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A scientist, trying to save a little on the side. I am interested in high alpha trading strategies requiring little time commitment.
  • On Alleged Red State Fiscal Hypocrisy 0 comments
    May 19, 2012 5:13 AM

    The paper "Why do Red States Vote Republican While Blue States Pay the Bills?" makes for some interesting reading. It analyzes the data to verify the well-known phenomenon that states which vote Republican take in many more Federal dollars than they pay back. Does this imply that Republicans are hypocrites?

    I think it's just as likely that the Senate votes from low-population states are up for auction, low-population states tend to be sparsely-populated, and sparsely-populated states tend to be Republican. Note that Texas (mostly red) pays more than it takes in, whereas Hawaii (mostly blue) takes in 50% more than it pays. Finally, Washington, DC, which is almost entirely blue, takes in 5 times more than it pays; perhaps, this can be excused because it is the seat of government.

    This is an important topic because of the budget crunches facing state and local governments. If California were to pay as much as it received in federal dollars, it could close its current $16 billion budget deficit nearly 3 times. The insolvency abetted by California's generosity could have dire consequences for state and municipal bond markets, echoing the situation in the Eurozone.

    However, if you wish for austerity in the US, be careful what you wish for -- those bearing the costs may be different than those you had in mind.

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