States Operate Under Legal Requirements To Balance Their Budgets

Something I see a lot of people mess up is the distinction between political choices to engage in austerity budgeting—something both the US Congress and the Cameron/Clegg government in the UK have done—and the longstanding legal requirement that states and municipalities balance their budgets. This paragraph in Aaron Bady’s otherwise very informative review of David Graeber is a good example:

To be more specific, Graeber’s starting point is the Grand neoliberal orthodoxy that regards Debt as the worst possible thing, the argument, for example, that austerity measures like an end to state subsidies of public libraries in California are preferable to the moral crisis of going (deeper) into debt. This has been a bipartisan consensus that dominated the Anglo-American political and media discourse up to somewhere around the beginning of Occupy Wall Street, and which still dominates – perhaps a little more quietly, now – our political class’s actions. It may not be desirable to cut pensions or eliminate what used to be essential social services – goes the argument – but it’s better than going into debt.

The views of the Governor of California on the moral status of debt or the macroeconomic impact of fiscal austerity has genuinely nothing to do with this. California, like all the non-Vermont states, operates under a constitutional balanced budget requirement of longstanding. That means that when a recession hits and tax revenues plummet while demand for social services rise, California has no choice but to engage in austerity measures. It faces a political choice about whether to do austerity by raising taxes or whether to do austerity by cutting library funding, but both are equally austerity and debt-avoidance. This pro-cyclical fiscal policy from states and municipalities is, in my view, a total disaster for the country but you could put me or Graeber or Bady or anyone else you like in the governor’s mansion and we wouldn’t be able to stop it.