Only One Krugman Was Harmed in the Making of this Blog Post
Has California finally solved its budget woes? Paul Krugman says yes:
Guess whose state budget crisis seems to be over?
As best I understand it, what’s going on in CA is a microcosm (a pretty big microcosm, actually — maybe more of a mesocosm or something?) of what’s going on at the national level. A severely depressed economy led to big deficits, because tax receipts are strongly affected by the state of the economy — indeed, are almost certainly much more cyclical than they used to be.
In response to those deficits, there was a lot of spending reduction plus some more modest efforts to increase revenue. And now that we have the beginnings of real recovery, it’s turning out that those efforts were enough to remove much if not all of the “structural”, as opposed to recession-driven, deficit.
He says we “deficit scolds” will go wild at the news, because we’re all wrong and stuff. Well, when Krugman take a position, you can pretty safely bet that it’s wrong. Let’s go to Cate Long at Reuters. She covers the muni bond market, and knows a thing or two about state budgets:
Krugman’s point that California is a microcosm for what is going on at a national level is true, but in a way he is probably not aware of. California, having cut its general fund spending and raised taxes, has achieved some fiscal solvency. But the broader social contract promised to state employees, retirees and constituents has no long-term realistic fiscal foundation. Promises are made for future commitments, but never funded. Does California have a balanced budget? No more than the federal government does.
Unfunded mandates is the issue of the 21st Century, and almost no one in power is taking it seriously.
Don’t leave out the fact that California has also added mightily to its debt load. They can balance the budget now because long-term rates are crazy low–hope they’ve gone long on their bond terms, ’cause they’d be hosed if their rates were to double.
Yeah, I’ll believe California is outta the woods when they REDUCE the income tax (TX) or repeal it entirely (LA).
I hate this state.
What… should I expect a check from the State of Texas to supplement my meager income, come next year?
One thing TX can’t reduce is income tax… never had any.
I’ve lived in Ca. all my life. Since 2004 a massexodus has been occuurring here ! And it has been the owners of Small Business who have been squeesed by overregulation toa point and taxed to a point to where they can’t afford to operate.
So asa a result the tax base has been shrinking for years and the only answer is to increse taxesbut not any of the overbloated social programs.
I for the first time wish i could affordto move but i can not afford to!
But are they prepared for the space alien attack?
You mean, other than the one in the Governor’s office?
The mind boggles at the mindlessness of a ‘serious’ economist; the CA fisc *cannot* be compared to the federal fiscal situation for serious underlying reasons:
1. CA is a state, and has no monetary authority. The ugly endgame of current unsustainable deficits will be a very cold shower of brutal inflation.
2. CA is a state, and cannot print money to meet it’s fiscal obligations. Therefore the endgame *will* be some combination of the following:
a) CA defaults on one or more obligations
b) CA raises taxes to levels necessary to meet it’s obligations . . . for awhile, until those higher taxes prompt sufficient productive residents to depart . . . return to 2(a).
Best Regards,