Wednesday, January 5, 2011

Yglesias » Understanding the State/Local Budget Crunch

Yglesias » Understanding the State/Local Budget Crunch

From the California section of N+1′s year in review:

Without any pressure telling them otherwise, Democrats, faced with an ineluctable revenue crisis, are going to go with what has been their signature political move for decades: conceding. The point is, it hardly matters whether you cut the budget with fat Republican enthusiasm, like Chris Christie in New Jersey, or gaunt Democratic humility, as Jerry Brown has promised. What effect this coming evisceration of social services and mass layoff of public servants will have on the makeup of the country is incalculable. That it will only contribute to the deep recession, which supposedly ended several months ago, is axiomatic.

I think the spirit here is right, but the details are wrong. The thing about state governments is that they need to balance their budgets. Consequently, it actually matters a great deal whether you implement cuts with Christie-like enthusiasm or not. Christie has actually been lowering taxes on the richest New Jerseyites, thus increasing the need for cuts. Conversely, while it’s quite true that state budget cuts amidst a recession impair recovery, it’s also true that state tax hikes amidst a recession impair recovery. The only solution to the macroeconomic problem of state/local budget cuts is for congress to appropriate funds.

This is a really big problem! Congress should appropriate funds. What’s more, congress should—but gives no indication of giving any consideration whatsoever to doing so—be looking at some way to reduce the systematic tendency of state and local government to engage in pro-cyclical budgeting. So it’s really two big related problems, and their scope is much wider than the ideological back-and-forth about the optimal size of the state/local public sector.

No comments: