Crisis for 46 State Governments Facing Greek-Style Deficits | Hacker News Reader

Crisis for 46 State Governments Facing Greek-Style Deficits

noir.bloomberg.com

7 pointsstartuprules14 comments

How similar are any of these crises to Greece?

My home state, Illinois, is in one of the worst crunches of all; by the numbers, we're in worse shape than California. But the cause of our problems doesn't look like an intractable macroeconomic problem (unlike Greece's). Rather, the politicians in Springfield have been pilfering pension funds to effect stealth loans to finance other parts of government, and deferring contributions to pension plans, so that the budget process never has to come to grips with how expensive these plans are and reduce them or offset them with wage and headcount cuts.

Nothing other than politics appears to prevent Illinois from fixing this. Eventually it will have to, because we'll flip out if they raise taxes. Whereas there aren't many (tractable) political decisions that Greece can make to right itself.

But that's exactly the problem in Greece; at base, promises have been made that can't be kept.

Income sources are running out: tax receipts due to the recession, new taxes due to voters, people willing to lend the state money at rates it can afford (if Illinois can't officially borrow money, no doubt it's like Massachusetts or New Jersey who create off book liabilities like a zillion "independent" "authorities").

But the promises can't be cut back because those directly benefiting from them are too powerful and are willing to use extreme means (e.g. "If You Don't Give Us 150 Percent Pensions, We'll Kill This Child" http://reason.com/blog/2010/06/25/if-you-dont-give-us-150-pe...).

Unlike Greece it's not a sovereign nation, it has no theoretical option to drop out of the US dollar and issue a devalued Illinois currency. Although if it's like California and New York soon enough it'll be issuing IOUs and demanding that taxes be paid in cash on payments made to companies.

And there's no provision for bankruptcy of a state (there is for municipalities and the like: http://en.wikipedia.org/wiki/Chapter_9,_Title_11,_United_Sta...). States are in theory sovereign entities with governmental rights and responsibilities split between them, municipalities and the Federal government.

It's going to get messy.

Both US states and Greece have the same root problem. In neither can the political leaders inflate the currency to get out of the consequences of their years of fiscal mismanagement. The trick of currency inflation, since the advent of fiat money, has saved many administrations around the Globe.

Doesn't currency inflation just delay the day of reckoning? If the political will doesn't want to fix the root problem, than all the inflation in the world won't fix anything.

Can you name the administrations that has been saved?

Every federal government since the second World War, and especially since Reagan. Deficit spending is closely tied to currency inflation.

Neither saved Jimmy Carter, though, and taming inflation (started by Carter's appointment of Paul Volcker as Chairman of the Fed in August of '79) was a major factor in saving Reagan's first term.

As far as the "just delay the day of reckoning" question, by partly liquidating debts denominated in the currency in question inflation and/or devaluation does a lot more than that. It allows repayment of less real value than was borrowed.

Hmmm, I should also point out FDR's actions WRT to gold, especially outlawing all contracts that were written in terms of gold. The problem back then was deflation, but this no doubt also changed the game after the Great Depression when inflation later became the big issue.

Virtually all of these states could make significant progress on their budgets by cutting the pay of government employees. Teachers, police officers and assorted bureaucrats all tend to be overpaid for the work they do.

The fact that not a single state is even attempting to do this suggests they are all just waiting for the feds to bail them out.

Missouri is not in crisis (yet). The (Democratic) Governor has laid off more than 2,000 state employees and he and the (Republican) Legislature have proactively cut the budget in other ways (local education funding is about to take some significant hits, e.g. busing). Or in the case of state higher education they struck a compact with the schools that if state funding didn't drop they wouldn't raise tuition (that's lasted two years but is not expected to hold for too much longer).

Except for the usual borrowed from the Feds unemployment deficit I don't think we're in bad shape (yet).

What are the four states that is not in an economic crisis right now?

Idaho, Idaho, Idaho and Idaho

but seriously, they didn't seem to say in the article

I checked out Idaho's economy: http://en.wikipedia.org/wiki/Idaho#Economy

Some highlight:

Low income taxes(1.6% to 7.8%) but high sale taxes(6%)

Electronic manufacturer being a biggie industry. Accounts for 25% of tax revenue and 70% of all exports.

But it doesn't seem to have anything special in term of economics.

The state constitution doesn't reveal anything special either. It just said that the budget should be balanced, which I think is part of all other states' constitution.

I was joking about Idaho. Well, half-joking. Actually I figured that since Idaho had probably one of the smallest economies and smallest populations among the 50 US states that it would also have one of the smallest state budgets, and also a pretty "traditional" industry mix (producing non-discretionary and/or physical products or commodities) as opposed to things which are more frothy or flaky like finance, services, entertainment, etc.

Texas is surely one.

is that the kind of deficit where taxpayers will have to take it up the ... ?

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