Red States, Blue States, and Zombie States

American Thinker.com ^ | August 1, 2020 | Barry Paulson and John Merrifield

[Kaslin]

Over the past two decades, most states have experienced debt fatigue, allowing debt to increase to levels that exposes them to default. When the ratio of debt to personal income exceeds 10 percent, states risk default on their debt. In our research we designed new fiscal rules called “debt brakes” that can constrain the growth in spending and restore sustainable levels of debt. We explore the potential impact of the debt brakes in the different states.

States have responded to the risk of default quite differently; we distinguish between red states, blue states, and Zombie states.

Red states are states that have not experienced debt fatigue. These states consistently pursue prudent fiscal policies designed to maintain sustainable debt levels. Texas, for example, has consistently pursued prudent fiscal policies. While the debt/personal income ratio has been rising in Texas, it is still well below the debt tolerance level. Some red states, such as Florida and Utah, experienced an increase in the debt/personal income ratio above the debt tolerance level, but responded with prudent fiscal policies to restore sustainable debt levels.

If red states had enacted the proposed debt brakes, this would have would have constrained the growth in spending and maintained debt/personal income ratios below the debt tolerance level over the past two decades. Enacting the debt brakes today in red states would assure that the debt/personal income ratio is maintained below the debt tolerance level in the forecast period.

Blue states are states that have experienced debt fatigue, failing to pursue the prudent fiscal policies required for sustainable debt levels. States such as Colorado and Kansas experienced a sharp increase in the debt/personal income ratio during the financial crisis in 2008, and during the coronavirus pandemic.