A General Observation on Governors and Balanced Budget Claims

A quick post on a pet peeve.

November 18, 2012

Comments

I think at least twice a week I hear a governor making a specious comparison to the US government on the issue of balanced budgets. It usually goes something like: “in my state, unlike in Washington, DC, we balanced our budgets!”

Here are the problems with these assertions:

1. Almost all (and perhaps all, I am not 100% certain off the top of my head) state constitutions require balanced budgets.

2. That doesn’t mean that there isn’t borrowing going on (there almost surely is).

3. States government get substantial transfer payments from the federal government to help those states pay their bills (and, indeed, in recent years the increased federal deficit was, in part, because of monies sent to the states to help keep those state budgets balanced).

4. The federal government governs a sovereign country that has responsibilities and a role that is fundamentally different than the 50 state governments, and therefore has a wholly different set of parameters under which it operates. While both the state governments and the federal have budgets and legislatures that set them, it is fundamentally incorrect to treat them as equivalent.

One of the things that #4 means is the feds are responsible for shortfalls and failures at the state level (not to mention at the national level) that states simply don’t have to deal with.

I am not saying this to justify and particular output from the Congress, but rather to note how profoundly incorrect (and therefore annoying) these comparisons are.

Beyond annoying me, however, there is an important point here: governors who run for the presidency (in both parties) often claim that they will run the federal government they way they ran their states and voters buy it. This is problematic because a) governor’s don’t “run” states nor do presidents “run” DC, and b) state government and the federal government are not as analogous as they appear.

(Of course, the state to federal government analogy is not as bad as the “I will run government like a business” routine.)

23 responses to “A General Observation on Governors and Balanced Budget Claims”

Latino_in_Boston

November 18, 2012 at 1:31 pm

Preach on, brother. Preach on.

These specious comparisons are why we should not have a balanced budget amendment to the constitution, or even a fiscal ceiling approved by Congress.
Dave Schuler

November 18, 2012 at 2:14 pm

States government get substantial transfer payments from the federal government to help those states pay their bills

Here in Illinois that amounts to about 14% of total state revenues. I don’t know how that balances against state spending that’s mandated by the federal government.
al-Ameda

November 18, 2012 at 2:36 pm

@Steven L. Taylor

It usually goes something like: “in my state, unlike in Washington, DC, we balanced our budgets!”

What’s just as bad as when some “average guy” says, “why if we ran our household budget the way Washington does …” Actually, most household budgets are nearly busted – many people stretched to get their mortgage, took our seconds to buy “stuff,” and have credit card or other consumer debt exceeding $20,000. Turns out the average person who complains about Washington is a sanctimonious hypocrite.
Steven L. Taylor

November 18, 2012 at 2:38 pm

@al-Ameda: Indeed.
Tsar Nicholas

November 18, 2012 at 3:14 pm

Definitely it’s lame to hear some governor bragging about balancing his state’s budget, when all that means is he and the state legislature simply complied with state law.

But what takes it from the absurd all the way to full retard is when a governor of a state with a tiny population starts prattling on about balancing their state’s budget. Sarah Palin immediately comes to mind. Howard Dean back in the ’04 election cycle. How tough is it to balance the budgets of states with much smaller populations than San Jose, CA?

Lastly, since we’re on the subject of budgets, one of the bitterest of ironies of this year’s election cycle is that Congressional Democrats completely were rewarded for going years and years without even passing a federal budget much less reducing the federal deficit. All part and parcel of the big slide.
Unsympathetic

November 18, 2012 at 4:22 pm

All the Republican self-congratulatory flagellation on the “Texas miracle” overlooks one fact: Back out the transfer payments and there is nothing remotely miraculous about that area.. because Texas is then in the red. Not surprisingly, 100% of the Southern states which “threatened to secede” are in the red when transfer payments are backed out.
Andre Kenji

November 18, 2012 at 4:35 pm

People talk about “Washington” as if politicians spends money with themselves, not on programs like Medicare and Social Security.
Whitfield

November 18, 2012 at 4:41 pm

It would make sense for the Congress to pass a balanced budget amendment. I have a balanced budget amendment: it’s called a bank account. When it’s empty, no more buying. Credit card companies are ripoffs. So are mortgages: the worst example of usury that can be found.
Steven L. Taylor

November 18, 2012 at 4:43 pm

@Whitfield:

So are mortgages: the worst example of usury that can be found.

It depends on your situation. In about 5 years I will have my house paid off and will likely live in it for many, many years to come. There is zero doubt I am better of fiscally as a result then I would have been in renting.
Unsympathetic

November 18, 2012 at 4:48 pm

@Whitfield:

Show your proof. Your assumption is not proof enough.

Here’s the link showing why you’re wrong: http://www.imf.org/external/pubs/ft/weo/2012/02/pdf/text.pdf

The IMF’s chief economist, Olivier Blanchard, explained that recent efforts among wealthy countries to shrink their deficits — through tax hikes and spending cuts — have been causing far more economic damage than experts had assumed. IMF forecasts have been consistently too optimistic for countries that pursued large austerity programs. This suggests that tax hikes and spending cuts have been doing more damage to those economies than policymakers expected. Conversely, countries that engaged in stimulus, such as Germany and Austria, did better than expected.

So what’s the result of austerity? “Higher taxes and severe spending cuts [in an attempt to balance the budget] will cripple growth so much that the nation will end up with an even bigger deficit than it started out with.”
rudderpedals

November 18, 2012 at 5:01 pm

@Whitfield: Not to pick on you W in particular but this is an annoyingly incorrect talking point. Your household budgeting can’t inform national policy because households don’t print money. You’re not a country. When you become a sovereign and develop a popular standard of international exchange your experience with your bank account will become relevant.
al-Ameda

November 18, 2012 at 5:03 pm

@Unsympathetic:

So what’s the result of austerity? “Higher taxes and severe spending cuts [in an attempt to balance the budget] will cripple growth so much that the nation will end up with an even bigger deficit than it started out with.”

Exactly. There is no evidence that a regimen of austerity and a reduction in aggregate demand has ever caused economic growth.
Steven L. Taylor

November 18, 2012 at 5:06 pm

@rudderpedals:

When you become a sovereign and develop a popular standard of international exchange your experience with your bank account will become relevant.

Yes, there is that minor detail.
de stijl

November 18, 2012 at 5:59 pm

The austerity regime analogue to the household budget is to voluntarily give yourself a pay cut.
OzarkHillbilly

November 18, 2012 at 6:13 pm

(Of course, the state to federal government analogy is not as bad as the “I will run government like a business” routine.)

Thank you, Steven.
Ben Wolf

November 18, 2012 at 6:51 pm

@Steven Taylor

Not to mention the federal government is responsible for a trillion dollar annual military budget.
Mary G

November 18, 2012 at 7:48 pm

In 1974 I was a sophomore in college looking for a summer job. Gas prices were through the roof and I needed something that actually paid money, which where I lived was only available at the California state parks nearby. I didn’t have much hope; they usually took cheerleaders, football players, surfers and other beautiful people and I was a bespectacled, pudgy, pale-faced nerd.

Much to my surprise, I was called back and told I had the job if I wanted it. There was a catch, though. Governor Reagan was getting ready to leave office and the state was out of money for the fiscal year, so if I took the job, I would have to start work in April and not get any pay until after November. I spent an absolutely miserable summer babysitting and flipping burgers when I was not working at the park.

It wasn’t until the next year, after Jerry Brown was inaugurated, that I got my paycheck. It was enormous, more than $1,000! It paid for six weeks of backpacking through Europe the next summer.

When Meg Whitman was running for governor in 2008, she would brag in her ads about Reagan leaving Brown with a surplus and Brown running deficits; I made it a point to tell my story to everyone I met.
Just ‘nutha ig’rant cracker

November 18, 2012 at 9:00 pm

@Mary G: Wow! Thanks for the trip down memory lane. And for those of you who are younger, ask yourself two questions:

1. When was the last time that $1000 would pay for 6 weeks of backpacking in Europe?

2. How much has the minimum wage increased over the past lifetime compared to 6 weeks of backpacking in Europe or, more significantly, the cost of shelter, food, and medical care?
C. Clavin

November 18, 2012 at 9:43 pm

Tsar rattles off the ridiculous talking points again. What a Suprise.

The funny part is the red states are the biggest welfare queens. Palins Alaska…Jindals LA.
Howard Deans Vermont…not nearly as bad.
grumpy realist

November 19, 2012 at 7:37 am

@al-Ameda: Witness Greece….

Actually, the only thing that can save Greece is if the government gets hold of all the selfish idiots who have been indulging in tax evasion for years and force them to pay back all the $$$ they should have coughed up earlier.
Rob in CT

November 19, 2012 at 9:51 am

mortgages: the worst example of usury that can be found

Errrooo?

Mortgages are basically the best debt a person can have, in that the interest rate is lower than other loans and the interest is tax deductible (whether that should be the case is another matter).

Mortgages aren’t a bad thing. Crazy liar loan mortgages at subprime (and/or variable) rates do suck. My 15-yr fixed? Not so much.
gVOR08

November 19, 2012 at 10:00 am

I’d also like to see governors quit bragging about job growth in their states. Governors can do little to promote overall job growth. About the best they can do is poach jobs from other states by winning the race to the bottom with tax breaks.
Raoul

November 19, 2012 at 1:06 pm

Also bonds.