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Stimulus plan will save the day but we will live to rue the day

The comments and e-mails about the UNLV budget protest rally keep pouring in, some more coherent than others, but I thought I’d share the views of one of the guys in the know — the libertarian leaning University Regent Ron Knecht.

Let’s let Knecht speak for himself:

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Deus Ex Machina
 
By Ron Knecht
 
The much-anticipated film thriller, “Deus Ex Machina,” opened last week at The Legislature.  To explain its weaknesses, this review tells how it ends and about the sequels it will spawn — so, if you don’t want to know the outcome, read no further.
 
DEM opens on a fall day in a lovely little state capital (Carson City) with gloom and foreboding that suggest at least tragedy if not an outright slasher bloodbath (maybe, “The Budget Deficit That Ate Nevada”).  In the opening scenes Gov. Jim Gibbons decides to keep his word and do what’s truly in the public interest, despite the political hell he knows it will bring from his detractors.  In the worst economy in decades, he won’t raise taxes!
 
The governor presents his budget to ashen-faced legislators nearly numbed by the prospect of having to cut state spending as Nevada businesses and the folks they employ already have had to do.  The plain facts of the proposed budget — 6 percent pay cuts and further cuts in benefits for teachers and state employees and 36 percent cuts in higher education — are sobering indeed.
 
Legislative leaders, members of the other party, seek to blame him for a parade of horribles they conjure up as inevitable outcomes of his budget: hospital closings that presumably will leave the sick and injured dying in the streets and the mentally ill crowding hospital emergency rooms (even as he proposes to increase funding for health and human services); releasing dangerous prisoners en masse into the streets; and (gasp!) reduced funding for PC causes such as a legal fight against the nuclear power bogeyman.
 
However, allowing for normal empty political rhetoric (“closing the doors of opportunity”), their reactions are actually somewhat muted.  And they promise to leave no stone unturned in a search for solutions, including raising taxes.  So far, so good.
 
But at this point, the movie gives away the outcome as news reports note the nearly $1 trillion bailout the new Congress and federal administration are planning, purportedly to save the economy.  The first version of the plan introduced in Congress includes at least $1.3 billion for Nevada, and the governor — not being imprudent — had included only $0.1 billion of such aid in his $6.2 billion general-fund budget.
 
An intrepid economist notes that this means the likely actual state budget, even without tax increases, will be at least $7.4 billion — which will wipe out cuts in public-employee pay and benefits, higher education, corrections and everything else.  It will, in fact, preserve actual real service levels currently funded at $6.8 billion.  This deus ex machina (an artificial or improbable device or event introduced to resolve a plot) makes the following four months covered by the film lack any real drama.  However, that part does include some good character acting.
 
But the producers of this film know that the real money to be made is in sequels — like Disney’s High School Musical series.  So they deftly craft the rest of the story to set up parts two, three and more.  While the ending of DEM shows the governor and his detractors preparing for the next state-wide election, the federal bail out that makes things turn out well for Nevada this round is shown to have flaws that set up the sequels.
 
Thus, our intrepid economist, who early on forecasted that the bad economic and financial situation was going to get much worse (as it does), now prophesizes that the badly flawed federal program will be very ineffective and cause even worse turmoil, including the return of the inflation monster within a few years.  He predicts that it will prolong the awful recession just as the New Deal and its Hoover antecedents prolonged the Great Depression.
 
Worst of all, he forecasts that the sum of current public policies will saddle future generations with a crushing burden in an economy grinding to a halt from the political excesses.  Just like Disney set up HSM parts II and III for a next-generation part IV, these producers are setting up a long-term series.
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            Intrepid economist and University Regent Ron Knecht, of Carson City, is a film fan who hopes to avoid leaving his HSM-fan daughter an economic-horror legacy.
 
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For further discussion on this topic check out the posting by Geoffrey Lawrence by Nevada Policy Research Institure.

Lawrence points outs: “According to data maintained by the National Center for Educational Statistics, Nevada boasts the lowest tuition rates in the country.  In fact, NCES data shows that for 2006-2007, the last year for which data is available, the cost of tuition and mandatory fees at Nevada’s public four-year universities was only 50 percent of the national average.  In other words, students in the system are subsidized more than any other group of students in the country and pay only half of what the average American student pays to go to a subsidized university.”

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