June 2, 2012, 9:27 am
Mainly as a note to myself: What was once Peter Kenen’s big insight about optimum currency areas is now a commonplace: They’re much more likely to be workable if you have fiscal federalism, so that there are large automatic transfers to depressed regions. Now, I often compare Spain with Florida: both had huge housing bubbles followed by busts. Florida, however, has its retirement and much of its health care paid for from Washington. So how big are the transfers?
OK, a crude calculation:
1. From IRS data, we find that Florida’s tax payments to Washington fell approximately $25 billion between 2007 and 2010, the bottom of the slump.
2. From Labor Department data, we find that in 2010 special unemployment insurance programs — extended benefits paid for from DC — were about $3 billion in 2010.
3. From SNAP (food stamp) data, we see that food benefits to Florida rose about $3 billion over the same period.
So as I read it, between falling tax payments without any corresponding fall in federal benefits, plus safety-net aid — not counting Medicaid, which would make the number even bigger — Florida received what amounted to an annual transfer from Washington of $31 billion plus, or more than 4 percent of state GDP. That’s a transfer, not a loan. And it’s very big.
Oh, and we should also add both FDIC costs and Fannie/Freddie losses in Florida.
Aid on that scale is inconceivable in Europe as currently constituted. That’s a big problem.
Mainly as a note to myself: What was once Peter Kenen’s big insight about optimum currency areas is now a commonplace: They’re much more likely to be workable if you have fiscal federalism, so that there are large automatic transfers to depressed regions. Now, I often compare Spain with Florida: both had huge housing bubbles followed by busts. Florida, however, has its retirement and much of its health care paid for from Washington. So how big are the transfers?
OK, a crude calculation:
1. From IRS data, we find that Florida’s tax payments to Washington fell approximately $25 billion between 2007 and 2010, the bottom of the slump.
2. From Labor Department data, we find that in 2010 special unemployment insurance programs — extended benefits paid for from DC — were about $3 billion in 2010.
3. From SNAP (food stamp) data, we see that food benefits to Florida rose about $3 billion over the same period.
So as I read it, between falling tax payments without any corresponding fall in federal benefits, plus safety-net aid — not counting Medicaid, which would make the number even bigger — Florida received what amounted to an annual transfer from Washington of $31 billion plus, or more than 4 percent of state GDP. That’s a transfer, not a loan. And it’s very big.
Oh, and we should also add both FDIC costs and Fannie/Freddie losses in Florida.
Aid on that scale is inconceivable in Europe as currently constituted. That’s a big problem.
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