Thursday, February 25, 2010

It's an Income Problem, Not a Spending Problem

The Mid-Atlantic continues to suffer from extreme weather. The latest victim is the Winter Advocacy Retreat (WAR) of the Delaware State Education Association which was scheduled to run the entire weekend in Rehoboth, but is now canceled because of the pending storm.
It's Income, Not Spending

We need to change the language being used in discussions of our current state fiscal crisis. Too many decision makers in Dover continue to talk about the state's spending problem, or the size of state government, or the efficiency of state government. So what's wrong with that?

First, it's not just "our" crisis. Forty eight states are broke right now. Did all 48 go on a spending spree? Did all 48 grow fat overnight? How about the two states doing okay, what great efficiencies did they employ?

In truth, Delaware and the other states do NOT have a SPENDING problem, they have an income problem. That means their revenues have dipped dangerously low because we are in a severe recession. When a state is in a recession two bad things happen simultaneously. Incomes and profits drop so tax revenue does as well. At the same time the demand for services goes up as more people need unemployment insurance, health care, food assistance, or to send children to public school who were in private school.

The two fortunate states, Wyoming and Montana have natural gas, coal and other forms of "real wealth". The grandfather of economics, Adam Smith, once said that there were only two types of real wealth creation, manufacturing and extraction. I guess Wyoming and Montana have the latter.

Discussions about the size of government may or may not need to take place, but let's not pretend that all this current pain is about Delaware government being too big.

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