For several decades we have been conducting an economic-policy experiment in state and local governments, and now it's time to stop the testing because the results are clear: The dominant paradigm, incentive-fueled competition among these governments, does not create economic prosperity.

Two big facts confirm this conclusion. First, as the New York Times reported last December, states, counties and cities are giving up more than $80 billion each year to companies in tax breaks, outright cash payments, and buildings and worker training. Second, the wages of the taxpayers who have been footing the bill for this stuff have been flat since at least 1979. Indeed, some economists, including stalwarts of the establishment like Larry Summers, have concluded that we are now in an economy whose normal state is one of mild depression as a result of inadequate demand. It seems obvious that the lack of demand is the result of depressed wages. READ MORE

Government finance professionals, especially those working in the municipal bond market, like to talk about “the fundamentals” when discussing the prospects of individual governments or of the market as a whole. But the term is largely undefined. I like to think the fundamentals encompass three elements: governance, debt and demographics. Bridgeport, Conn., is an interesting case to use to explore these crucial elements.

First, governance: Connecticut’s largest city is the only city I’ve ever heard of where public employees are also members of the city council. Although the city charter prohibits members of the city council from holding any nonelected office or appointment paid out of Bridgeport’s treasury, five of its 20 members are city employees; the council president also is the deputy director of the city’s Department of Labor Relations. Bipartisan legislation closing a loophole in state law that allows these people to skirt the charter prohibition was defeated in the legislature’s last session. READ MORE

Inequality of wealth and income in the United States is as high as it has ever been. Family net worth is at a 43-year low. Nearly one out of six Americans relies on food stamps, a program which at the moment is threatened with extinction. In New York City, about 50,000 people, of whom 21,600 are children, are in homeless shelters.

These are troubling facts, and not just at a moral dimension but in terms of the threat they pose to social cohesion and stability. These economic conditions are not the inevitable result of technological change, globalization or some other inexorable force. They are human artifacts, not unlike climate change, and as with climate change they can be altered by intelligent, creative people pursuing long-term public-policy solutions. READ MORE

When the fiscally unsustainable meets the politically impossible, be ready. Most times change happens incrementally as the bureaucracy grinds along and the politics runs a well-worn path, with the players carrying out familiar roles in a kind of kabuki dance. But the path can become a rut, a ditch that wears deeper and deeper until it looks like the Grand Canyon. Everyone can see that the course they are on is unsustainable, but changing course seems less and less possible.

An example of this is the fiscal situation in California. At a recent Governing event in Sacramento, I moderated a panel discussion on the state's fiscal situation that included two veterans of California policy and politics, former state finance director Michael Genest and political consultant Joel Fox. I was astonished at how many different tax- and government-reform commissions and task forces they had been involved in over the years, going back to the 1990s. READ MORE

Since its creation nearly three decades ago, the Governmental Accounting Standards Board (GASB) has been embroiled in controversy as it has sought to increase accountability and transparency in state and local government financial reporting. Some of these fights reached a level of vitriol that would astonish those who imagine auditors and accountants to be introverted, passionless bean-counters. But how you count the money matters, and accountants know that.

There is at the moment a proposal to limit the scope of GASB. The proposal's timing suggests a connection to recent federal legislation stabilizing the board's funding in that some of the trustees of the Financial Accounting Foundation, the independent body that oversees accounting standards-setting boards, may have agreed to rein in GASB in order to blunt opposition to the funding provision. But the long history of controversy surrounding GASB suggests that there is more at issue than its funding. READ MORE