The same economic problems all the way through
As some of my recent posts suggest, I've been spending more time lately looking into state and local finances. And what's really amazing is how, well, familiar it all seems.
The federal government is facing a short-term economic problem driven by a collapse in revenues (which means it has less money to spend) and a sharp rise in unemployment (which means there are more people who need temporary government help). In the longer run, there's a pension problem, but the bigger issue is health-care costs.
Oh, I'm sorry. Did I say "the federal government?" I meant state and local governments. The problems are similar at all levels. The differences are that the federal government can deficit spend to smooth out the short-term crunch, which no state but Vermont can do, and that pensions make up more of the long-term problem for the states than for the feds, as the states don't have responsibility for Medicare.
The background to the pension problem is similarly familiar. States have essentially deferred their employee compensation into the future. That led them to hire more and/or better people without fully paying for it. If that sounds a bit to you like the recent consumer credit bubbles, where people bought more and/or better things while deferring the costs into the future, well, that's exactly right.
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