Monday, October 3, 2011

Wonder Why the Recovery is not Taking Off? It's the States Stupid

Michael Lewis has another nice piece in Vanity Fair magazine about state and, particularly, local finances focusing on California.

It is Michael Lewis so it is, of course, good reading.  But delves a lot into personality at the expense of the basic message: state and local governments are on the rocks and the deep cuts are going to get worse before they get better.  All this is incredibly damaging to a national economic recovery that is struggling to gain any traction at all.  Wonder why the recover is faltering?  It's the states stupid.

Because of course these budget problems are not isolated to California.  For example, Chris Gregoire in Washington state has asked all state agencies to prepare for a significant all-cuts budget reduction.  Kitzhaber has done something similar in Oregon.  Lewis writes a lot about the pension obligations that municipalities face and have not adequately prepared for and Oregon's municipalities are no different.  Portland, for example, has a pension bubble a-coming that it has only partially addressed.

The point of all of this is that any hope of a quick recovery is pretty much dashed when you start to contemplate the collective force of almost all states slashing budgets.


NB: Oh and in a little fact-checking exercise, Felix Salmon debunks a Lewis claim that obesity and indebtedness are highly correlated across states.  It is a wonderfully evocative literary device: the lack of self control in both debt and diet...  But alas, it is also exactly wrong - they are negatively correlated.

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