Are the States Preoccupied with
Scarcity and Survivalism?

Some wonderful advice was given by Rakesh Shankar at Economy.com in his January 30th article, "Self-Inflicted Pain". Here are a few clips from his article, which described how short-sighted thinking about budget balancing could create even greater longer term problems for state governments.

Fiscal prudence is a very good idea, but not at the expense of the health of a state economy. State houses should consider the merits of modifying their laws so that balanced budget requirements are annulled in periods when the state is experiencing little to no private economic growth. Such amendments would signal political commitment to long-term fiscal prudence, which should help assure credit agencies and bond markets, while also maintaining the ability for state governments to contribute to their economies during troubled times.

Curiously, there is very little debate about the need for this dogmatic pursuit for fiscal austerity. Make no mistake about it, balancing your budget annually is a sensible thing to do, and it brings its own benefits. Theoretical and empirical evidence certainly suggests that persistent budget deficits lead to higher interest rates longer term, particularly at the state level, which imposes its own costs on society. Specifically, political commitment to fiscal prudence helps maintain higher credit ratings for state bond issuances.

However, if there is ever a time that a government must be more engaged in society, it is when the governed are burdened with particular adversity, whether that be political, social or economic. Now is the time for real short-run economic stimulus, rather than doctrinaire obedience to accounting guidelines.

I go back to my original question: Are states preoccupied with scarcity and survivalism? I think they are. Most Governors and state legislatures hold the view that the "glass is half empty" in their state. Many state leaders see their job as helping the state to survive at this point. Who is thinking about "fiscal policy innovation?" Hopefully someone will give more attention to the issue.

No one doubts that state coffers are pretty dry and that some reductions are essential. Many of the state of the state addresses given by the Governors talk a good game in terms of economic development, but it does not appear that many will have the resources to walk their talk. As I see it, the most important economic development policy decision being made across states is a "defacto" decision to cut budgets and let the pieces fall where they may. True economic development in all fifty states will come about from sustained investment in education and infrastructure needed to advance people, businesses and communities.

What is one innovative thing that the states could do? How about if they pool their funds--at least on a multi-state regional basis--to fund educational and infrastructure collaborations and innovations? Maybe the heads of the state higher education boards in each region should sit down and talk about opportunities for shared programming in the future. Would it make sense for state transportation agencies in the same region to have the same type of pow-wow. Think about it.

Ok. One more innovative idea. Nearly every state has a focus on industry clusters. Why don't those states targeting the same clusters form working groups to identify ways they can work together, co-invest, leverage their investments, and contribute to each other's success. Duh. I look in the Midwest and see nearly every state ready to engage in a new type of "biological warfare" -- this type involves getting a bigger piece of the bioscience pie. What would happen if the Midwestern states formed a "regional bioscience investment fund?" Like the idea. Talk to your Governor and state legislature about the idea.