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Fun with federalizing

11-11-09stim-f1.jpgA nice point by Matthew Yglesias:

I can’t help but think that it would be really nice to see some work done on clever things the federal government could do on a systematic basis to prevent (or discourage) the boom/bust cycle in state budgeting. I’m not really sure what kind of constitutional limits may exist, but this poor budgetary behavior is a perennial macroeconomic problem. It’s also a kind of serious political problem, since the tendency of boom/bust budgeting is to make anyone who happens to be governor during a boom (see George Pataki or George W. Bush or Charlie Crist) look like a brilliant innovative governor while anyone who governs through a bust (see John Corzine, David Patterson) looks like a fool. The reality is that it’s easy to be a successful pragmatist as long as economic growth lets you cut taxes, hike spending, and then stick someone else with the structural imbalance when the next recession hits.

That's all true, and the first step would be to take some of the big programs off the hands of the states that can't afford them in recessionary times. Medicaid should be federalized, but so too should a lot more of school spending, along the line Matthew Miller has argued for. And these would both be good policies even outside of the context of state budgeting, as leaving school funding to local communities is a recipe for wild inequality and inconsistent standards, while leaving Medicaid eligibility to the states has left America with 51 different Medicaid programs with 51 different eligibility schemes and very little coherence.

Graph credit: Center for Budget and Policy Priorities.

By Ezra Klein  |  November 17, 2009; 9:55 AM ET
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the problem with this theory?

Corzine IS a horrible govenor and thank God he's gone.

I also find it nice that he only points out booms with Republican govenors (that deserve no credit) and busts with Democratic govenors (who deserve no blame). Don't any Democrats hold office during booms and Republican's during busts?

Typical partisan rhetoric. About as "fair and balance" as Fox News.

Posted by: visionbrkr | November 17, 2009 10:09 AM | Report abuse

and let's not reduce the debt, let's just TRANSFER it so we can go Federally bankrupt SOONER but the states can start all new pet projects to fill the vacuum of entitlements. Sorry, Its a horrible idea, but I wouldn't expect any less of liberals like Ezra and Yglesias.

Posted by: visionbrkr | November 17, 2009 10:15 AM | Report abuse

This is a no brainer. (Some of the other commenters have no brain, apparently.)

Posted by: harold3 | November 17, 2009 10:22 AM | Report abuse

"I can’t help but think that it would be really nice to see..."

Sheesh, the guy's got to really work on his prose style.

P.S. Should allowing right-wingers anywhere near fiscal policy be deemed 'country-abuse'?

Posted by: leoklein | November 17, 2009 10:24 AM | Report abuse

Federalizing Medicaid doesn't improve the tax burden. It may even exacerbate the situation.

We already have the federal government make some of these payments to states. This process lacks transparency. Federalizing Medicaid will make it harder for the taxpayer to account for the value of government funding.

Posted by: RandomWalk1 | November 17, 2009 10:35 AM | Report abuse

Ezra - Weak arguments. It would be useful to exmaine why some states can't afford these programs in recessions, while others can. Not all states are in as bad shape as NY, NJ or CA. So how about examining states that are doing better and seeing if their policies can be applied to other states? I'm guessing that this idea will be unpopular with Ezra's readers, but TABOR has been used by several states to smooth out boom/bust cycles. A simple law that prevents states from increasing spending by more than inflation + population growth can be a powerful brake on "excess" spending in good times and can be used to establish a rainy day fund for bad times.

I think this is a much simpler partial solution than federalizing Medicaid, etc. Honestly, isn't federalizing simply a way to force the more fiscally prudent states to bail out more profligate states?

Posted by: MBP2 | November 17, 2009 10:37 AM | Report abuse

Perhaps states need to consider amending constitutions to limit the amount of increase in their budgets to the core inflation rate. The only other way to increase it would be to implement tax increases. This would prevent them from overspending when times are good. They could bank the into a general fund for future use. General fund could only be touched during emergency times or after 5 years.

Posted by: just_watching | November 17, 2009 10:45 AM | Report abuse


you're absolutely right. I now see the error of my ways. we should move faster into bankruptcy as you suggest. I don't know what motivated my stupidity. I know that liberals like yourself and Matt Y. would never (if this was done) find more entitlements to fill the void. you'd use the fiscal discipline that liberals are known for to ensure a return to financial sanity and the country as a whole to much more stability.

Oops, they are already looking into the NEXT entitlement:

Look at that! A guarantee of a job for whoever wants it! how great is that!! No unemployment!! Oh wait, what will they be doing? Does it really matter??

But i'm sure they'll be no fraud involved. Not in the federal government. Ya right.

this is going to go as well as the housing push that said everyone deserves to be a homeowner irregardless of their ability to pay their mortgage. How is that going??

Posted by: visionbrkr | November 17, 2009 10:53 AM | Report abuse

--"Sheesh, the guy's got to really work on his prose style."--

It's not prose. It's gibbering. Yglesias and Klein are the Gibber Girls.

Posted by: msoja | November 17, 2009 12:38 PM | Report abuse

Hooray! for the reserved powers clause.

Theoretically, the Fed could allow states to take interest free loans up to some ceiling. Perhaps up to a percentage of GDP for the state but smoothed over a couple years.

That way they could run deficits by putting debts on Federal accounts.

Posted by: zosima | November 17, 2009 4:51 PM | Report abuse

Telling the states that the federal government will guarantee their debts would exacerbate their boom-and-bust cycle, not reduce it. What incentive would the states have not to spend as much as possible, if it was going to be paid for by taxpayers from other states?

Posted by: tomtildrum | November 17, 2009 5:50 PM | Report abuse

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