By Matthew Cameron
As Matt noted earlier, the era of Keynesian fiscal policy is dead and may never have been alive in the first place. Yet economic success stories caused by adherence to policies that most observers would consider “Keynesian” still can be found — even in small Southern cities with Republican mayors:
During the worst of the recession, new development ground to a halt and small businesses closed their doors on many Main Streets throughout the country.
That wasn’t the case in Greenville, S.C. And while it seems improbable that a city would thrive during the recession, Greenville’s mayor credits a mix of good luck and good fundamentals.[...]
The city has a beautiful, natural waterfall smack in the middle of its downtown that was hidden for decades by a concrete overpass, warehouses and boarded-up buildings. [Mayor Knox] White took some political heat, but convinced the city to fund a 20-acre public garden around the waterfall and a suspension foot bridge above.
“The park cost $13 million,” White says. “Within two years, over $100 million in private investment was created around the park — hotels, restaurants, condominiums, apartments. The entire, what we call the West End of our downtown, just blossomed.”
In this respect, Greenville is a textbook example of how modest, targeted public investments can produce major returns that boost economic growth. And although the project appears to have been financed primarily by a “local hospitality tax” rather than bond sales, it does meet the definition of a counter-cyclical project since it was initiated in late 2002 when the U.S. economy was still recovering from a recession. The resulting boom in private development allowed the city to engage in the other half of Keynesian fiscal policy, namely reduced government spending during an expansion:
Years of minimal spending made the belt-tightening in Greenville less painful than for many other cities. The region’s property values never overheated, so tax revenues have remained stable. Schools and social services are the county’s responsibility to fund. And since South Carolina is a right-to-work state, Greenville’s public employees don’t bargain collectively for pay and pension.
Putting aside the irrelevant fact that South Carolina is a right-to-work state, we’re left with a pretty simple story. During a period of sluggish growth, Greenville decided to spend money on a project to boost the attractiveness of its downtown. This put people to work and set the stage for a large in-flow of private money once the economy was thriving again. This, in turn, allowed the city to pull back the reins on spending so that it didn’t contribute to the over-inflating of the local economy. The city was then able to avoid the worst of the Great Recession since, as the article notes, its tax revenue held steady and it wasn’t forced to engage in massive layoffs and spending cuts.
But on a day when it appears a tax-averse Congress is set to enact a deficit reduction package that consists solely of spending cuts — in the midst of a depressed economy, no less — it is worth remembering that Greenville’s Keynesian success story began with a “local hospitality tax” and some smart public investment.