Anyone who knows about economics will also understand this dismal science has no correct view, only compelling arguments. With that said, I support the recall and so should Governor Walker. Oh, don’t start the hate mail yet, please continue to read.
When trying to fix the economy, the government can use policies that involve taxes or spending. The Federal Reserve has a couple more tools, but since each state does not have its own Fed, we have to focus on what tools the local governments have. Governor Walker has made it his goal to cut government spending, and, it seems he has. Congratulations.
However, during a recessionary period, cutting spending is the wrong thing to do, at least according to John Maynard Keynes, the father of modern-day economics. Keynes would say the government should be spending to help the economy. A classical approach would say as interest rates and prices fall, businesses are encouraged to invest more and the ship will right itself. Unfortunately, businesses have not yet started to reinvest fully in the economy, which leaves the needed monetary boost to come from the government. I’ll touch on fiscal responsibility in another post.
With that said, why should Governor Walker love the recall? First, this is pumping millions of dollars into Wisconsin’s economy. Now couple that with the economic principle of the multiplier effect, the amount of spending reported is actually closer to three times that amount. I have heard the governor’s war chest is around $24 million and the total spending is expected to be in the hundreds of millions. No fiscal policy could so easily pump up to a half a billion dollars into the Wisconsin economy without increasing the deficit. Spend it all governor, spend it all.
But why isn’t the Wisconsin economy recovering faster? There is what we call in economics a lag period. That says, what we do today will not be felt until some time later. When will this be? Approximately right before the potential recall election and the Governor will look like an economic genius.
Whether or not you support the recall, hopefully we can all agree, we all support the financial stimulus it is providing our economy.