Washington Budget Crisis

[Martin Hash]

People often make specious comparisons between government budgets and household budgets as justification for precluding deficits. This kind of sophistry obscures reality: first off, a personal budget is not intended to benefit society as a whole; secondly, governments, by definition, perform functions business cannot because those functions are not profit centers; and thirdly, economics requires governments to manipulate monetary policy as a means of stimulus or deflation.

Adding to the problem, there is a perception that Washington State has a balanced budget requirement in its constitution, which is not true but people act as if it is. Economically speaking, a “balanced” budget is not mandatory and will be ignored in an extreme situation. For example, if Mt. St. Helen’s erupted tomorrow and devastated Clark County, Washington State would spend whatever amount of money it must for the safety of the citizenry and afterwards to revitalize the area – certainly running up a budget deficit that people in the state would approve of. So it’s not a matter of whether Washington will float deficits, it’s only a matter of what the people agree would be worth running deficits for? Here’s where psychology plays a more important role than economics: If the primary reason for deficits is perceived to be to protect government worker’s jobs, and the arguments given seem to be sanctimonious in the extreme (“my job is for the children”), as if a government worker’s job is ethically and morally superior to regular people’s – those regular people are going to line up behind a “balanced” budget, then instead of belt-tightening next year, we’ll be looking at draconian cuts or tax increases. The voters are willing to share the pain when the stakes are high but they will not be doormats to the public employee unions.

Temporary taxes are not the answer… Not because they are necessarily “bad” but because politicians are disingenuous about sun-setting them when promised.

The obvious solution, the business solution, is to carry a deficit during the tough times - only the most important functions – where everyone shares the pain - including government workers.