Who Are the Real Fiscal Conservatives?

Source: "Truth and Integrity  in State Budgeting"
Source: “Truth and Integrity in State Budgeting”

Paul Volcker is one of the real heroes of the modern economic profession. During the late 1970’s and early 1980’s he conquered the “Great Inflation” by taming the growth of the money supply. Interest rates rose to levels unprecedented in modern American history. During my time in charge of cash management at AIG, I bought and sold money market securities yielding 20%; today similar instruments yield less than 1%. His efforts led to President Ronald Reagan’s “Morning in America” and a renewed attention to monetary policy. His success, as painful as it was,  gives him lots of “street cred.”

The Volcker Alliance recently published an analysis of the budgets in three states:  California, Virginia, and New Jersey.  The results will be surprising to many.  He gives kudos to California and Virginia, and holds a dim view of New Jersey, home of Republican presidential wanne-be, Chris Christie.

Standing alone, California would be the world’s eighth biggest economy with domestic output equaling US$2.1 trillion. Under Democratic Governor Jerry Brown, the Golden State’s credit ratings have been raised multiple times by the rating agencies.  Under his leadership,  voters have approved some temporary tax hikes, increasing budget reserves and improved funding for pension liabilities of teachers and other government employees.  According to Volcker, California’s outstanding debt has been reduced by approximately US$10 billion in three years.

The Old Dominion comes in for praise by the former Fed Chairman.  In an interesting comment he states that the budget professionals in Richmond serve for many years while the Governor is restricted to one 4-year term.  Budget cycle planning, which takes as long as 6 years, removes some of the politics out of Virginia’s budget process.  Virginia’s unfunded pension liability of US$ 3,436 per employee is only a few dollars more than that of the Golden State.

New Jersey, home of Gov Christie, leaves much to be desired according to the former Fed Chairman.  Volcker’s analysis paints a messy picture of the Garden State’s fiscal condition.  Volcker lists myriad accounting and financial tricks that have been employed to balance the home of the Jersey Boys: these do include not using the proceeds of bond sales for their stated purposes.  Frequent use of non-recurring revenues for operating purposes.  And diverting tolls from the turnpike from their stated use to maintain that highway.

It is a shame that Volcker did not include Kansas in his analysis.  Governor Sam Brownback, a Tea Party favorite, has enacted a budget cutting, tax reducing program that only a “fauxconomist” like David Bratt would endorse.  The budget deficit has ballooned, school systems in some detracts have closed early due to lack of funding, and a liberal website reports today that the Kansas Gov has threatened to cut off funding for the judicial system if it does not rule in his favor should a court challenge arise to his policies.

— D. Leslie Schreiber

Share this article


(comments below)


(comments below)


  1. larryg Avatar

    Many people are frustrated with Government – and even long-standing institutions – and it’s reached an almost irrational frenzy where many now support abolishment of major parts of it.

    It’s beget the Tea Party – which has not gone away at all.. just look at the 7th district in Va.

    I used to think – it was not too surprising that some rural Congressional districts could go in that direction – but saner heads would prevail in the Senate.

    Well scratch that off.. maybe a dozen times over..!!!

    but it IS interesting hearing candidates for POTUS listing out the Federal Cabinets and Agencies they’d shut down… and they get themselves so wound around the axle that the guy they said the would never support – gets the nomination… – Romney…

    So we have some very interesting GOP candidates running – and I think the American people are now re-examining what the country is really about and whether they like it or not or want change.

    I think a lot of wing nuts are going to be ultimately disappointed again – at least I hope so. Can anyone image a Ted Cruz as POTUS? really ? or maybe Trump or … geeze… this is downright scary…

    Lord help us.

    1. NoVaShenandoah Avatar

      I am not surprised at the results of the study – and yes, an analysis of Kansas and Wisconsin vis-a-vis Minnessotta would be interesting.

      My empirical observation is that despite all the talk the Republicans are fiscally reckless. The latest example on the national stage was the Bush presidency. there is also the example of Rubio who spends money before he gets. And I won;t even mention that real ‘numbers’ guy Ryan who cnnot add and doesn;t know how to use a calculator, either.

      I am often puzzled by the Democrats’ policies, but at least Obama did include the wars in Iraq and Afghanistan in the budget – for the first time since 2003!

      1. larryg Avatar

        You are correct The Republicans right now are boosting defense spending but doing it “off budget” … same old , same old.


        it’s not good enough that we already spend a trillion dollars for national defense out of a total of about 1.5T in income tax revenues…


        it’s not good enough that we spend more than the next 10 countries COMBINED – including all of our allies and all of our adversaries.


        more tax cuts – and more defense spending.. no worries – the “cuts” will generate more … you got it – tax revenues. Ask GOv Brownback …

  2. Les, Interesting study — I’m jealous that you spotted it before I did. It’s reassuring to see that someone of Volcker’s stature gives high marks to Virginia’s budgeting process.

    A couple of comments on your commentary:

    * Jerry Brown deserves credit for digging California out of a very deep hole. But the current gusher of tax revenue is reminiscent of the gusher during the last economic cycle. Because California’s tax code has such high income tax rates on the rich and because the state is home to so many super-wealthy, so much of whose earnings are comprised of stock options, equity holdings and bonuses, state tax revenues surge when the stock market rises. But, just like last time around, revenues will collapse when the IPOs stall and the stock market stumbles. The state has not fixed that fundamental problem. A repeat of the financial crisis is inevitable.

    * New Jersey’s problems are far bigger than Chris Christie. The problems you cite did not originate with him. One can argue how effective a job he has done in fixing them — I do not know — but it is disingenuous to pin the blame for those practices on him alone. Of one thing I am certain, New Jersey Democrats have not been championing the cause of more transparent and honest accounting.

    * Regarding Sam Brownback’s tax-cutting experiment in Kansas… True, things haven’t worked out as Brownback had naively hoped. But you should read Stephen Moore’s recent WSJ piece on the success of cutting taxes, cutting spending and reforming unemployment insurance in North Carolina. That case study would seem to support the economic policies espoused by “fauxconomist” David Brat.

    1. larryg Avatar

      California is the 7th biggest economy in the world – I wonder how they stack up to the other top 10 in terms of debt?

      IMHO – Stephen Moore is a dumbass.. like Brat… both cut from the same cloth. I’ve followed Moore for a while now in print and on TV and I’m not at all impressed – he reminds me of those who believe in theories and discount reality.

      Take a harder look at NC – they’re headed down the same path as Kansas.. with the same end result.. the’re just a bit slower getting there.

    2. NoVaShenandoah Avatar

      The Kansas experiment went as well as Reagan’s and Bush’s. The end result of the Reagan policies was to triple the debt. (BTW, he did not even balance the 1985 budget as he promised). The end result of Bush’s policies was to take a budget surplus into a deficit that doubled the national debt (BTW: in 2001 he argued that tax cuts were necessary because paying off the debt by 2005 was too dangerous).

      The pre-Reagan Republicans actually did care for policies that produced results. Starting with Reagan the only concern seems to be ideology.

      There are 2 wonders here: (1) why don’t Republicans learn – or is it that they hate this country so much that they want to destroy it; (2) why do people vote for such consistent failures?

  3. CrazyJD Avatar


    I’m amused at what passes for analysis in your posts. “Stephen Moore is a dumbass”. I don’t remember the formal name of this informal fallacy; the common label is Name-Calling. The other informal fallacy that comes to mind is Argument by Assertion. Again, the formal name escapes me. Others will supply it. Sorry I don’t have the time to look it up.

    1. LifeOnTheFallLine Avatar

      The terms you are looking for are ad hominem and Proof by Assertion. The first may qualify (he should have used something more provable like “discredited liar”), but since he hasn’t formally repeated the argument as a counterpoint this isn’t proof by assertion.

      As to the substance of LarryG’s posts over time: he raises interesting questions and does his own leg work. He doesn’t just throw stuff out there and say “Other people can do the hard work for me, I’m far too busy for 30 seconds of Google!”

    2. larryg Avatar

      you got time to comment but not look up? geeze!

      Moore is pretty right a right-wing doctrinaire who works for Heritage and Club for Growth, got his “economics” degree from George Mason and writes agenda-driven editorials for WSJ.

      here is an example:

      ” In a 2014 Kansas City Star opinion piece entitled “What’s the matter with Paul Krugman?” Moore responded to Krugman’s opinion piece entitled “Charlatans, Cranks and Kansas.” In his piece, Moore claimed that job creation had been superior in low-taxation states during the five years following the recession ending June 2009. After substantial factual errors were uncovered in Moore’s opinion piece, the Kansas City Star indicated that it would no longer print Moore’s work.”

      his views are pretty much like Brownbacks … and he does want Heritage often does which is publish agenda-driven propaganda and misinformation.

      He’s entitled to his view -he’s not entitled to a reputation as an objective economist .. he’s thoroughly brewed in the same tea that Brat is.

      Brownbacks mistake – as well as NC – is following the theories that Moore espouses.

      how’s that CrazyJD?


  4. Cville Resident Avatar
    Cville Resident

    Perhaps NC and CA aren’t exactly representative….CA has Silicon Valley, NC has the RTP….in an era where those are both going to be revenue gushers for their respective states…..which may make any policy look like it’s “working”….Just a thought.

  5. Les Schreiber Avatar
    Les Schreiber

    The thing that is interesting about California is that it is the bluest of the blue states,but the home of technology which is the biggest driver of growth in the current economy.

  6. larryg Avatar

    I think if you compare California debt as a percent of GDP and compare to other countries – including the US – it’s better (lower) than most yet no shortage of the gloom & doom – “Democrats tax and spend and ruins economies’ folks..

    1. Cville Resident Avatar
      Cville Resident

      Gary Hart spoke at U.Va. in 2003. I don’t think there’s anyone (right or left) who would disagree with the proposition that Hart is “thoughtful.” He may be a lot of other things, but he was one of the more thoughtful men in public life. I went to see the speech even though I was not a student.

      In 2003, he made a point that stuck with me then, and it’s only gotten truer as the years pass. He said that economists were expecting some serious economic growth from the Bush tax cuts in 01 and were quite surprised to see so little effect. This was 12 years ago. He hypothesized that it was due to a global economy in which domestic decisions did not have anywhere near the effect that they used to for national economies, especially one as open as the U.S.

      I completely agree with that. Domestic tax cuts and tax increases aren’t anywhere near as potent as they once were. Rather, as the economy becomes more global and knowledge-based, many factors play a role in how an economy functions. The tax cut/tax increase dogma was useful for a largely manufacturing economy. Not so much nowadays……

      Thus it doesn’t surprise me one bit if CA and NC are doing well even if they have different tax treatments. They have enormous drivers of economic activity/productivity geared for the 21st century (RTP and Silicon Valley).

      1. larryg Avatar

        I just find the whole idea of supply side to be loony.

        you have to think about what tax cuts do in terms of the recipient.

        if you cut taxes to middle or lower class – they will usually spend it to buy things – and in turn increase aggregate demand for products and services which will result in jobs.

        it’s the entire idea behind the stimulus – in general and the “make work pay” tax credit which was nothing more than a tax rebate to ordinary folks. You did not get the credit if you made over the threshold income. The same is true about earned income tax credits.

        but if you cut taxes on the rich – they’re not going to spend more money in the same way.

        and supply side suggests that they’ll “create” more jobs with that money as if they going to open new plants or hire more employees – even if there is no increased aggregate demand – they’ll just “create” the demand by make more product.

        it’s true new employees even if they’re making stuff that is excess inventory will go out and spend their wages and in turn create real demand for other products and services – but how many companies are going to continue to pay people to produce excess inventory so they can keep their jobs?

        The “investors” who got the tax cuts will be trading their rebates for warehouses full of inventory that won’t sell.. that does not sound like capitalism at all.

        basically what it really is – is non-govt “stimulus” coming from individuals wealth rather than from govt debt.

        sounds good – I just don’t think too many wealthy are going to sacrifice their wealth to stimulate the economy.

        one can likewise argue that the govt money is borrowed against the future – and yes that’s true but if it gets the economy rolling again – i.e. increase aggregate demand and in turn increase tax revenues – to pay back the debt – and reduce the deficit – as it is doing right now – cutting the deficit in half.

        I agree a deficit is not sustainable and we do have a spending problem not revenues problem but we refuse to cut defense and we refuse to charge seniors who make 85K in income more than 105.00 a month for health insurance. We need to go back to Medicare that requires 20% co-pay and stop subsidizing Medicare Advantage.

        DOD spending will have to be reduced. It’s obscene.. we take in about 1.5T in income taxes and we spend a trillion on DOD + National Defense…

        we spend money on MRAPs and armored troop carriers for domestic police department WTF?

        spending on schools is going to have to decrease – we need to limit funding to core academic only and make anything more than basic electives fee-based.

        we need to cut college loans..

        we need to cut farm subsidies as well as subsidized flood insurance for more than one median-priced owner occupied home.

        we need to do the same thing for mortgage tax deductions – cap them to one median priced owner occupied home.

        we also need to cap tax breaks for employer-provided insurance – to the median price of 20% deductible insurance or just stop the tax breaks all together – they cost us 170 billion a year… far more than ObamaCare.

    2. NoVaShenandoah Avatar

      I hate to point out that comparing a state’s debt to a country’s is invalid. A state for instance does not have to support activities (such as defense, welfare, etc) that a country does, especially activities that are necessary but not economically productive (ie, defense without a defense export industry). But comparing the relative performance between states is always legitimate.

      1. larryg Avatar

        that’s probably a fair point.

Leave a Reply