A Feeling of Total Un-Reality Pervades So Much Discussion About Government Spending and Deficits, Especially at The State Level (Take Michigan, For Example), I Just Don't Get It Anymore, But I Do Get Angry…
Sorry for the prose-poem headline to this post, but if you need to understand at least part of why virtually every local, state, and federal government in these United States is flat-out bankrupt, consider the apparent defiance of basic reality that pervades the debate like termites on a rotten log.
Here's the opening to a New York Times story about the sad state of Michigan:
LANSING, Mich.—Long before California resorted to i.o.u.'s to pay state bills, and before New York's political insurrection made a mess of this year's budget planning, and even before the recession pushed dozens of other states into their worst fiscal distress in decades, lawmakers here were cutting.
The Wolverine State has long had a sub-par economy, with high unemployment and job loss. So you figure that when the reporter says "lawmakers here were cutting" "long before" other states started slashing their budgets that she would mean, well, that Michigan's state budget would be, you know, smaller one year than in the year before. That is the plain-language meaning, right?
Here's data on Michigan's total outlays. In 2000, with a population of 9.9 million, Michigan spent a total of $25.5 billion, with local spending adding $35.9 billion. In 2009, with an estimated population of 10.4 million, Michigan is expected to spend $38.8 billion, with local spending coming in at $43.3 billion.
The source of those numbers is this website that tracks all sorts of government spending for all the states and which uses publicly available (that is, not secret) data. It is not immediately clear to me that the year-to-year figures are adjusted for inflation. So let's assume that they are nominal dollars. There is simply no way, in any reality worthy of the name, that an increase of $13.3 billion over nine years can or should ever be described as a trend in "cutting." Indeed, if you adjust for inflation (using this calculator), $25.5 billion would have been $31.58 billion in 2008.
Here is how the Times reporter characterizes the sustained increase in spending:
On paper, the state's overall spending has remained fairly steady and even increased at times this decade, but budget officials say those figures reflect necessary spending increases for Medicaid and corrections.
Think about that for a second: Spending has remained flat. Except when it's increased. And when it did increase, it was only because we really had to spend the money. I've had friends who were junkies who were better bullshitters than the sources behind that characterization.
Scroll through the breakdown of Michigan's spending categories and the one thing you don't see is flat spending on anything. It all goes up, which incidentally helps explain why the state's spending is well, significantly higher than it was less than a decade ago.
The Times article does include a chart on general revenue, adjusted for inflation, for Michigan (why do reporters always report revenue, especially when it makes a pol's pockets-out case?). What it shows is a dispiriting situation to be sure, and one that has been fully evident for 30 years before totally crapping out in the '00s:
Which is to say, Michigan lawmakers should have seen all of this coming, at the very least. Yet, as one pol tells the Times, "Our rainy-day fund? There's $2 million in there. That won't last you 30 seconds." And note that the general fund is not the only money-maker for Michigan; the expected deficit for this year is $2 billion, so the state is actually still raking in beacoup bucks.
Until legislators and their enablers in the press (and citizens, too!) start grokking the full picture of revenue and outlays, don't expect any sort of public-sector epiphany that leads to anything like well-run state governments. The simple fact is that governments are generally in trouble because they are spending well beyond their means and not because they don't have any means.
For more on this, read the May 2009 Reason cover story, "Failed States: After a long spending binge, governors go begging for a handout. It won't be their last":
Consider the boom cycle preceding this latest recession. In the five years between 2002 and 2007, combined state general-fund revenue increased twice as fast as the rate of inflation, producing an excess $600 billion. If legislatures had chosen to be responsible, they could have maintained all current state services, increased spending to compensate for inflation and population growth, and still enacted a $500 billion tax cut.
Instead, lawmakers spent the windfall. From 2002 to 2007, overall spending rose 50 percent faster than inflation. Education spending increased almost 70 percent faster than inflation, even though the relative school-age population was falling. Medicaid and salaries for state workers rose almost twice as fast as inflation.
Bonus info: Jack McHugh of the free-market Mackinac Center explains how Michigan found itself in its pickle and suggests how to save $2.2 billion right here, right now.
