Pretty deeply, which is why the state's and city's politics are so tense right now, with Mike Bloomberg seeking a third term and Gov. David Paterson under pressure to prove his financial bona fides. For more on Paterson, one of the more fascinating people in American politics, check out last week's excellent New York cover profile. Though hopes were high that Paterson would govern as a reformist liberal (something like a more congenial Eliot Spitzer), Paterson has become a budget and tax cutter. Some of his advisers, including Columbia University Nobel-winning economist Joseph Stiglitz, are wondering whether Paterson grasps the basics of Keynsian economic policy: When in a recession, it is crucial to increase social spending to stimulate the economy and create jobs. In a letter to the governor, Stiglitz wrote, "Economic theory and evidence gives a clear and unambiguous answer: it is economically preferable to raise taxes on those with high incomes than to cut state expenditures." But Paterson is sticking to his pledge not to raise tax rates.
That could develop into a major problem, considering the belt tightening New York will experience as a result of the turmoil on Wall Street. The number of lost jobs could exceed 120,000, and lost Wall Street bonuses alone will account for over $20 billion in lost tax revenues for the state.
--Dana Goldstein
