What a Real Fiscal Crisis Looks Like

Michael Stephens | March 19, 2012

It says something about how badly the battle for public opinion on budget matters has been lost when a headline about a “fiscal cliff” the US is about to fall over in 2013 leaves you grimly expecting a pile of words dedicated to the poorly articulated threat of near-term public debt and deficits.  But in this case, hold off on letting your eyes glaze over.  The author is Alan Blinder and the fiscal emergency he’s talking about is a large scheduled swing toward further budget austerity: a combination of expiring tax cuts and automatic spending cuts (from the debt ceiling deal) that are all set to occur in January 2013.  Combined, says Blinder, the fiscal contraction amounts to a drag of 3.5% of GDP—a serious blow to aggregate demand.

And if the macro-level view of things doesn’t grip you, the view from the ground offers enough frustrating examples of the self-inflicted wounds to come.  As Nancy Folbre points out today, Head Start, the early childhood education (ECE) funding program, is destined for cuts.  This isn’t just a “think of the poor children!” moment (though, seriously, think of the poor children.  For whatever reason, only budget hawks are allowed to chastise us for short-changing the next generation).  The economic case for borrowing right now (at negative real interest rates) to make public investments in projects that would yield even modest benefits down the road is compelling.  Making the case for decreasing investment over the next few years in a program that yields substantial benefits, like early childhood education, is a feat to be attempted by only the most clever of sophists.  This is one of those situations where the macro level might not be the most favorable terrain for an argument; where “cutting government spending” doesn’t register quite like “cutting early childhood education.”

And this isn’t just a rhetorical point—the payoffs from ECE are considerable.  Rania Antonopoulos and Kijong Kim’s working paper on the economic benefits of ECE surveys the research showing the direct welfare improvements and positive spillover effects that come from these investments in human capital (enhanced cognitive and noncognitive development for children leading to improved labor market outcomes and asset ownership in the future, improved labor market participation for mothers, higher GDP, etc.).  Antonopoulos and Kim also share the results of their research (along with a team of other Levy Institute scholars) on the job creation potential of a 50 percent increase in Head Start/Early Head Start funding (which, it should be noted, still wouldn’t be enough to offer universal ECE).  In terms of the number of jobs created per dollar spent, they found that investing in social care service delivery packs a serious punch (more than twice the jobs per dollar, when compared with more capital-intensive infrastructure projects).  And if that isn’t enough, Head Start, because it’s targeted at poor children, enhances the sort of equality to which both sides of the political spectrum feel compelled to pay lip service:  equality of opportunity.

Head Start, as Folbre observes, “has never served more than 60 percent of eligible children in extreme poverty.”  That’s a lot of wasted potential.  We’re planning on wasting even more, and in exchange for what exactly?


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