The federal, state, and local governments always adapt the most optimistic scenario of revenues going forward, and then proceed to go ahead and spend on that basis. When these projections don’t materialize they are caught unprepared, especially at the state and local level, since they cannot print money like the federal government. Prudence would suggest that rather than proceeding on the rosiest assumptions, more cautious figures ought to be used. Instead they assume that things will be as good or better than they are at the moment, never worse. This is not to suggest that more realistic projections are not made in some cases, but those tend to be ignored in practice.
But things do occasionally get worse and revenues do fall below expectations. Everyone else has to tighten their belts when things go south. Businesses have to cut back, as do individuals, but not the government, or it goes into crisis mode. In the recession everyone else has had to do more with less, but government just keeps growing, especially at the federal level. Locally, when the economy tanks there is less flexibility. If suburban property values fall, as they have in the housing bust, the income from property taxes that local governments depend upon is going to be reduced since houses are worth less. With reduced revenue they must choose between cutting back or increasing taxes, opting for the latter to the extent they can get away with it.
If governments simply adapted more realistic assumptions they would be in far less trouble, as several states are now, and there would be more stability, But when times are flush and the tax revenues roll in they make sure they spend every penny of it, usually for “unmet needs,” instead of either reducing debt, maintaing a rainy day account, or returning money to the people it belongs to through tax reductions. They usually go for the maximum they can squeeze out, and this is a feature that has been characteristic of all governments throughout history, no matter what form they take.
There is a reason for this, which takes us to my Prime Axiom: All entities constantly seek to grow and expand. Whether it is the state, social institutions, business, educational or religious institutions, at the top of the agenda is continued growth and expansion. It is a collective organic compulsion that takes on a life of its own. Rare is the entity that seeks to reduce itself. There is an even more basic reason for this; people always want more. Whether it is power, money, glory or simply more stuff, everyone wants more. That being the case, people in institutions continuously want more out of the environment they operate in. They feel compelled to be bigger tomorrow than they are today. it is no surprise that government acts in the same way. The differences is that there are fewer checks and limitations on the state than there are in any other domain. They get to write their own rules.
Once we understand how compelling these characteristics are in human nature, it is easy to see why government, which is composed of human beings, inevitably grows without limitation. The state always seeks to govern with the maximum number of resources it can obtain. This leads to ever increasing incursions into the private sphere, which is diminished, as it retreats before the endless state appetite for power and revenue. But as the government takes on more and more, its effectiveness becomes less and less, until it can no longer honor its commitments and heads towards collapse.
How then do we reduce the insatiable appetite of the state? It can only happen if people become aware of the process that is engulfing all of us. There are some states where government has changed course, limiting itself and lowering taxes, and it is no surprise that they are growing while other states with high taxes and regulation are losing jobs and people to them. It is only when we realize what we are doing to ourselves, for we do have a government composed of the representatives of the people, that we can begin to reverse course. We do not always need more and more, and must learn to limit ourselves. Some things do not get better with growth and expansion, for where the state is concerned, it contains the seeds of its own demise.