The 50 U.S. states are facing, in the midst of the Second Great Depression, a profound fiscal crisis.
That much is clear from a new report by the State Budget Crisis Task Force, chaired by Richard Ravitch and Paul Volcker. Their argument is that the current fiscal crisis will persist long after (or if) the national economy rebounds as the states confront rising health care expenditures, underfunded pensions, ignored infrastructure needs, eroding revenues, and expected federal budget cuts. While the authors of the report fail to propose any real solutions (apart from the need for more “transparent, accountable state government finances”), they do include two important observations.
First, while state government education—related primarily to public higher education—has continued to rise, states have been shifting the costs of this employment. They have cut back substantially on appropriations for higher education, and public colleges and universities have been forced to respond by raising tuition and, as reported by Reuters, recruiting financially secure foreign students.
Second, states have been cutting non-education employment sharply—in prisons, hospitals, institutions, courts, and state agencies. In the view of the authors,
This is a fundamental shift in the way governments have responded to recessions and appears to signal a willingness to “unbuild” state governments in a way that has not been done before.
The fact is, neither mainstream political discourse nor mainstream economic theory has anything substantial to offer in terms of making sense of the conditions and consequences of this fiscal crisis of the states. What is missing, in particular, is a class analysis of the current tax debate, which by his own admission James O’Connor failed to fully explore in his seminal 1973 book, The Fiscal Crisis of the State.
And yet our current discussion of tax policy is drenched with class. On one hand, we hear Keynesian calls to lower taxes on the middle-class, because the economic system needs people to spend more money. On the other hand, there’s the chorus to lower the tax burden on the rich—the so-called job creators—because the economic system needs more savings and investment. And then there are the poor, who are presumed to want to supply more labor power only if they receive less money from the state via cut in welfare benefits.
What we need to do is pick up where O’Connor left off and examine the class conditions and consequences of the current fiscal crisis of the states.