Tad DeHaven of the Cato Institute has a good post highlighting the data on state governments’ growing dependence on federal funds. Since 2001, federal grants have risen from 25.7% of state government spending to 34.1% today. Most of that growth has occurred since the present recession began in 2008.
One of the main distinctive benefits of American federalism is that, historically, state governments have had to raise most of their funds from their own taxpayers, rather than relying on grants from the feds. This gives states incentives to compete for taxpayers and improve the quality of their policies and public services, thereby increasing the effectiveness of voting with your feet. I cover these points in more detail here.
In most other federal systems, the central government provides the lion’s share of subnational governments’ funding. If present trends continue, the United States may join this trend. State governments will increasing look to Washington for most of their funds, and incentives for competition and innovation will be undermined. It’s possible that fiscal policy will return to “normal” as the economy improves. But state governments are likely to lobby for current grant levels to continue even after the recession ends. Current federal subsidy levels could easily become the new normal.
Dan the Man says:
The reason why the state governments are getting (relatively) more federal funds is pretty obvious. Almost all states have a constitutional requirement for a balanced budget. The federal government has no such requirement. Therefore, the federal government is borrowing money to give to states to spend. If you don’t want the states to be dependent on federal funds, just eliminate the state balanced budget requirements in the state constitutions and let the states borrow as much as they want.
From experience, though, I can tell you the people who most strongly hate states being dependent on federal funds also strongly support the balanced budget requirements in state constitutions.
January 24, 2012, 12:29 amMogden says:
How about we just eliminate the ability of the Federal Government to borrow money, instead?
January 24, 2012, 12:31 amHm. says:
I can confirm that this is dangerous for libertarians. Why? Because people like me, who much prefer unitary, parliamentary democracies over American federalism, have seen this trend for quite some time and have nodded in silent approval.
We still nod, because it’s pretty much irreversible now.
January 24, 2012, 12:37 amRicardo says:
What this fails to note is that many states have balanced budget provisions. When a recession hits, revenues fall because of the decline in economic activity and, at the same time, the demand for services like Medicaid increases because there are more people who need them due to increases in poverty.
It looks like about 10% of the stimulus was federal funding to the states for Medicaid. I’m not sure what percentage of the increase in federal grants to states that accounts for but that and related questions are pretty important to answer before pronouncing on how terrible it is that the federal government is financing states. The post linked to above says nothing about this issue.
January 24, 2012, 12:56 amgeokstr says:
Are you saying this is some kind of cognitive dissonance?
Gosh, people who think government spends too much also believe that cutting spending is the way to balance budgets at all levels of government, not by having the states get welfare from an already bankrupt (by any rational standard) federal government . What an insane, radical attitude.
From experience, though, I can tell you the people who most strongly hate balanced state budgets prefer to have leftists in the federal government dumping trillions into the state feeding troughs to support public union employees, guaranteeing hundreds of millions of dollars of union dues coming back to the same leftist party every election cycle.
But the point of “dependence” is well taken, and I’ve commented on that before. The entire economy is now so addicted to government deficit spending that any attempt to cut back on it will cause catastrophic economic withdrawal symptoms, while continuing to feed the dependence will inevitably result in the deterioration and eventual death of the addict, only it will take a bit longer.
There is no methadone equivalent for this addition, either.
Thanks, Progs.
January 24, 2012, 1:03 amSteve says:
If you think the United States Government is bankrupt in any way, shape, or form, then I’m afraid it is you whose reality detector needs calibration.
January 24, 2012, 1:12 amOrenWithAnE says:
This is not the problem, or at least it shouldn’t be because it’s quite predictable. The problem is that the idiots in the legislature cannot be convinced to save up a surplus during fat times instead of doling it out in tax breaks or spending it on services (or, to make it bipartisan, both!).
States don’t need a balanced budget amendment, then need a constitutional requirement to save a minimum of 2*(ECONOMIC_GROWTH-2)% of their budget. If they had done that in the 90s and 00s, they’d have saved up more than 50% of their yearly budget by the time the recession hit and have a huge cushion and wouldn’t have to cut services and spending right when they were most needed. It would be counter-cyclical common sense.
January 24, 2012, 1:20 amTravis says:
Cato is (willfully, probably) ignoring that a big chunk of those “state subsidies” they’re complaining about are funding for federal programs whose management has been devolved to the states.
Food stamps, Federal Aid Highway/Interstate Highway, Medicaid, etc. – they’re federally-mandated and federally-funded, but instead of having a giant National Highway Maintenance Bureau or a Federal Food Aid Administration, the programs are administered by the states.
Would Cato prefer that the federal government take over maintenance of the Interstate Highway System?
January 24, 2012, 1:35 amDavid M. Nieporent says:
What you are (willfully, probably) ignoring is that these shouldn’t be federal programs at all. Cato would prefer that states run and fund these programs themselves, if they want, and the federal government stick to its enumerated powers.
January 24, 2012, 5:48 amStephen Lathrop says:
I would. Under the present system highway maintenance suffers during recessions, because states have to cut corners. If the feds controlled it, maintenance could be increased during recessions to provide stimulus while catching up with the bridge backlog—at least under administrations that were not actively trying to ruin the country. And because construction prices slump during recessions and increase during booms (when the states do their maintenance), quite a bit of money could be saved. Better in several ways.
January 24, 2012, 6:26 amdearieme says:
“…the federal government [should] stick to its enumerated powers”: fat chance.
January 24, 2012, 6:27 amrimfire says:
Take the king’s gold, dance to the king’s tune
Grants and such are the way the federal government takes over state/local institutions such as schools
January 24, 2012, 6:40 amClark says:
Honestly, that caveat is pretty big. Personally, I’m very happy to live in Mass, and far away from the NH border. I’d probably be much more sympathetic to your point if I lived in one of the freeloader states.
January 24, 2012, 7:02 amfoosion says:
Fans of congress sticking to enumerated powers often forget Article I, Section 8: The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States.
January 24, 2012, 7:27 amShelbyC says:
States are free to adopt such provisions, or not, as they choose.
January 24, 2012, 7:39 amJarbidge says:
If you limit the discussion to the Interstates, sure, but there are a lot of local and state projects. When you inquire at the local level whether project X is worth $YY million, the answer is something like ‘no, that road isn’t that bad, but it’s 98% federal grant money, we already sent that money to the feds, by putting up the 2% we get the 98% back instead of the funds going to another state/county/whatever; it’s money for local payrolls’.
Notably, the question of whether project X is worth $YY million no longer matters. That’s not the best way to allocate funding.
I sometimes think think it’s Richard Nixon’s worst legacy.
January 24, 2012, 7:59 amrob bob says:
Or, institute a balanced budget for Congress as well.
January 24, 2012, 8:38 amgovols says:
Of course, the correct approach here, however unlikely, is to urge states to make the painful corrections they need to reject federal funding and regain their constitutional autonomy. Instead, you see Randy Barnett going to court and make commandeering arguments, implying that states should be able to get federal money without conditions, or something. This seems to be the median position of most conservative politicians at the state level–keep the money coming, but we’re going to bitch about it when you tell us how to spend it. Maybe we can call this welfare conservatism; in any case, Cato’s position doesn’t seem to have many takers.
January 24, 2012, 9:02 amrob bob says:
Young people should be very pissed off about the future they face.
January 24, 2012, 9:06 amgooners says:
It’s not just the balanced budget amendments and the recession. No politician at any level in either party wants to raise enough revenue to pay for the stuff government provides. State and local politicians have let federal spending take over because it means they don’t have to risk their jobs by raising taxes to pay for all the stuff they promise to their voters. Look at PA right now – the feds are threatening to severely reduce transportation spending, the governor ran on improving infrastructure, a state-level committee was formed to explore the state’s needs and recommend ways to raise revenues, and it’s all just sitting there while the governor and his party piddle around with privatizing liquor stores, which nobody really cares about, and school vouchers, which will never pass..
Absolutely. Local politicians use federal transportation money to buy votes in their district.
January 24, 2012, 9:10 amrob bob says:
Just burden the kids with debt and keep the comfortable medicare and social security rolling!!
January 24, 2012, 9:21 amAJ says:
People with a propensity towards centralized action see the writing on the wall. The country is in no mood for more taxes (even on the reviled millionaire rich) and sees Greece as our logical destination with regards to more spending. So, central planners must be more cagey, hiding their budding initiatives in state and individual mandates – some with more stick than carrot. Unfunded mandates are the way to go to force uniformity and conformity (to the plan). Those who continue to stare fixated in the rear-view mirror looking back at segregation threaten to lose or dilute the genius that is federalism. Stop it and get your federal financial house in order – move on Simpson/Bowles now!
January 24, 2012, 9:35 amChrisIowa says:
The most generous Federal road Grant to a local government I’ve seen is 80 percent of construction costs paid by the Federal Grant after the local government paid for all engineering costs. This amounts to roughly 70% of project costs paid by the grant. My experience does not include the large state run projects however.
Grants do distort the process, however. In one case I know, decided to build a project that was a much lesser priority but could get an ARRA grant, rather than another project that was a much higher priority that was not eligible for a grant. In fact, it didn’t occur to them to do the ARRA project until they were looking for projects that might be eligible for grants.
January 24, 2012, 9:54 amBob from Ohio says:
Big Dig.
January 24, 2012, 9:55 amMartinned says:
Does that include interstate highways? Because I seem to recall reading something about Post Roads in the Constitution.
January 24, 2012, 9:57 amAssistant Village Idiot says:
Well yeah. My granddaughter is cute, but she can hardly fight back at all. Her father is becoming more of a problem about this, though.
Rainy day funds are obvious, but no one does them. If we are collectively at this point of stupidity despite repeated scares, I don’t know what can be done to smarten us up.
I work for a state govt, and confirm that the place is just filled with people who see federal money as essentially free.
January 24, 2012, 9:57 amChrisIowa says:
[& similar comments by others]
Federal highway funds are not used for maintenance. Federal highway funds are used only for construction. That said, an overlay over an existing surface or tearing out the surface and replacing is construction; though those activities have elements of maintenance but that is as close to maintenance as Federal funds can be used.
Federal highway funds cannot be used for plowing snow or mowing grass, or repairing accident damage to guardrails, or painting or other maintenance.
January 24, 2012, 10:05 amRoscoe says:
We are unable to pay our debts as they come due without borrowing massive amounts of money. So calling us bankrupt may be a bit of hyperbole, but it is hardly irrational.
January 24, 2012, 10:28 amJesse-Az says:
I don’t think you know what the term mandate means. They are influenced to use those programs in acceptance of federal bribes to fund those programs. The states could turn down those funds and end those programs. The federal government is getting awfully close to the idea they can not influence state governments through excessive use of the pocket book. In fact, one of the arguments for the HealthCare debate will be on that fact.
I never understood why we accepted, as a society, to send the majority of our taxes to the federal government to skim some off the top and return to the states with conditions. It makes no sense to me. I know politicians hate political fall out, so Governors like the ability to blame the federal government for issues. But I have more control at a local level over government spending than I do at the federal level.
January 24, 2012, 10:45 amJesse-Az says:
Fans of those who bring up this clause often forget Federalist Paper 41.
It has been urged and echoed, that the power “to lay and collect taxes, duties, imposts, and excises, to pay the debts, and provide for the common defense and general welfare of the United States,” amounts to an unlimited commission to exercise every power which may be alleged to be necessary for the common defense or general welfare. No stronger proof could be given of the distress under which these writers labor for objections, than their stooping to such a misconstruction.
Had no other enumeration or definition of the powers of the Congress been found in the Constitution, than the general expressions just cited, the authors of the objection might have had some color for it; though it would have been difficult to find a reason for so awkward a form of describing an authority to legislate in all possible cases. A power to destroy the freedom of the press, the trial by jury, or even to regulate the course of descents, or the forms of conveyances, must be very singularly expressed by the terms “to raise money for the general welfare.”
January 24, 2012, 10:47 amJesse-Az says:
Fans of that clause often forget Federalist Paper 41:
It has been urged and echoed, that the power “to lay and collect taxes, duties, imposts, and excises, to pay the debts, and provide for the common defense and general welfare of the United States,” amounts to an unlimited commission to exercise every power which may be alleged to be necessary for the common defense or general welfare. No stronger proof could be given of the distress under which these writers labor for objections, than their stooping to such a misconstruction.
Had no other enumeration or definition of the powers of the Congress been found in the Constitution, than the general expressions just cited, the authors of the objection might have had some color for it; though it would have been difficult to find a reason for so awkward a form of describing an authority to legislate in all possible cases. A power to destroy the freedom of the press, the trial by jury, or even to regulate the course of descents, or the forms of conveyances, must be very singularly expressed by the terms “to raise money for the general welfare.”
January 24, 2012, 10:48 amJesse-Az says:
Fans of that clause often forget Federalist Paper 41:
It has been urged and echoed, that the power “to lay and collect taxes, duties, imposts, and excises, to pay the debts, and provide for the common defense and general welfare of the United States,” amounts to an unlimited commission to exercise every power which may be alleged to be necessary for the common defense or general welfare. No stronger proof could be given of the distress under which these writers labor for objections, than their stooping to such a misconstruction.
Had no other enumeration or definition of the powers of the Congress been found in the Constitution, than the general expressions just cited, the authors of the objection might have had some color for it; though it would have been difficult to find a reason for so awkward a form of describing an authority to legislate in all possible cases. A power to destroy the freedom of the press, the trial by jury, or even to regulate the course of descents, or the forms of conveyances, must be very singularly expressed by the terms “to raise money for the general welfare.
But what color can the objection have, when a specification of the objects alluded to by these general terms immediately follows, and is not even separated by a longer pause than a semicolon? If the different parts of the same instrument ought to be so expounded, as to give meaning to every part which will bear it, shall one part of the same sentence be excluded altogether from a share in the meaning; and shall the more doubtful and indefinite terms be retained in their full extent, and the clear and precise expressions be denied any signification whatsoever? For what purpose could the enumeration of particular powers be inserted, if these and all others were meant to be included in the preceding general power? Nothing is more natural nor common than first to use a general phrase, and then to explain and qualify it by a recital of particulars. But the idea of an enumeration of particulars which neither explain nor qualify the general meaning, and can have no other effect than to confound and mislead, is an absurdity, which, as we are reduced to the dilemma of charging either on the authors of the objection or on the authors of the Constitution, we must take the liberty of supposing, had not its origin with the latter.”
January 24, 2012, 10:50 amyankee says:
Your argument seems to rest on the premise that state governments are revenue-maximizers. This strikes me as an extremely questionable assumption. State governments have an incentive to care about general economic conditions (since incumbents are more likely to be tossed out when times are bad) but the relationship between reelection prospects and tax revenues is at best highly attenuated.
January 24, 2012, 11:26 amSarcastro says:
Yes, this is how debt for government works – it’ll all come due in a generation and then China will come in and break our kneecaps.
January 24, 2012, 11:32 amTparty says:
Clark
Personally, I’m very happy to live in Mass, and far away from the NH border.
Actually, it is quite handy to live close to tax free shopping.
January 24, 2012, 11:35 amPaulB says:
Comments that refer to states having requirements for balanced budgets misunderstand what the term means. Effectively, it just means that sources of revenue (including debt issuance) must equal expenses which is no different than what the federal government does. There is a vast amount of state and local debt, not to mention the huge off balance sheet debt for public employee pensions and health care. The next time you hear a governor who’s running for President saying that he’s balanced all of his budgets, just treat that as utter nonsense.
January 24, 2012, 11:42 amBasil Legg says:
Why is it not a violation of equal protection for the taxpayers of one state to have to fund the government of a state where they are not allowed to vote. There should be no authority for the federal government to make any payment to a state treasury under any circumstances. No taxation without representation!!!!!
January 24, 2012, 11:52 amAnon says:
I don’t think it’s so much that we accept it but that it is an unintended consequence of the Federal income tax and now that it’s out of the bag we can’t stop it. For the federal government this is about power over the states, and one thing both political parties like is power.
January 24, 2012, 11:52 amAnon says:
I know you are being sarcastic, but then let’s talk about how government debt really does work. For a sovereign that can print its own money, the issuance of debt in that currency is the equivalent of printing money, or more precisely the spending of money now that will be printed in the future. So even if the debt isn’t really ever going to be paid back in the true sense, it is still taking value from future generations through the force of inflation.
January 24, 2012, 12:00 pmgooners says:
What do you mean by “grant”? There are federal funds distributed by formula (each jurisdiction gets a set amount based on population, road miles, etc) and there are discretionary funds that are mostly distributed by grant (like TIGER), and then there are federal earmarks. The standard match is 20% non-federal, so it could be state, local, private, any type except federal. There are both formula funds and discretionary programs that require no match, although leveraging other funding will usually be looked upon favorably when the grants are rewarded.
Some info can be found here: http://www.fhwa.dot.gov/reports/financingfederalaid/procs.htm
January 24, 2012, 12:08 pmShelbyC says:
Freeloader states?
January 24, 2012, 12:09 pmSarcastro says:
[As usual, my sarcasm was trying to get a point across - exactly the point you spoke to.
Inflation as stealing from future generations? That idea has a few problems First, that our current supposedly astronomical debt is coexisting with very low inflation, so the correlation is not so strong as that - debt and money volume is merely one of many factors in determining inflation.
Second, inflation fluctuates, so it's not like future generations will experience a lifetime of hyperinflation, and I'm not too concerned about the status quo, debt-wise.
I mean, I'm hoping we'll be responsible, and I wouldn't mind some government trimming, but I'm not going to yell crisis for quite a while.]
January 24, 2012, 12:30 pmTravis says:
Sure, and then the 544,000 people in Wyoming, say, would have to pay the entire cost of construction/maintenance for its 1,000 miles of Interstate highway, meaning a significant increase in state taxes would be required. Cue whining and bitching from Red State Socialists.
Or, to use another situation… a state withdraws from Medicaid. Fine, great, awesome. That won’t stop poor/uninsured people from coming to local hospital emergency rooms with all sorts of medical problems, trauma, etc. Right now, a lot of those costs end up covered by Medicaid. No Medicaid, guess who’s going to be footing the bill for all these indigent patients? Right, local governments…
There ain’t no such thing as a free lunch.
January 24, 2012, 12:38 pmFederal Dog says:
”
I’m very happy to live in Mass, and far away from the NH border. I’d probably be much more sympathetic to your point if I lived in one of the freeloader states.
Big Dig.”
Not to mention billions a year from the feds to prop up Romney’s failed medical insurance “reform.”
January 24, 2012, 12:44 pmAndrew J. Lazarus says:
So if, for example, the Feds want to buy some State land for a military installation they are just S.O.L. {!?)
You might want to think this through.
January 24, 2012, 12:47 pmChrisIowa says:
From Iowa’s Constitution: (Article VII Public Debts)
A limit of $250,000 in a budget of in excess of $3,000,000,000 is virtually no debt used to balance the budget, and has been treated as $0. So you cannot make such a sweeping blanket statement.
January 24, 2012, 12:49 pmShelbyC says:
Because we’re not printing money, we’re promising that future generations will pay money to bond holders. The future generations can either pony up the cash, or print it and devalue their cash. Either way, they lose.
January 24, 2012, 12:50 pmgeokstr says:
[You are aware, I'm sure, that the current calculation of inflation has been amended to take out the two most volatile commodities, food and energy. This administration is doing everything it can to make sure the cost of energy skyrockets (Obama made pre-campaign statements to that effect), which ripples throughout the prices of everything else in the economy. Under the old definition of "inflation", today's annual rate would be somewhere north of 10%. And that is with the Fed doing everything it can to hold inflation at bay, like keeping the prime rate near zero, while printing trillions of new dollars to buy the deficit spending bonds that the rest of the world no longer wants. And these effects are not additive, they are compounding, so 10% per year quickly reduces the value of each dollar.
If you really think hyperinflation under these circumstances is not a very real possibility, I don't think there is anything I can say to persuade you.]
[I'm afraid that there will have to be some kind of accounting at some point in the relatively near future. Social Security and Medicare have been hemmorhaging cash flow for some time already, far sooner than projected. And our government, in it infinite wisdom, has been fulsomely praising itself for a moratorium on the primary source of the revenue for those very programs. And what is the major source of the state deficits in question here? Extremly generous state pension and retiree medical expenses.]
[Yes, government has been so very, very responsible for the last 70 or so years, right? And the system is set up so that those most likely to rise to the top of the political heap are those that promise more free stuff to a majority of the voting population. Greece, here we come.]
January 24, 2012, 1:11 pmMark Field says:
Jerry Brown tried this when he was governor in the 70s. The Republicans screamed bloody murder about “overtaxation” and the surplus was a major factor in the passage of Prop. 13.
It’s just not possible to form sensible policies when one party devotes so much time and energy to nonsensical ones.
This is just utterly wrong. First, everyone borrows money, whether for a house, a car, or whatever. Borrowing money is not a sign of bankruptcy; inability to service the debt cost is.
Second, the US government has no current problem servicing the debt costs. In fact, those costs are at historic lows right now.
Third, the government, unlike private households, cannot go bankrupt. The reason is simple, as the MMT guys keep pointing out: the government can just issue more currency. Now, this may eventually lead to inflation, but not under current conditions, and if it does in the future, the Fed knows how to deal with that problem (see Paul Volcker).
Fourth, contrary to what some are saying here, there is no burden on future generations when the government sells bonds. The reason is obvious: each bond is an asset to someone, and that exactly balances the debit. Of course that can mean inequality between particular individuals, but it can’t mean a burden on a generation as a whole because credits and debits must always balance.
January 24, 2012, 1:58 pmSarcastro says:
[Seems to me (trained only in undergraduate econ courses, to be fair) that issuing bonds is still injecting currency into the market.]
January 24, 2012, 2:06 pmSteve Donweber says:
With respect, it appears that you don’t understand the difference between national/sovereign debt and individual debt.
January 24, 2012, 2:18 pmSarcastro says:
[geokstr, you are the expert here, not me.
Not that I'll be convinced to your point of view, but I do have some questions about it.
First, wouldn't energy costs be factored into the costs of creating/transporting goods, and thus be at least somewhat factored into inflation?
Second, if we are indeed in a hidden inflationary period, wouldn't we be feeling it more? How are the usual symptoms of inflation being offset?
I know it's an appeal to incredulity, but it would seem extraordinary to me if inflation suddenly shot up to hyperinflation sizes from 1%.
As for cynicism about government reforming itself, it is hard to disagree with you, though I would point out that your lamentations of the end of America echo those of centuries of partisans on both sides.]
January 24, 2012, 2:30 pmChrisIowa says:
I was in and around California in 1978 and I don’t remember that as being the case at all.
January 24, 2012, 2:40 pmrumpelstiltskin says:
Let’s just eliminate the US military while we’re at it. Should work perfectly.
January 24, 2012, 2:42 pmrumpelstiltskin says:
Or they can sell bonds which promise that future generations will pay money to bond holders.
January 24, 2012, 2:44 pmrumpelstiltskin says:
No, it’s utterly ridiculous and irrational. We could easily pay back our debt with moderate increases in taxes and cuts in spending. That’s it. Yet the Republicans are unwilling to raise taxes at all, and the Democrats would never accept the dismantling of medicare/medicaid (and really, neither would the electorate).
January 24, 2012, 3:08 pmRoscoe says:
Really? Now its “irrational” if you think that our current spending problems, including the future promises we make via Social Security, Medicare, govt. pensions and private pension guarantees, cannot all be fixed with “moderate increases in taxes and cuts in spending”? As Mr. Montoya would say, I don’t think that word means what you think it means.
January 24, 2012, 4:24 pmrob bob says:
The kids can just pass it on to their kids! With any luck, they will in turn help themselves to that juicy credit (at least enough to avoid paying our interest, even if they won’t get bennies) and double the debt along the way! A flawless plan.
January 24, 2012, 4:24 pmSarcastro says:
The key is to maintain your analogy between personal and national debt at all costs!
January 24, 2012, 4:29 pmRobinGoodfellow says:
We could always just require the federal government to have a balanced budget.
January 24, 2012, 4:30 pmRoscoe says:
I am afraid I do not agree. On your first point, yes everyone borrows money. However it is one thing to borrow money to buy a house and another thing to borrow money to pay for gas and groceries. I am afraid we are, at least in part, doing the latter.
On the second and third points, we are not technically “bankrupt,” which is why I wrote in my initial comment that it was hyperbole to say so. We are still able to pay our debts because we can still find people willing to lend us money. But if serious changes aren’t made I don’t see how the present situation is sustainable.
On your fourth point, what if the person buying the bonds lives in a foreign country? It doesn’t concern you that we are burdening our kids in favor of kids living in, say, China?
January 24, 2012, 4:33 pmSarcastro says:
Seriously. Debt sucks. And no mortgages for anyone!
January 24, 2012, 4:40 pmrob bob says:
Now look who is trying to maintain analogies between national and personal debt!!
OK OK, let’s allow the federal government to take out mortgages to purchase real property, and even secured loans on other property, and that’s it. Bwahahaaha!
January 24, 2012, 4:52 pmMark Field says:
See, e.g., here.
Again, though, governments are not households. The same considerations don’t apply because the federal government is a currency issuer, not a currency user. Currency users would have the problem you mention, which is why state governments shouldn’t run deficits (nor Greece). But currency issuers don’t have default risk; they can just print money. That might be inflationary in the right circumstances (which don’t exist right now), but it’s not a default risk.
Yes, foreign bonds are potentially problematic. However, foreign bond purchases are basically a function of trade imbalances and exchange rates, not of deficits. If we had a trade balance with China, they’d have no net assets with which to buy bonds. End the trade deficit and there’s no issue there.
Even as it stands, Chinese bond ownership today is, IIRC, about 2% of the outstanding US debt. That’s not enough to worry about. Yet, at least. And again, we can fix that by adjusting trade policy, including exchange rates.
January 24, 2012, 4:54 pmThe string around your wrist says:
Lions don’t share.
January 24, 2012, 5:25 pmbyomtov says:
ChrisIowa,
All that stuff from the Iowa Constitution is very interesting, but this document tells a different tale.
Iowa has debts of about $3 billion.
So maybe those statements about state “balanced budgets” can be a little more sweeping than you imagine. The typical governor’s claim to have balanced the budget is nonsense. Total state debt outstanding is about $4 trillion.
Oh. And Iowa’s budget is around $6 billion, twice the figure you claim.
January 24, 2012, 7:33 pmMark Field says:
I just looked it up and China held 8% of the US public debt (the public debt is 47% of our total debt) in 2008. The non-public debt (53% of the total) is held intragovernmentally, e.g., by the Fed. So China held a bit less than 4% of total US debt in 2008.
January 24, 2012, 8:06 pmRicardo says:
First, this is not true. “Core” inflation is calculated in this manner but “headline” inflation is still calculated as the growth of the Consumer Price Index and the CPI does indeed include food and energy — you can see for yourself here.
That aside, volatile is the key word. These prices go up as well as down and do so for reasons that have little if anything to do with American monetary policy. So if you want a measure of inflation that actually tells you something useful about the macroeconomy, it makes sense to ignore fluctuations in volatile markets like food and energy. That’s not to say they can never be useful, just that they are not reliably useful in understanding what’s happening to the general price level.
According to some guy named John Williams who has not allowed anyone to examine his data and methodology. If he opens his books and allows people to critically examine his data and methodology, that would be one thing but he seems more interested in selling newsletters at $89 a pop.
January 24, 2012, 10:16 pmOrange says:
When they close the Post Offices, they won’t need the roads any more.
January 24, 2012, 10:30 pmRicardo says:
Again, people trumpet Simpson/Bowles without knowing much about it. S/B calls for capital gains to be taxed at ordinary rates and for Obamacare’s IPAB to be strengthened. How do you square your pronouncement that the “country is in no mood for more taxes” with S/B’s call for higher capital gains taxes as part of a balanced budget path?
January 24, 2012, 11:55 pm