Left-Handed Economics
New York Times columnist Paul Krugman, an economist, shows his left-of-center leanings in a column today looking at the future of the economy.

Finally, there's the desperate plight of the states. New estimates by the Center on Budget and Policy Priorities show that state governments are facing their worst fiscal crisis since the 1930's. Since Washington shows no interest in helping, states will be forced into desperate expedients. Taxes, mainly taxes that fall most heavily on the poor and the middle class, will go up. Spending on education and, especially, health care will be slashed, with the heaviest toll falling on struggling low-wage workers and their children.

In Krugman's left-of-center world, reducing spending is always bad. But the alternative, taxes on "the poor and the middle class," are bad too. Poor Krugman. Can't have it both ways, Krugman. If you want government to have a lot of money to spend, they have to take it from a broad cross-section of their populations - which means, yes, higher taxes on the middle class and even the working poor.

Krugman continues: "Aside from the resulting suffering, the efforts of states to balance their budgets will be a significant drag on the economy, probably several times larger than the boost from the administration's so-called stimulus program."

Krugman can't quite bring himself to say it clearly - it is not "efforts of states to balance their budgets" that will be a drag on the economy, it is the big tax increases that many states will use to balance their budgets that will be a drag on the economy.

Spending cuts help the economy, long term, by reducing upward pressure on taxes. States that resort solely to spending cuts to balance their budgets this year and in the coming years match spending to revenue without raising taxes will, inevitably become lower-taxed states in comparison to states that raise taxes to balance their budgets. And lower-taxed states generally enjoy stronger economic growth.