At least 14 states are planning to provide tax credits, if not cash, to residents struggling with inflation and expensive gasoline. California, for example, is targeting 23 million citizens with gifts of up to $1,050.
Seeing this, I couldn’t help but think about Frank Sinatra’s 1956 rendering of “Pennies from Heaven.” The song is beginning to sound like an economic forecast. We shouldn’t be afraid of clouds and bad weather, Sinatra advised, because when it rains, we get pennies from heaven. “You’ll find your fortune’s fallin’ all over town,” and all you have to do is “be sure your umbrella is upside-down.” Today, it seems like our governors and state legislators are taking this nice sentiment too far.
Why should we worry about adversities when they come? COVID-19? The war in Ukraine? High-priced gasoline? Recession? Politicians will take care of us. Unfortunately, unlike pennies from heaven, politicians’ pennies lose purchasing power in the process of getting to us.
I need not remind you that we have an inflation problem the government seems unable to fix. And for good reason: As I’ve written before, government is the source of a significant part of the inflation problem. Not all of it. Just part of it. Interruptions in the flow of oil and natural gas matter, as do ports closed by strikes, ships that cannot be unloaded, and tens of thousands of unfinished autos and trucks waiting to receive microchips and other vital parts.
But the government’s unwillingness to so much as acknowledge that there is a systematic relationship between printing and giving away money one year and inflation the next makes it almost impossible for it to do something about the inflationary result. This is especially true when these same government leaders choose to address the inflation problem by, you guessed it, sending more pennies from heaven.
It turns out that state governments, as with their federal counterpart, are now powerfully equipped to do this. Much of Washington’s recent stimulus money was sent to state governments for various purposes. This has buttressed state finances to the point that fiscal year 2022 is a record year. Total state government spending has increased by 13.6%, the largest climb in 40 years. (Fiscal year 2023 calls for a 4.2% increase.) And not one state had to make a downward adjustment in fiscal year 2022 spending due to a revenue shortfall, while 22 states either balanced or increased spending.
This helps ensure, of course, that state governments are carrying large cash balances. Allowing those funds to enter the normal spending process gently will keep state governments going at a normal pace but will not bring sudden changes in citizen spending patterns. So why not use some of that lucre to make life better for their voting constituents? Why not right now, this year? Let the pennies from heaven flow!
The problem is that while the money drops fall, one year’s accelerated flow of free money can very well become next year’s increase in inflation. This is no less true when the justification is to help citizens cope with the current bout of inflation. Yes, sadly, there is no such thing as free pennies from heaven — despite what Sinatra implied.
Bruce Yandle is a distinguished adjunct fellow with the Mercatus Center at George Mason University, a dean emeritus of the Clemson College of Business and Behavioral Sciences, and a former executive director of the Federal Trade Commission.
