Reckless spending endangers AZ's future
Nobel Laureate economist Milton Friedman once noted that people spend money in one of two ways: carefully or carelessly. We spend carefully when it's ours, carelessly when it's not.
Government is always spending someone else's money.
This year, the state's general spending grew 19 percent. To put that increase in perspective, consider that Arizona's population grew just over three percent.
State government spends $834 per second. In just two minutes, the state spends enough to buy a fully-loaded Cadillac Escalade.
Because of the way Arizona's budget is designed, spending this year creates commitments for future spending. All money spent this year will automatically be added to next year's budget.
In addition, voters have passed several automatic spending increases through initiatives. So, even if legislators do not appropriate another penny or adopt a single new program, this automatic spending adds another $600 to $700 million to the budget every year.
At this rate, Arizona will spend an estimated $40 billion a year by 2012.
State-issued IOUs drive spending even higher. Arizona's state agencies and universities had $6.9 billion in outstanding debt at the end of 2005. These agencies have more debt than our state income tax brings in to the government in a year. Dependence on debt financing has caused annual interest payments to soar, tripling in just eight years.
Arizona government spending now makes up 13 percent of gross state product. That means 13 percent of the state's economic resources'-- labor, materials, time -- are consumed by government. As more resources flow into government coffers, politicians replace entrepreneurs as the economy's main decision makers. Unless Bill Gates is running for governor, that is a mistake.
The more the state spends, the more personal income it absorbs, leaving individuals with a smaller share to save, expand existing businesses or fund new enterprise.
Nevertheless, some argue government can spend its way into prosperity by funding rainbow bridges, convention centers or the latest research and development fad. But research shows little or no relationship between increased public spending and economic growth.
Consider Europe. Countries such as Sweden, France and Spain routinely spend upwards of 50 percent or more of national product, and their economies are stagnant. Euro-zone unemployment rates average 8 percent.
One way to control state spending is to make sure the amount of money politicians can spend only increases at the same rate as population and inflation. Any revenue taken in above that limit would go back to the people. If a spending limit were in place for the coming five years, a family of four could save $4,000 to $5,000 in taxes.
Another way to rein in spending is to institute zero-based budgeting. Under the current system, when legislators prepare budgets, they use the previous year's budget for each agency as a starting point. With zero-based budgeting, each agency would start the year at zero and have to create a new budget based on its actual needs.
Arizona is fortunate to have a strong economy right now, but our current rate of spending increases threatens to destabilize the state in the long run. Ensuring the state is spending its money wisely during a boom helps soften the blow during a bust. To keep Arizona a great place to live and do business, we must get a handle on state spending.
(Noah Clarke is an economist with the Goldwater Institute's Center for Economic Prosperity, www.goldwaterinstitute.org.)
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