Philadelphia Reflections

Local Elections (2)

Office

We've had our local city elections, " but most of us are a little uncertain what they were all about. The Discovery of FBI listening Devices in the Mayor's ceiling almost certainly turned a close contest into a triumph for the incumbent. Whether he was a victim of persecution or just an agile manipulator of public opinion is unclear except to extreme partisans, and the rest of us will just have to wait to see what it was that convinced a Federal judge to permit the wire-tapping, and what will come of it in later court actions.

What the wise-guys are saying is that the election should have been about this: whether it is a good idea to borrow money in order to expand the tax base. In its most extreme form, it might mean floating a bond issue to lower the wage tax. Or, it might mean a bond issue to pay for large public works, hoping that either a lower wage tax or a new public activity might attract business to the city, eventually generating extra taxes. One might say it is the Laffer Curve, or supply-side economics, revived in the language of liberals. The idea has its plausible features since it is essentially an extension of the accepted business maxim that you must spend money to make money. Unfortunately, the idea was extensively tried out in Pittsburgh recently and seems to have driven Pittsburgh to the edge of Municipal Bankruptcy.

"At the very least, the concept needs to include the warning that if you hope to stimulate the local economy by building stadiums, you must be either wise or lucky in your timing. A recession, after all, is a time when most businesses are hesitant to make new investments, so municipal investments during a recession have greater risks, too. Such counter-cyclic behavior at the Federal level can be paid for with inflation if you are willing to pay that price, but a local municipal government can't print money. Therefore, such borrowing to widen the tax base is probably dependent on the ability to get assistance from the Federal government, and those wire taps in the Mayor's ceiling suggest a certain amount of Federal unfriendliness.

The other way to look at this matter is to say that Pittsburgh financial pickle will force the state legislature to be less generous with other parts of the state, especially Pittsburgh's traditional urban rival on Delaware. Having a former mayor as governor will help Philadelphia, maybe, but it must be remembered that state governments are not allowed to print money, either. And in case you thought having two Republican Senators would induce the Federal Bureau of Printing and Engraving to be completely unconstrained, remember that the certain consequence of inflation is a fall in the value of the dollar, a rise in interest rates to combat inflation, and hence a rise in the price of both commodities and imports. It's a little hard to be sure that it's worth that in order to have five new sports stadiums.

Originally published: Monday, June 26, 2006; most-recently modified: Thursday, May 23, 2019