There are two basic ways people think about money -- either it's a rock or a river.
Those who think money is a bunch of rocks tend to want to store up the rocks and won't tolerate a rock debt or deficit. After all, that means someone else has more rocks than you, or you owe them some of your rocks, and that can't be good.
Those who think about money as a river believe that the energy of the water flowing is what turns the wheels of commerce. Whether the money flows from here to there, or there to here, only matters if your waterwheel is oriented a certain way. Accordingly, they tend to build wheels that work in either direction. They also know that water cycles back around, with precipitation and runoff both contributing. Water moves on its own, and there is an equilibrium if it's managed well.
I'm in the camp of the river people. Apparently, the governor of Illinois is in the camp of the rock people, and his state's higher education system is about to pay a stiff price for his hard-headedness.
The Democratic-led legislature and the state's new Republican governor are at loggerheads over the budget. The rock-oriented Republicans believe that deficits are bad, that every spending request must be balanced out by spending cuts, and so forth. The river-oriented Democrats don't worry about deficits as much because the flows of money are their focus, and spending is a flow.
This discrepancy in metaphors has led to dire consequences for state universities in Illinois:
- Students are not receiving money from grants and scholarships
- Faculty at all levels are being threatened with job cuts
- Universities are not receiving state funds, which can be up to 1/3 of their budgets
- Strong faculty are being wooed by universities outside of Illinois with job offers
- Students are beginning to fill out paperwork to transfer outside of Illinois
The first three short-term issues are important, but the last two long-term issues may haunt Illinois for decades to come. Fiscal reputation is part of fiscal responsibility, and if a fiscal policy has as a consequence a high degree of unreliability, the damage can be enduring. Illinois already has a reputation for corruption (four of its last seven governors have ended up in prison). Now, it may be gaining a reputation for fiscal unpredictability.
Illinois is not the only state suffering from rock-headed budgeting. Kansas, Michigan, Louisiana, and Ohio are all suffering at the hands of budget warriors who believe that a state budget is like a household budget, and must balance. (It would be interesting to see whether their governors have credit cards, auto loans, and mortgages -- most household budgets run deficits of one kind or another pretty consistently.)
Debts and deficits have a long history in the fiscal thinking of the United States, one that many of these governors -- who I would venture fancy themselves of something approaching "originalists" when it comes to the Founding Fathers -- aren't aware of or have forgotten. Alexander Hamilton believed that debt was virtuous, as it aligned the interests of the two parties -- the one owing the money wanted to retain the goodwill of the lender and pay it back, while the lender wanted the debtor to do well and pay the money back.
Meanwhile, the rock-based budgeting is proving its inadequacies, as tax cuts (meant to leave more rocks on the market) have left state coffers barren. In Kansas, the budget deficit has ballooned, and other Republican-run states are seeing the same effects. These states are literally saving themselves poor.
Austerity thinking is the enemy of growth. Saving rocks for a rainy day only makes sense if you're a river thinker, and want that rain to flow through your economy to drive growth. It's time for governors and other leaders to stop thinking of money as something you stock. It's time to let it flow.