It puzzles me that states have to maintain a balanced budget when it is obvious that they should not, that balancing the state budget exacerbates the peaks and troughs of the business cycle. I thought this was fundamental economics, so why have states kept this disasterous policy? Is it really just a bad historical practice no one has corrected, which is quite frightening, or is there some rationale I'm missing?

They don't and should not have to, so "can't" was the wrong phrasing. It is, alas, a verity that many states do hold this addlepated pro-cyclical policy stance.

it couldn't mean that universal health care will be a lot more expensive than you progressive health wonks have been telling us. nah. that couldn't be it.

Wait...what? US States and municipalities can issue bonds. What do you mean, they can't run budget deficits?

What it means is that they can't have a net deficit at the end of the year - i.e. more money going out than money coming in. They can borrow money to cover the gaps, but that's risky for a state - do too much of that and it affects their local credit markets.

As for Jamie, the point (which you apparently missed) is that because of idiotic legislation like the Balanced Budget Amendments in virtually all the states, when state revenues (usually dependent on sales and state income tax) decline during a recession, instead of spending more to act as a counter-cyclical force, a state has to either cut spending or raise taxes. Neither is helpful in a downturn.

One thing I might add - have any of the states actually tried for single-payer on the state level?

There are distinct differences, in my opinion, between even the Hawaii-style "offer 'em a public plan for the poverty-stricken", and a true single-payer system. That's part of the problem; none of the states are really willing to simply put out a public plan that would challenge the insurers. They all try to wing around it, either by regulating the insurers directly (which allows them to stay in business), or by trying to "cover the gaps."

I thought this was fundamental economics, so why have states kept this disastrous policy?

Good politics.

The utility, every second November, of the 'run-the-government-like-a-business' and 'families have to balance their budgets' arguments will last till the heat-death of the universe.

Think how long the Republicans have been skating on 'we're the party of fiscal probity', since it comported with external reality.

Then multiply it by ten.

This was a complete non-issue in Hawaii, at least this past election. There were no state-wide races, but I didn't see it in any state legislative ones at all. (although only about a half dozen were competitive) And the only budget cuts that have made the front page (nearly every day) are the projected Dept of Education ones.

"The utility, every second November, of the 'run-the-government-like-a-business' and 'families have to balance their budgets' arguments will last till the heat-death of the universe."

Too true, and the irony is that there is hardly any business out there that doesn't borrow money (and sadly, hardly a family out of debt either). It is simply impossible to have a rational debate on fiscal policy in this country. Maybe that will change but don't bet on it.

States have no requirement to balance their budgets yearly; many states are required to balance their operating budgets, but are free to borrow massively to finance capital expenditures. See for example here:

http://www.cbpp.org/STATEBBA.htm

So Ezra's analysis is simply false there; states are free to spend anti-cyclically, but many just choose not to. He also ignores the example of Canada, where universal health care is provided provincially, not federally. So universal health care can't be provided at a state level, according to Ezra, except that Canada has done it in 10 provinces and 3 territories for the past 50 years.

The ONLY requirement for universal health care to succeed is that the politicians involved care about it (or are made to care about it). In Hawaii, a Republican Governor chose to cut children's health care rather than any of the myriad other things which could have been cut, and rather than pushing for more tax revenue instead of cuts. That's a simple choice due to her political philosophy, and not due to some inherent failing of state-run universal health plans.

If states were allowed to run deficits, how long before California or New York or Texas runs a 5 trillion deficit and then calmly turns to Congress, and says "oops we did it again" and begs for a handout, claiming that California is "too big to fail"

Does anybody seriously doubt that would be the end result?

There are more good economic years for states than bad ones. But what happens during the good economic years when revenues are strong and greater than spending targets? The states blow it by either giving out new tax cuts or new spending programs.