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.