The Permanent State Bailout

Matt Welch | 3.16.2010 12:27 PM

A little more than a year ago, Reason ran a cover story on "Failed States: After a long spending binge, governors go begging for a handout. It won't be their last." Today the Wall Street Journal has an article titled "States Hope for a Rich Uncle: Governors lobby Washington for more money as stimulus aid runs out." Excerpt from the latter:

Strapped states, facing up to $180 billion in budget deficits in the next fiscal year, are going hat in hand to Washington.

California wants $6.9 billion in federal money for the next fiscal year, and Republican Gov. Arnold Schwarzenegger says he'll have to eliminate state health and welfare programs without it. Illinois, facing a $13 billion deficit that equals roughly half of the state's operating budget, has what it dubs a stimulus team and a group in Washington pressing for additional state aid. […]

But in Congress, members are balking at further subsidies amid an election-year outcry over the U.S. deficit and federal involvement in the economy. […]

"Our demand for services continues to grow, especially with underemployment and high unemployment—and we expect this trend to continue as we enter what is expected to be a slow-growth recovery," said Anna Richter Taylor, a spokeswoman for Democratic Gov. Ted Kulongoski of Oregon. […]

President Barack Obama said last month he was concerned about the potential for state and local government layoffs "because we haven't re-upped" money for states. Christina Romer, chairwoman of the White House Council of Economic Advisers, called for more help for states in a speech last week.

Do not cry for the beleaguered governors. As that last quote indicates, the White House will figure out a way to shovel enough money to protect those unionized public sector jobs. The fact that a U.S. president is concerned about government layoffs on the state level speaks volumes about how far we've gone, and how far we have left to go down. We are out of money, and people who are out of money cannot afford expensive make-work for inefficient laborers.

Second, as our "Failed States" story detailed, statehouses doubled their spending during the good times last decade. If they had merely kept spending growth at the rate of population+inflation growth, they'd have plenty of money left over for the demand in services precipitated by the recession. Since almost no one in this country is serious about cutting spending growth, fiscal irresponsibility on the state level has become a federal problem, and unless the political process intervenes, will become a federal entitlement.

What's perhaps most depressing of all is that this story, and all the related stories that we link to here every day, indicate more than anything else one overriding fact: We are not even within radar contact of facing reality on this stuff. States have known they were screwed for more than two years now, and yet last year they downsized payroll by less than one percent. Meanwhile, the most brilliant economic minds of Generation Obama, instead of saying "Gee, that whole stimulus thing led to results that were worse than our worst-case scenario about what would happen if we didn't pass the stimulus," are warning that "failure to take additional targeted actions to jump-start job creation would lead to slower recovery and higher unemployment for an extended period." Meanwhile, the opposition guy who has announced a plan to balance the budget in FIFTY-TWO FREAKING YEARS is being treated like a semi-dangerous radical by his own party.

I hear Mexico's nice….