Josh Bolten confirmed as head of OMB
OMB Watch reports on the rapid Senate confirmation of Bush aide Joshua Bolten to be head of OMB, here: "Joshua Bolten Confirmed as Director of OMB".
State Budget Crisis (on the edge of the abyss)
Across the nation, state revenues are down and state spending is up. Since 49 of the 50 states have balanced budget provisions in their constitutions, they can't borrow to make up the difference from one fiscal year to another - they must balance their budgets. And today is the last day of the fiscal year. Last Friday Slate carried a column by Brendan I. Koerner on how the balanced budget provisions are enforced in different states: "How Are State Balanced Budget Laws Enforced?". Meanwhile, today's Washington Post carries this story: "Calif. Near Financial Disaster. Hours Remain to Solve $38 Billion Shortfall " Californian Pejman Yousefzadeh contemplates flight: "I Need To Get Out Of California":
"And now, in addition to the above, we have to contend with rampaging samurai..."
The Federal Reserve Bank (FRB) of Boston held a conference on behavioral economics this month at a country club on Cape Cod - covered in a story by Stephen Dubner in today's New York Times: "Calculating the Irrational in Economics".
The story line draws a strong contrast between what Dubner seems to see as a rather sterile mathematical economics and a rich, productive new behavioral economics based on a more realistic view of human nature. For example, the story ends with the quote by a Boston FRB economist, "We're looking outside the box [at behaviorism - Ben] because the box we've been looking inside is empty." This is overdrawn - the existing box has a lot of great stuff in it. More accurately: sciences progress, and economics, like other sciences, isn't a finished body of work.
The behaviorists draw particularly on cognitive psychology - a field that looks at how people process information and make decisions - to critique the results of mainstream economics, which assumes relentlessly rational decision-making. There is great potential for behavioral economics to improve the set of models economists use for prediction.
There is also a challenge to the mainstream welfare economics (the economics that looks at not just what the results of a policy decision will be, but at what decision we should or ought to make) that underlies tools such as cost-benefit analysis. For example, the behaviorists point to evidence that people are more concerned about a potential loss of money or wealth (from their current baseline) than they are about a potential gain. Cost-benefit analysis weighs gains and losses to the same people in the same way.
New to me is the doctrine, pushed by certain behavioral economists, of "libertarian paternalism":
"Mr. Thaler has concluded that too many people, no matter how educated or vigilant, are poor planners, inconsistent savers and haphazard investors. His solution: public and private institutions should gently steer individuals toward more enlightened choices. That is, they must be saved from themselves. Mr. Thaler's most concrete idea is Save More Tomorrow (SMarT), a savings plan whereby employees pledge a share of their future salary increases to a retirement account. In test cases, the plan has proved remarkably successful.
" "This was not pulled out of thin air," Mr. Thaler said. "It was done using what I call first-grade psychology. We knew this was going to work, no question." Indeed, the SMarT plan takes advantage of behavioral economics' basic tenets: "loss aversion" (people fear loss because it causes them far more pain than the pleasure they receive from gain; but since the SMarT plan covers a future raise, they never feel its loss); "status-quo bias" (since people are reluctant to change, the change can be made for them); and "mental accounting" (people have a pressing need to direct different streams of money into different "accounts")."
What do people in low-income nations think of globalization
"...views of globalization are distinctly more positive in low-income countries than in rich ones..." according to the The Pew Center for the People and the Press, says Pejman Yousefzadeh at his blog "Pejmanesque". Here is the complete posting: "GUARANTEED TO GIVE NOAM CHOMSKY HEARTBURN", with links.
The New York Times profiles Bush's new chairman of the Council of Economic Advisors, here: "Into the Politics of Economics" Some key points - Mankiw is unusually good at communicating complicated economic analysis to a lay audience; "...he has few previous ties to the administration, which is know for being centralized..."; he may not believe as strongly in the efficacy of the tax cut program as his predecessor (R. Glenn Hubbard).
Is anti-trust immoral?
Tyler Cohen asks, at the "Volokh Conspiracy", here: "Is it shocking to suggest that there is a strong moral argument against antitrust?".
Postrel on specialization
Virginia Postrel's column in today's New York Times looks at the "trend away from vertical integration" in the U.S. economy. Postrel's blog has a post on the column, with a link to it, here: "Vertical Disintegration". Lynne Kiesling blogs on Postrel's post, here: "Virginia Postrel's written a must-read .... Under what circumstances should we substitute administrative arrangements for the market, and when should be use the market? How do these decisions change through time?
Selling your place in line
Yesterday I posted a link to a blog posting by Brad DeLong on the economics of the right to buy and sell your place in line (for example, a line to buy tickets to a sporting event, movie, or concert), here: "Should you be able to sell your place in line?" Here is another piece on the same topic by Steven Landsburg, from Slate: "The First One Now Will Later Be Last. A foolproof method to shorten queues."
"If a line-placement market existed, you could pay the guy in front of you to leave, or take up a collection among the people behind you and then pay the guy in front to leave. But you don't because 1) social conventions make paying for a place in line awkward; 2) negotiating a price is a hassle; and 3) you're worried about the "free riders" behind you mooching off your investment. Because there is no market, you and the guy up front miss out on a mutually beneficial exchange, which is the precise economic definition of inefficiency..."
Is that all it did?
The Congressional Budget Office distributed a report on "The Effects of NAFTA on U.S.-Mexican Trade and GDP" in May. The impacts on GDP were small. In summary:
"...U.S. trade with Mexico was growing for many years before NAFTA went into effect, and it would have continued to do so with or without the agreement. That growth dwarfs the effects of NAFTA.
"NAFTA has increased both U.S. exports to and imports from Mexico by a growing amount each year. Those increases are small, and consequently, their effects on employment are also small.
"The expanded trade resulting from NAFTA has raised the United States' gross domestic product very slightly. (The effect on Mexican GDP has also been positive and probably similar in magnitude. Because the Mexican economy is much smaller than the U.S. economy, however, that effect represents a much larger percentage increase for the Mexican economy.)
"Some observers look at NAFTA's effects on the U.S. balance of trade with Mexico (the difference between the values of exports and imports) as an indication of the economic benefit or harm of the agreement. The balance of trade dropped substantially after NAFTA took effect and has declined further in more recent years, leading some people to conclude that NAFTA has been bad for the U.S. economy.
"However, changes in the balance of trade with a partner country are a poor indicator of the economic benefit or harm of a trade agreement. A better indicator is changes in the levels of trade. Increases in trade--both exports and imports--lead to greater economic output because they allow each nation to concentrate its labor, capital, and other resources on the economic pursuits at which it is most productive relative to other countries. Benefits from the greater output are shared among the countries whose trade increases, regardless of the effects on the trade balance with any particular country. Such effects do not translate into corresponding effects on the balance of trade with the world as a whole; for a country as big as the United States, that balance is largely unaffected by restrictions on trade with individual countries the size of Mexico. Moreover, even declines in a country's trade balance with the world have little net effect on that country's output and employment because the immediate effects of those declines are offset by the effects of increased net capital inflows from abroad that must accompany those declines.(2)
"Furthermore, CBO's analysis indicates that the decline in the U.S. trade balance with Mexico was caused by economic factors other than NAFTA: the crash of the peso at the end of 1994, the associated recession in Mexico, the rapid growth of the U.S. economy throughout most of the 1990s, and another Mexican recession in late 2000 and 2001. NAFTA, by contrast, has had an extremely small effect on the trade balance with Mexico, and that effect has been positive in most years."
The Larry Summers memo
Larry Summers was an important figure in Clinton Administration economic policy-making, Clinton's last Treasury Secretary, and is now President of Harvard. In 1991, when he was chief economist at the World Bank, he wrote a memo to his boss that began:
"Making the familiar strange"
This great line is from a Virginia Postrel posting today to her blog "Dynamist". The posting, "What Was The Flu Like?", directs the reader to the Grant McCracken "Pepys Now project," the point of which is to explain today's "too ordinary to describe" feelings and understandings to future historians.
We know what it feels like to have the flu, but with medical advance, they [our descendents] won't know. Pepys knew what it was like to live during the plague, but its gone and we don't. For this to work, we have to put ourselves in the shoes of the future people, and make the [our - Ben] familiar strange.
This sounds like a good slogan for someone interested in adding to the world's knowledge. Gravity is ordinary. It's only to someone like Newton who suddenly finds it strange that it becomes an object for analysis.
Napoleon and Alexander were very bad men
"Cronaca" reflects on Napoleon, and links to an essay on Napoleon and Alexander by Victor Davis Hanson (classicist, grape farmer, military historian, and political pundit) here: "Napoleon, criminal megalomaniac". Hanson apparently argues that Napoleon and Alexander were bad men. I haven't read the article yet, but I'll never think of Alexander the same way again after reading Hanson's chapter on his campaigns in Carnage and Culture (a history of the western way of war).
"Hitler similarly engineered a brilliant but brutal march eastward during the summer and fall of 1941. Both he and Alexander were singular military geniuses of the West, who realized that their highly mobile corps of shock troops were like none the world had seen. Both were self-acclaimed mystics, intent on loot and plunder under the guise of emissaries bringing Western "culture" to the East and "freeing" oppressed peoples from a corrupt, centralized Asian empire. Both were kind to animals, showed deference to (but were not really interested in) women, talked of their own destiny and divinity, and could be especially courteous to subordinates, even as they planned the destruction of hundreds of thousands. and ultimately murdered many of heir closest associates and greatest field marshals. Both were half-educated pop philosophers who sprinkled their orders of mass destruction with allusions to literature and poetry. For every promise of a "brotherhood of man," there was a "thousand-year Reich"; for every house of Pindar saved among the rubble of Thebes, there were visions of a new Rome in Berlin; for every gutted Parmenio, there was a murdered Rommel; for every desolate Tyre, Gaza, or Sogdiana, there was a ransacked Warsaw or Kiev; and for every Gederosian desert, a suicidal Stalingrad."
"Both dictators were eerily similar in ways that go beyond being military geniuses who ruled entire continents by their early 30s. In each case ghastly records of slaughter were carefully masked by a professed concern for the arts and sciences—e.g., silly tales of Alexander sleeping with a copy of the Iliad under his pillow and his real efforts to bring a legion of Greek natural scientists with him eastward; or Napoleon's patronage of Vivant Denon (author of the monumental 24-volume Description de l'Egypte) and his gifts of Egyptian booty to a generation of French scholars. Like Hitler's Speer and de Gaulle's Malraux, Denon was one of a long line of gifted toadies dating back to Alexander's Callisthenes, court intellectuals who simultaneously worshiped and loathed the powers that be, who at least noticed them.
"Napoleon and Alexander were money-driven thieves par excellence, perhaps the difference being only that the looted imperial treasuries at Susa, Babylon, and Persepolis yielded more specie than the Swiss banks at Berne. The Great's "Brotherhood of Man" was about as genuinely utopian as the Code Napoléon. Both strongmen dazzled their immediate circle with lapidary self-infatuation—for example, Napoleon's "At twenty-nine years of age I have exhausted everything. It only remains for me to become a complete egoist." Or Alexander's reply to Parmenio's urging before the battle of Gaugamela to take the terms offered by Darius III: "And I would accept them too—if I were Parmenio." "
Should you be able to sell your place in line?
We often ration things on the basis of a willingness to wait in a line. People acquire informal "property rights" to priority rankings they achieve through their willingness to wait. Should people be allowed to buy or sell these property rights? Brad DeLong looks at the question, here: "Waiting in Line: How Economists Think". Worth reading because: (1) the question is interesting; (2) nice example of an economist illuminating a question with a simple model; (3) playful and fun; (4) a reminder that rule changes that increase efficiency may have winners and losers; (5) reflection on the assumption in standard models that relative standing isn't a concern to people.
A Tale of Three Cities
The current multi-national trade negotiations are behind schedule.
Recent articles, taken together, outline the story of these negotiations. "Free Trade Optimism: Lessons From the Battle in Seattle", by Harvard development economist Dani Rodrik in the May/June 2003 Foreign Affairs reviews a memoir by former World Trade Organization (WTO) Director-general Mike Moore. Moore was in charge of the Seattle meetings and laid the groundwork for Doha.
See, also, "As U.S. Balks on Medicine Deal, African Patients Feel the Pain" by Roger Thurow and Scott Miller in the June 2 Wall Street Journal (I assume this is available from the WSJ web site, but only for members). Finally, an article titled “The Doha squabble” in the the March 27 issue of the Economist focuses on negotiations on trade in agricultural products. This is available to registered subscribers at the Economist web site.
The three cities: Seattle - site of 1999 WTO meetings - and of well publicized riots, Doha in Qatar - site of a WTO ministers meeting that laid the groundwork for a new series (or “round”) of trade negotiations, and Cancun - site of a WTO ministers meeting to ratify the work of the negotiators this coming September.
The WTO ministerial meetings in Seattle in 1999 were supposed to lay the basis for subsequent negotiations aimed at reducing barriers to trade. Many people think they failed because of anti-WTO rioting and demonstrations. However, Moore evidently discusses two other problems may have been more important. First, Moore, was new at the job of Director-General of the WTO :
The next WTO ministerial meeting, in Doha, Qatar, was a success; the basis was laid for the new round of trade negotiations, and China got WTO membership. The review gives the impression that this happened in large part because Moore built a consensus by tweaking the Seattle agenda, and marketing it as negotiations to foster development. Agriculture was key to this:
For their part the Europeans have blocked agreement on agriculture. This past March negotiators missed their deadline for an agriculture agreement. The Economist points out that the Doha ministers agreed to:
"In the other corner stand countries that lavish most support on their farmers: the European Union, in particular, but also Switzerland, Norway, Japan and South Korea... The EU rejects the idea that export subsidies should be abolished (it talks about a 45% cut). Its definition of “substantial” is a 55% reduction in trade-distorting subsidies and a 36% cut in tariffs. And it adamantly opposes the idea that those with higher tariffs and bigger subsidies should cut more, suggesting instead that all countries should cut average tariffs by the same amount."
The next ministerial meeting - meant to close out the current round of negotiations - is scheduled for Cancun this coming September. The Economist suggests the Doha round may be truncated, reaching a more limited set of agreements than had been anticipated, agreement may be delayed, or Doha may go "nowhere."
Is the administration trying to convert the income tax into a consumption tax?
Factions in the administration are, according to this Washington Post story by Jonathan Weisman: "Anti-Tax Crusaders Work for Big Shift. White House Wary Of Broad Changes "
How do you administer a world war?
Geitner Simmons (Regions of Mind) posts on David Brinkley's book on WW II Washington D.C., here: "The WWII ‘typewriter crisis’ and FDR’s attack on the ‘parasites’ ". He focuses on how administrators dealt with the logistical constraints and shortages associated with the rapidly expanding workforce. He also provides a photo of temporary buildings on the mall, here: "D.C. in wartime".
Why isn't the Fertile Crescent fertile anymore?
Eugene Volokh of the Volokh Conspiracy points to an L.A. Times article by Jared Diamond (author of Guns, Germs, and Steel) arguing that the fertility of the fertile crescent was destroyed by human environmental tinkering, here: "Civilization and agriculture". Diamond apparently draws conclusions for contemporary society, which Volokh critiques. In an earlier article Diamond argued that prehistoric Easter Islanders destroyed the environmental assets on which their society was based, here: "Easter's End".
Allocating scarce resources among competing ends
Today’s Washington Post has a story by Laura Blumenfeld about Rand Beers, a staffer at the White House National Security Council (NSC) who resigned just before the start of the war in Iraq. Beers had served in the NSC in the Administrations of Reagan, Bush, Clinton, and Bush II. At the time of his resignation he was serving as a counterterrorism advisor. He appears to have resigned in part due to burn out, but also in part due to serious concerns over the conduct of the war on terrorism. The whole article (”Former Aide Takes Aim at War on Terror“) is worth reading. Here I’ll only quote the sentence bearing on the tradeoffs, and the reallocation of resources away from counterterrorism activity, associated with the war in Iraq:
One nation, one market
ParaPundit (Randall Parker) points to the way the U.S. Commerce Clause has helped create a national market and increased national wealth. He also constrast the U.S. approach to the relatively fragmented market in Canada. Here: "Alberta and British Columbia As American States?".
Will the New York State Assembly renew the New York City rent control program?
The New York City rent control program is up for renewal by the legislature this year - it will almost certainly be renewed according to this story in the Economist: "The great Manhattan rip-off". The story isn't too long, but reviews the origins of the rent control program in WWII price controls, its evolution since then, and it's various impacts:
"Meanwhile, a vast bureaucracy has grown up to administer the price controls, supported by volunteers and litigators. The property owner who misses a filing deadline, or has his paperwork mislaid, can be blocked from even permissible rent increases. Given all this, most sane New Yorkers would rather eat their money than join the rentier class.
"Oddly enough, for those landlords adept at navigating the system, returns are likely to be unaffected by price caps, as long as properties were acquired after they had been imposed and the potential for income is understood. Indeed, although the press depicts the fight over price restraints as tenants versus landlords, it is more accurate to see it as tenants paying a below-market rent versus tenants who, in effect, pay the cost of this subsidy, says Peter Salins, the provost of the State University of New York and co-author of a book on New York's housing market (“Scarcity by Design”, Harvard University Press, 1992).
"Who, then, are the lucky tenants? According to another study by Mr Pollakowski, most benefits go to tenants in lower and mid-Manhattan, where the residents are relatively wealthy. The city's poorer folk, most of whom live in the outer boroughs, receive little or nothing. Perhaps the strongest argument offered by supporters of rent control is that it promotes stability; but, typically, long-term tenants in unregulated markets receive similar concessions, since it is in a property-owner's interest to retain dependable renters in his buildings."
"How Health Care Ought to Work"
Future Medicare liabilities are going to place an enourmous burden on government in coming decades. Arnold Kling describes an appropriate private sector health insurance system and talks about some of the psychological barriers we have to thinking about alternatives to our current approach, in short column here: "America Is Crazy ". What would a private system, driven by free market competition look like?:
"Poor people should receive vouchers that enable them to obtain catastrophic coverage. These vouchers will be financed by taxpayer money, of course. Because hospitals are not going to refuse to treat people, everyone should be required to obtain catastrophic coverage, just as every driver is required to obtain auto insurance.
"Health care benefits paid by businesses should be taxable to individuals. This would eliminate the tax advantage to business-paid health care, which in turn would lead to companies dropping health care as a benefit. This would get ordinary companies out of the health care business. It would eliminate the situation in which a change of employer automatically means having to reconfigure your health coverage.
"A health care system in which government involvement is limited to providing vouchers to the poor would be better for the poor as well as more efficient in many respects than what we have today. Unfortunately, mental illness blinds many people to the feasibility and wisdom of such an approach."
Would Hillary Clinton make a good president?
Brad DeLong doesn't think so, based on her performance as a public administrator (head of the health care task force early in the Clinton administration), in his blog posting "Time to Pound My Head Against the Wall Once Again":
"So when senior members of the economic team said that key senators like Daniel Patrick Moynihan would have this-and-that objection, she told them they were disloyal. When junior members of the economic team told her that the Congressional Budget Office would say such-and-such, she told them (wrongly) that her conversations with CBO head Robert Reischauer had already fixed that. When long-time senior hill staffers told her that she was making a dreadful mistake by fighting with rather than reaching out to John Breaux and Jim Cooper, she told them that they did not understand the wave of popular political support the bill would generate. And when substantive objections were raised to the plan by analysts calculating the moral hazard and adverse selection pressures it would put on the nation's health-care system...
"Hillary Rodham Clinton has already flopped as a senior administrative official in the executive branch--the equivalent of an Undersecretary. Perhaps she will make a good senator. But there is no reason to think that she would be anything but an abysmal president."
Ben Bernanke of the Federal Reserve
CNBC has a profile of Federal Reserve governor Ben Bernanke, here: "New governor is shaking up the Fed"
" “I brought Ben’s name to the president because I though he could play a very valuable role as an academic economist,” said Glenn Hubbard, who was President Bush’s top economic advisor. “I think what Ben would like to do, what many economists would like to see, is more of a clear, plain-English translation on how the Fed thinks, what its goals are and how it plans to do them.”
"That may be one of the most significant developments for markets in years, says Blinder [Econ prof and former Fed governor Alan Blinder - Ben].
" “The Fed is lagging the rest of the industrial world in transparency,” he said. “If the Fed becomes more transparent, the markets get to understand the Fed better. They get anticipatory in a correct way — rather than in a crazy way — what the Fed will do. That enables the Fed to work its will on the markets better and faster...” "
What did Martha Stewart do?
Not insider trading. Stephen M. Bainbridge, professor of corporate and securities law at UCLA, explains in the L.A. Times, Here: "The SEC Goes Out on a Legal Limb in Its Bid to Net Martha Stewart".
The SEC is going after Stewart for insider trading - the Justice Department wouldn't (" ). The Justice Department is going after here for obstruction of justice. Virginia Postrel has two posts on her blog about how much trouble you can get into lying to the Federal government, here: "Most Pernicious Statute" and here "Lying to the Feds".
"Not fraud, lying. That rang a bell. At the last advisory board meeting of the Foundation for Individual Rights in Education (FIRE), I had a conversation with FIRE co-founder Harvey Silverglate about the expansive tools federal prosecutors can use to snare just about anyone. (Harvey is both a principled civil libertarian and a criminal defense attorney.) Number one on the list is the infinitely pliable 18 USC sec. 1001, which makes it a crime to lie to a federal agent.
Last night, I emailed Harvey to see if he had written anything about the statute that I might link to. His articles on the subject aren't online, but he sent the following:..." Check Postrel's "Most Pernicious Statute" link to see what he said
What do you learn when you study economics?
Yesterday's Wall Street Journal has excerpts from an entertaining graduation speech given by the president of the Dallas Federal Reserve Bank May 17 to economics graduates at the University of Texas. The full speech is on the web, here: "Commencement Address to Economics Graduates".
"It seems that some teenagers, being the little beasts that they are, toss a brick through a bakery window. A crowd gathers and laments, “What a shame.” But before you know it, as always happens, someone suggests a silver lining to the situation: Now the baker will have to spend money to have the window repaired. This will add to the income of the repairman, who will spend his additional income, which will add to another seller’s income, and so on. You know the drill. The chain of spending will multiply and generate higher income and employment. If the broken window is large enough, it might produce an economic boom. Other catalysts to such booms might be a hurricane, a tornado or just about any government spending boondoggle. Whenever a government program is justified not on its merits but by the jobs it will create, remember the broken window.
"Most voters fall for the broken window fallacy, but not economics majors. You will say, “Hey, wait a minute!” If the baker hadn’t spent his money on window repair, he would have spent it on the new suit he was saving to buy. Then the tailor would have the new income to spend, and so on. The broken window didn’t create net new spending; it just diverted spending from somewhere else. The broken window does not create new activity, just different activity. People see the activity that takes place. They don’t see the activity that would have taken place. Plus, there’s the waste of the broken window.
"The broken window fallacy is perpetrated in many forms. Most of the time, jobs are invoked. Whenever job creation or retention is the primary objective I call it the job-counting fallacy. Economics majors understand the nonintuitive reality that real progress comes from job destruction. It once took 90 percent of our population to grow our food. Now it takes less than 3 percent. Pardon me, Willie, but are we worse off because of the job losses in agriculture? The would-have-been farmers are now college professors and computer gurus or singing the country blues on Sixth Street.
"If you want jobs for jobs' sake, trade in the bulldozers for shovels. If that doesn’t create enough jobs, replace the shovels with spoons..."
More Good Blog Postings
Brad DeLong posts on missed opportunities to free up trade at the recent G8 summit, here: "Time to Bang My Head Against the Wall Once Again"...and on the possibility that we will be making black holes in laboratories soon, here: "Kids! Don't Try This at Home!".
Josh Bolten as head of OMB
OMB Watch weighs in with some background on Josh Bolten, and with some of their concerns over his fitness to head OMB, here: "Josh Bolten Nominated as New OMB Director". I posted earlier on Bolten and OMB, supplying links to New York Times and Slate profiles, here: "Josh Bolten replaces Mitch Daniels".
Good Blog Postings
Virginia Postrel comments on the decline of the anti-globalization movement (manifested this past week by a weak effort at the G8 summit in Evian), here: "MOVEMENT IN DECLINE?".
Arnold Kling points out that people probably ascribe too much power over the economy to decisions made by the President, and even to decisions made by Alan Greenspan, here: "Economic Attribution Error" (also a link to what looks like an interesting paper on the history of fiscal policy in the Clinton administration).
Jane Galt also points to Kling's posting and comments on it, here: "Department of Redundant Link-Praise" .
Max Zawicky posts on state budget crisis induced tax increases, here: "REPUBLICAN GOVERNORS AND THE TAXES THEY LOVE".
How are the states coping with their fiscal crises?
They can't run deficits. They've run down their rainy day funds. When they can't balance the books by raising taxes and cutting spending, they resort to accounting tricks. Today's Washington Post has an entertaining article by Dale Russakoff on some of their efforts: "States Use Gimmicks To Tackle Deficits"
"The way New Jersey Gov. James E. McGreevey (D) got over -- or, actually, around -- this very hurdle sums up the precarious condition of budgets now being crafted in almost every state capital. Unable to stomach enough tax increases or spending cuts to close budget gaps in Year Three of the worst fiscal crisis in a half-century, states are postponing -- and possibly exacerbating -- the day of reckoning through creative accounting.
"Using financial sleight of hand, McGreevey shifted a June payment to school districts into the next fiscal year, which begins July 1, creating a paper windfall of almost $300 million in 2003. Presto! -- a balanced budget. But also a teetering one.
"First, the state auditor flagged a possible accounting irregularity: School districts would record the payment in 2003, the state in 2004. Quickly, legislators wrote budget language to free districts of liability.
"Then 66 districts, facing their own fiscal crises, announced that they could not make payroll without the June checks. Stiffing teachers, even for 10 days, is not an option in union contracts. Legislative leaders proposed to allow districts to borrow what they need to make ends meet and to bill the state for the interest -- an estimated $100,000...
"...The proliferation of accounting gimmicks in almost every state budget has raised concerns in finance, health care, education, mental health, public safety and anti-poverty efforts -- every endeavor that relies on state government. As states move paydays, delay tax refunds, speed up fee collections, accelerate seizures of unclaimed property, borrow billions of dollars, sell off buildings and lease them back in a chaotic rush to paper over record deficits, analysts say that many state budgets are as flimsy as the paper they are printed on. Even a minor dip in the economy, they say, could force states to confront what so far has been unthinkable -- deep cuts in cherished programs or tax increases."