Massive layoffs in the region's major industry; state and local governments on the verge of bankruptcy; drastic cutbacks in public services; declining property values and disrupted lives; and, perhaps worst of all, a loss of optimism and faith in the future.
The rust belt in 1981? No, the energy belt in 1986.
Michael Kinsley ("The Frost Belt's Revenge," April 2) articulates very well the temptation to gloat over this ironic turn of events. However, as leaders of the Northeast- Midwest Congressional Coalition, we take little pleasure in our neighbors' current miseries. After all, the strength of the national economy ultimately depends on the health of all regions; if one is sickly, it weakens the others.
Our own region's recovery from the recession is tenuous and incomplete, so we naturally feel sympathy for Texans, Louisianans and Oklahomans whose lives and dreams have been shattered by global economic forces beyond their control. Their problems are real. But it's not so clear what should be done about them.
Undoubtedly, lower energy prices are good for our region and for the nation. The recent price decreases have checked inflation, reduced interest rates, spurred economic growth and increased the competitiveness of American industry. In the Northeast and Midwest, we are paying less to heat our homes, run our factories and drive our cars and trucks.
Consumers in the energy belt derive many of the same benefits. And for some industries in that region -- petrochemicals, for example -- lower energy costs will improve productivity and profitability.
For the energy states, the time has come for difficult decisions. Will they act to broaden their economic base? Will they band together and sacrifice for the common good? Will they invest in their own future? Or will they bemoan their fate and ask the rest of the nation to subsidize their recovery?
We don't pretend to know all the answers. However, the following suggestions, based on hard experience, may be helpful as these states determine their future course.
Diversify the local economy.
Much of the energy belt has relied almost exclusively on one industry -- energy -- to generate growth. That kind of dependence is dangerous. For too long in the 1970s and early 1980s, leaders in our region thought -- and hoped -- that the losses in basic industries such as steel, autos and textiles were cyclical, not structural. Only when we got over that notion could we begin to promote greater diversity and generate new jobs in growing industries.
Reexamine the state and local tax base.
Energy-state revenues from oil and gas severance taxes jumped from $850 million in 1973 to $7.4 billlion in 1983. These increases, paid mainly by the citizens of energy- consuming states, allowed producing states to keep other taxes low or nonexistent. Texas, for example, has no personal or corporate income tax. With revenues falling drastically, energy-producing states will have to look to other sources if they want to provide necessary services and maintain their public infrastructure.
Raising taxes is not easy, especially when the economy is poor. But many Midwestern states raised taxes -- and cut their budgets -- in the midst of the 1981-'82 recession. Continued public services and investments helped their recovery.
Preserve federal programs that help build the local economy.
Federal funds for economic and community development, which our region relied on heavily, were slashed in 1981 and 1982 when we needed them most. Other forms of aid to state and local governments -- general revenue sharing, mass transit assistance, subsidized housing, education assistance -- suffered the same fate. Now, in the era of Gramm-Rudman-Hollings deficit reduction, they are on the chopping block again. Such programs, when targeted to the areas that need them most, can facilitate the transition of local economies. Our friends from the energy belt need them now, and should help us keep them alive.
Oil import taxes hurt more than help.
Taxes on imported oil have been suggested as a way to boost prices and raise federal revenue. But this approach is inefficient and inequitable. Only one out of three barrels is imported, but the price of domestic oil is pegged to the price of imports. Thus, for every dollar collected by the federal government, domestic producers would receive a $2 windfall. A tax that raised $10 billion in federal revenues would cost consumers throughout the country $31 billion.
Higher oil prices would increase tax revenues for energy states. But they also would make American industries less competitive on the world market and undermine the ability of Mexico and other allies to repay the enormous loans they owe U.S. banks. Oil import taxes were a bad idea when first proposed. They're a bad idea now. Fortunately, the president has made clear his own opposition to such taxes.
Now is not the time for quick-fix responses we'll regret later. Rather, leaders of all regions should work together for balanced national growth and economic security.