In this post, I’m returning to a theme I initially explored in June, back when California was grappling with its budget crisis. Now, after nearly two months of additional struggle, we finally passed a bill that cut $26 billion and raised no new revenue, and now we learn that the governor has possibly illegally cut a further $500 million, taking the axe to children’s welfare ($80 million), health care ($400 million), Cal Grants (cut in half), HIV/AIDS Prevention and Treatment ($52 million), and domestic violence shelters (cut by 80%) . In addition to the moral insanity of attacking the most vulnerable of our citizens at a time when they are most in need of support one must add the economic insanity of believing that you can reduce government spending by $31 billion in the course of a single year (including both the February and July cuts) and not effect the state’s economic recovery.
Lest this be seen as merely a California problem, a recent report by the National Governors Association notes that the collective budget shortfalls of the fifty states comes to a collective $200 billion shortfall. Given that the total Federal economic stimulus for this year only comes to about $400 billion, we are forced to recognize that our system of state government budgeting and finance is creating a massive economic undertow, weakening the impact of Keynesian stimulus by cutting spending and raising taxes (although they’ve been doing a lot more of the former than the latter).