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Politics : American Presidential Politics and foreign affairs

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To: Peter Dierks who wrote (44658)	8/3/2010 7:35:11 PM
From: TimF	Read Replies (2) of 71588

State Debt Doubles Posted by Chris Edwards CNNMoney.com reports on how state governments are digging themselves deep into debt. The story points to Moody’s Investor Service data on “tax-supported” debt, which is bond debt that state taxpayers will ultimately have to pay back. The article shows the large variations in government debt across the states, and notes that “not every state is ratcheting up its borrowing. Many states have strict laws governing their debt issuance. Some places, such as Nebraska and Wyoming, have virtually no debt.” I’ve argued that all state governments ought to follow the no-debt approach to state finance. With good planning, capital expenditures can be financed “pay-as-you-go” or out of current revenues. Debt creates bad incentives for politicians and makes it harder for citizens to understand complex state budgets. The CNNMoney.com story notes that state debt soared 10.3 percent in 2009 as the economy struggled. But I’ve noted that Federal Reserve data shows that debt has soared in good times and bad over the last decade. The Moody’s data tells the same story, as shown below. State debt outstanding doubled from $230 billion to $460 billion in just nine years, 2000 to 2009. cato-at-liberty.org For those who look at the debt and say "we have to bail out the states", note that the rapid debt increase began well before the recent economic bad times. Its good times "we can cover the debt times are great, lets borrow some more", then bad times and "we can't cut back now, times as tough", and the borrowing speeds up. Bailing out the states is just enabling this problem, while adding to the federal government's own fiscal problem. Let the states really cut back spending for once.

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