Local Austerity

© by Mark Dempsey

I recently received my County Supervisor’s newsletter. Ms. Frost writes to express concern that Sacramento County has among the smallest financial reserves of any County in the state. This is yet another expression of Fiscal Responsibility™ -- the standard excuse for austerity that has been afflicting U.S. public policy as a whole for generations now.

But does austerity work? The results are in: America has gone from being a nation where infrastructure was first rate, where a single wage earner could buy a house, support a family, save enough to send his kids to college and enjoy a defined benefit pension until the end of life to a nation where infrastructure earns a D+ grade, and two wage earners can barely scrape by living paycheck to paycheck. Now, going to college means kids take on an enormous debt, and can only have defined contribution pensions (401Ks and IRAs) which are half as remunerative as the defined benefit pensions that used to cover 70% of the American workforce before corporations looted them to goose corporate profits and CEO compensation.

So austerity from a household might be prudent, but from government it has proven disastrous.

As I see it, the austerity-promoting County has two problems Ms. Frost fails to mention:

#1 Misallocation of money spent. (“We have a money shortage because we spent lots on non-working solutions”)

A good example is the prison / jail system. District attorney Anne Marie Schubert wrote that recent propositions to reduce jail populations are likely to prompt mistakes when they release inmates. I don’t doubt that the release system is imperfect, too, and some released prisoner will cause harm. Someone will revive the Willie Horton meme then, too.

What Ms. Schubert omits, however, is that the U.S. is world’s “leader” in incarceration, jailing more inmates in absolute or per-capita numbers than anyone else. In per-capita terms, the U.S. incarcerates five times more people than the world average. Could that incarceration binge be more damaging to families and communities by orders of magnitude than any mistaken releases? When do we hear about that?

But doesn’t jailing people work? Has incarceration led to a 500% reduction in crime, or (since a lot of it stems from the drug “war”) dramatic reductions in rates of addiction? Nope. U.S. crime rates are insignificantly different from demographically-identical Canada, whose per-capita incarceration rate is one seventh of ours.

Medical treatment for addiction--which is a disease, say all the twelve step programs--is one seventh the cost of incarceration, and far more effective at producing sobriety. What we do now with addicts is like incarcerating diabetics because they’re dependent on insulin. It’s not just ineffective, it’s medieval.

So Ms. Schubert gets money and power thanks to her version of tunnel vision. Meanwhile, acknowledging the bankruptcy of “lock-’em-up” policies, the population sensibly approved Proposition 47 which released prisoners whose felonies were reduced to misdemeanors. The measure promised to fund diversion and rehabilitation programs with the savings from lower prison expenses...but surprise! That promise has been sabotaged. Even though prison populations have decreased, the prison budgets haven’t, so no funds exist to start the (cheaper) programs, and released inmates must fend for themselves, making the prophesied release of “Bad Hombres” a self-fulfilling one. Public banking (#2 below) could solve this problem too. Meanwhile, “tough on crime” has turned out to be “sadistic and ineffective but expensive on crime.”

The one-sided, less-than-optimum point of view is not confined to prisons, either. Thanks to a well-funded propaganda campaign, it’s common knowledge now that the bulk of government spending is wasteful. Sure, fixing the roads may be cheaper than having everyone replace their tires and shocks, but Fiscal Responsibility™ requires us to save without any view to overall, societal costs.

Why in England, Margaret Thatcher “saved” the British public money by privatizing their railroads. As a result, the quality of service declined, and ticket prices rose. That’s what “saving” looks like in the austere world of Fiscal Responsibility™. What’s next for the U.K. is defunding its National Health Service so service declines and privatizing start to look like solutions there too!

So when Ms. Frost touts “saving” money she is not credible. We’ve been there and done that, and austerity has been far costlier to the general public, although it does favor the one percent who profit from private prisons, among other things.

#2 Unwillingness to pursue public financing.

As an alternative to higher taxes, and higher public infrastructure costs, the state of North Dakota has a public bank. Instead of the Fiscally Responsible™ solution of austerity--setting aside “prudent” reserves that defund schools, infrastructure and the indigent, North Dakota has a line of credit with its public bank as its reserve, and money readily available for public purposes.

The cost of financing is often half of the cost of infrastructure. Having a state or local bank means that loans are available for things private banks won’t fund--like affordable housing--and earnings stay within the community to be recycled rather than being exported to Wall Street.

Incidentally, governments are looking for high-yielding pension fund investments for the public sector’s remaining defined benefit plans, and that North Dakota state bank’s earnings were better than Goldman Sachs’. Could public banking solve that problem too?

In addition to providing a line of credit for reserves, a public bank could make dealing with homelessness more sensible. Current policy is basically hassling the homeless with police and taking them to emergency rooms for the most expensive kind of care. Homeless advocates say that it’s not only more compassionate to give them housing instead, it’s cheaper and actually can re-integrate such people back into society rather than kicking that can down the road.

Our region now spends roughly $40 million with the hassle-and-emergency room palliative treatment. The “Housing First” strategy could save 50-80% of that money (as Salt Lake City has demonstrated) and actually solve the homeless problem.

The problem with “Housing First” is that the costs are front-loaded. Buying or leasing homes and hiring transitional counselors would precede the arrival of savings. But local governments could repay a loan with the savings. And aren’t such situations why loans exist?

Unfortunately no bank will make that loan now. Could the County have its own bank? And is that pope fellow still Catholic?

...So those are the problems. Austerity--even austerity in service of Fiscal Responsibility™-- is a proven recipe for disaster. Let’s see if we can actually learn something from history, shall we?