States and Fiscal Crisis

Posted on


David Brooks notes, accurately, that “States with public sector unions tend to run into fiscal crises”. This is true because “states with public sector unions” are a sub-set of “states” and in the United States of America “states tend to run into fiscal crises.”

This is a problem that would be well-worth addressing. The biggest area of problematic federal policy in this regard concerns Medicaid which creates large financial incentives for states to undertake commitments that won’t be sustainable in recessions. A big think new idea that could help in this regard would be for the federal government to “tax” state government spending, creating a bailout fund that could be released during recessions with disbursements strictly proportional to payments rendered. A structural issue voters ought to think about is that term limits for governors and state legislators exacerbate the bad incentives behind boom/bust budgeting.