California, There You Go!

All of a sudden, California, which financially speaking had one foot in the grave the the other on a banana peel, as the saying goes, is flush with cash. A sixty-billion dollar budget deficit has turned into a surplus. And it turns out that several other states are in similar positions.

Not long ago, everyone was wringing their hands over the plight of the states. Federal payments in support of state programs had been cut; unemployment and the housing crash meant serious decreases in state tax revenues; and increasing demands on state social services during the recession produced yawning gaps in state budgets.

Now, everything is suddenly rosy!

Maybe it's all true. After all, the states gutted everything they could think of in response to the recession; and once a social welfare program is cut, there is often less of a constituency in favor of its restoration: the poor are easily ignored. But to go from huge deficits, layoffs of cops and firemen, and municipal bankruptcies to a landscape dotted with state budget surpluses, is odd. I don't get it.

To me, what it suggests more than anything is the folly of our government arrangements, in which substantial matters are left to state and local jurisdictions that cannot easily make adjustments in financial downturns. The states cannot print money, and virtually all of them are prohibited by law from running deficits. This makes for short-term solutions and a lack of sensible planning alternatives. The states borrow money when they shouldn't have to. They have enormous revenue-collecting machinery that unnecessarily duplicates federal structures. They have a mind-numbing array of differing revenue codes and tax laws. All for ... nothing.

This is an unstable system subject to manipulation and corruption. It should be changed. Beyond the sort of Articles-of-Confederation attitude of entrenched state and local interests who want to preserve their access to large amounts of cash, what is the reason that we have delegated so much financial policy and budget authority to state politicians? I suspect the ability of state governments to provide extragavant favors to big (and not so big) businesses, and the quid pro quo of bribes, is a major reason. We should yank this fiscal authority away from the states, and put it where it can be managed with a societal perspective in front rather than a beggar-thy-neighbor pattern of state competition.