of regulatory changes into your state. In Texas, Rick Perry refused that $500M unemployment benefits package because strings like this were attached and it would have screwed business here because of those required changes. Bobby Jindal also refused it.

    History has shown us that throwing money at the economy does little to stimulate it. Throwing money at a problem means creating more debt. Lowering tax rates on business stimulates hiring. Less government means less spending. This is not what the left wants. Both the left AND the right want complete control of the system. Both the left AND the right want states’ rights stripped away. Both the left AND the right will never admit to it. And with complete government control (when government becomes the biggest employer), who pays for it?

    As long as we allow our elected representatives a blank check and unfettered regulatory powers, we draw closer to a nanny state. This is part of the Keynesian model. (You can tell John Maynard Keynes was not one of my favorite economists.) If this is all about foreigners entering this country to suck off the teat of Uncle Sam, in order to maintain power at the polls, then this country is in trouble.

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