Governor Jay Inslee needs to be spending not cutting.
Governor Jay Inslee needs to be spending not cutting.

This is the question I asked Governor Jay Inslee during a Stranger Election Control Board meeting on July 1: Has Washington considered running a large budget deficit during and after the pandemic? Inslee, predictably, said the state was required by law to maintain a balanced budget. He also said this as if it were the most obvious thing to say. The state should keep its books in order in the way the moon must orbit the earth. But prior to 2012, there was no balanced budget law in the State of Washington. None. It was just a feeling and nothing more. This feeling only become an official thing because Republicans in Olympia felt it strongly. But what you will never find in this undying feeling is anything that has to do with actual economic logic.

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Here are two Republicans letting that old balanced budget feeling flow between them in a 2016 Seattle Times op-ed:

The Legislature spent months developing a state-budget update that was projected to balance for the current spending cycle as well as the next. We did so because thinking long term puts Washington in a better position to address and enhance our priorities next year when we write a new budget. Also, it’s required by law... Why look out into the future? The future of education, health care and public safety in Washington depends on keeping our fiscal house in order.

This statement, and the entire op-ed, has no objective value like the moon or a stone. There is no time in the entire history of capitalist economics (or, simply, economics) that "fiscal order" has improved the climate for business and investment and job creation.

This may surprise many, but it is what it is: a hard fact. The talk about balanced budgets is much like grooming. A human says it to another human for the same reason a baboon picks at the fur of another baboon: to produced the feeling of a common bond. But grooming is a bit better than this budget balance talk because it at least removes little parasites. All the talk about fiscal responsibility begins and ends with a feeling.

From (PDF) Washington State Citizen's Guide to the Budget of 2019:

Prior to 2012, neither state law nor the state Constitution required the state budget to be balanced. In 2012, the Legislature enacted a law requiring the state Operating Budget to be balanced for the current two year fiscal period. The law also requires the projected state Operating Budget to be balanced for the following two-year period, based on current estimates for state revenues and the projected cost of maintaining the current level of state programs and services. Together, these two requirements are often referred to as the "Budget Outlook" or the "Four Year Balanced Budget."
This law needs to go. It was madness to have it in the first place, now its existence borders on criminal. Washington State will exit the pandemic with a huge deficit. And any cuts to fill this deficit will only make things worse. More people will be thrown out of work, business will dry up, and the circulation of money will go into slow motion. Indeed, this is the part of business cycle that only a few readers of economics understand with any depth. Profits, in the conventional sense, only appear when businesses spend money. This is the essence of Michal Kalecki's observation: "The workers spend what they get, and capitalists get what they spend." What did he mean by this?

In the 1930s, in the depths of the Great Depression, the Polish economist Kalecki determined in a series of brilliantly lucid papers about the nature and features of the business cycle that the expenditure of capitalists or entrepreneurs was the source of profits. During a boom, the owners of capital spend only because in the past they made a profit; this is the source of their expectation of future profits. And when they spend, these profits make an appearance and investment moves into the future. From a macroeconimic level, capitalists "get what they spend."

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The distinction between past and future provided Kalecki's general theory (formulated mostly in mathematical equations) with a temporal dimension, a lag between the decision to invest and making an investment. The problem with a slump is that capitalists cannot overcome this lag because the past during a downturn has in it no profits. The remedy for a capitalist slump then is the creation of a past that has profits. The invented past that will induce future investments, the source of private profits, is government spending. Nothing else will work.

In fact, that is how the entire US capitalist economy works. (This was not the case, however, with the workings of the capitalism that invented the balanced budget story and feeling, Victorian capitalism.) The US government is constantly inventing past profits by way of its huge military budget. This is how Kalecki put it with exceptional conciseness in a note found in the Collected Works of Michal Kalecki: Volume VII: Studies in Applied Economics 1940-1967.

Today [the 1960s] the [government made] ‘external markets’ in this particular form are of even greater significance for expanded reproduction than at the time when Rosa Luxemburg propounded her theory [1910s]. The high degree of utilization of resources resulting in fact from these government-made ‘external markets’ has a paradoxical impact upon Western economic theory. It creates an atmosphere favourable to the construction of models for the growth of laissez-faire capitalist economies unperturbed by the long-run problem of effective demand.
Read that passage carefully and you see how it dismembers orthodox economics with the precision that Cook Ding cuts up an ox. It also shows capitalism cannot function without "external markets" (or invented profits, as I call them) provided by the state.

The power to go it alone is not there for business. Pure private enterprise has no way out of this present slump. Fiscal order can only make life unnecessarily miserable for millions of Washingtonians. Inslee and lawmakers must blow to bits this balanced budget crap and begin spending like never before on very big, very grand transportation and environmental projects. Only then will business begin to believe in itself (profits in the past), and invest in future profits.

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