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State/Local Budget Crises, Real and Imagined

By Matthew Yglesias on September 29, 2010 at 9:27 am

"State/Local Budget Crises, Real and Imagined"

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(cc photo by hydropeek)

(cc photo by hydropeek)

Via Felix Salmon, a 600 page report from Meredith Whitney predicting waves of municipal bond defaults in the future that I was kinda sorta feeling bad about not having read while simultaneously knowing it was never going to happen. Then I read Bond Girl’s post on the matter and I felt bad about not reading it.

But the reality is actually alarming enough. People are by now generally familiar with the “Medicare will bankrupt you and your children in the future” charts from the Congressional Budget Office. But if you look at what state governments spend money on, there’s a lot of Medicaid in there and basically you’ve got the same problem. What’s more, for the past 20-30 years or so policymakers have not budgeted correctly for pension and health care costs to their retired employees. Consequently, barring the invention of some kind of magical robot that will make it super-cheap to run effective schools there’s going to be a growing secular budget crunch over and above current recession-related issues.

And, indeed, according to Bond Girl “If you pay attention to the interview you will see that the ‘defaults’ Whitney is talking about are on ‘social contracts,’ things like reducing spending on education, transportation, health care, etc.” Which is I guess fine from an investor perspective, but where’s the American metro area where you sit around saying “our transportation infrastructure here in City X is among the best in the world”? Maybe we’d better hope the contrarians who say education is just about signaling and doesn’t actually make a difference are right.

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