The Beast is Alive and Well at the State Level

The blogosphere has seen much discussion recently of the "Starve the Beast" hypothesis, the claim that tax cuts restrain spending while tax increases fuel spending.   Left-of-center bloggers like Brad Delong have pointed to the past six year as evidence against STB, since federal spending has grown in the wake of the Bush tax cuts.   And a crude empirical analysis by William Niskanen of the libertarian Cato institute seems to contradict STB.

Whether existing evidence from the federal budget is consistent with STB is a matter of ongoing dispute, however.  Greg Mankiw provides a good discussion here.

In addition, the federal budget is not the only relevant piece of evidence.  State governments also face tax and spending decisions.  This story in today's Wall Street Journal is consistent with STB:

Most states are enjoying improved financial health as tax revenues generally continue to pour in above projected levels, though that may not translate into significant tax cuts for residents.

Two new surveys show solid revenue gains during the first few months of this year. But a separate report yesterday by the National Governors Association and the National Association of State Budget Officers shows many state officials are worried about ballooning spending in such areas as health care, education and public pensions.

The STB interpretation of these facts is that unexpectedly high tax revenues has made it easy for states to avoid restraining runaway spending.

Comments

[LP Mike Sylvester]

Starving the beast does not work at all.

There is only one solution.

Vote the IDIOTS out of office.

We need some Libertarians...

Mike Sylvester

[Mike Huben]

Of course the foolish ideological STB interpretation doesn't notice that non-governmental spending on health care and education is going through the roof. Pensions are also coming home to roost in the parts of the private sector that haven't left employees without retirement benefits.

The problem with such stupid ideologies is that they presume there is only one cause for events. Which leaves them unable to explain events that match the ones they explain, but aren't likely to have their preferred cause.

[Chris]

There are explanations for those events. Government policies have removed price sensitivity from the health sector so prices have no relation to products and services being purchased.

Of course I have no idea why you would bring these items up as they have absolutely no relation to what Miron actually posted about.

Calling a theory foolish doesn't make it so.

[justsomeguy]

This does not even sort of convince me that starve the beast works at the national level. It's an apples to oranges comparison. State government and federal government are two very different animals. For example, states need voter approval to issue bonds, while the US government does not.

[Mike Huben]

Chris:

Miron calls this evidence:
"state officials are worried about ballooning spending in such areas as health care, education and public pensions". So it's fair game to point out that the evidence from the private sector works against his argument. Learn to read.

As for "calling a theory foolish doesn't make it so", that's why I provided evidence. Learn to understand arguments.

[Chris]

I see that you conveniently ignored the explantion about rising health care costs. Good for you.

I also failed to notice any evidence that STB is a foolish theory.

[Mike Huben]

Chris, let's presume for a monent that your claim about government intervention raising costs was true.

Even if it was true, that still wouldn't make "starve the beast" correct. rates are going up for government and non-government purchasers, so STB psychological explanations for government behavior just don't explain everything. Please keep your libertarian conspiracy theories straight.

That WAS my evidence that STB is foolish: it doesn't explain the identical problems in the private sector. Please learn to read and think before you criticize.

[Peter F. Kuntz]

Isn't the real difference that the federal government gets to -- in effect -- print the money?

"Starve the Beast" can work on the state level.