Krugman: have the feds undo budget discipline everywhere

Topics: Stimulus
18 Apr 2010

From: Ervan Darnell

It's bad enough the federal government has no discipline, liberals
(especially Krugman [1]) are arguing that feds should induce the same
bad behavior in states by using the "stimulus" money keep states and
cities running. Many states and cities have balanced budget amendments
or provisions exactly to prevent them from engaging in reckless
spending. I'm not sure it was an explicit intent in these balanced
budget amendments, but it also seems reasonable that when citizens have
to cut back, state and cities should cut back too. But Krguman's
response is: no, the federal government should circumvent the law by
raising federal revenue to give it to states and cities to maintain
their wasteful ways, and to put a ratchet in place such that their
spending is never brought back in line with economic reality.
Productivity is down. States' revenues are down (especially with
property taxes falling as the housing bubble burst). It's time to get
in sync with that new reality, including at the state level. Just
because states speculated on real estate too (by spending the windfall
instead of saving it), is no reason to preserve that spending.

Let some of them go bankrupt. The better run ones, with a rainy day
fund, and budget discipline will weather the storm. The badly run ones,
e.g. California, will take a hit they deserve. Instead, money is being
transferred from well run states to poorly run states. It's one thing
to transfer money from rich persons to poor persons, in some measure, as
some people arrive in the world without the genetic makeup or social
circumstances to succeed. But states on average all have plenty of
smart (and dumb) people. If a state chooses a reckless course, it
deserves a bad outcome. Let it reform itself, or have people migrate to
well run states.

Krugman takes it for granted that state spending is productive and
maintaining state services is a good thing. Rubbish! For instance, if
teachers quit because the state of CA cannot pay their salary, and then
go to work at private schools, and parents have to pay for those private
schools, then they'll vote to defund the government schools and we'll be
moving towards a better system.

Even if stimulus spending is necessary, throwing it at the already
existing wasteful bureaucracies in a way that circumvents state
constitutions fails to provide the change we need.