May, 2019: The United States economy faces considerable risk because of policy mistakes from Washington, most notably excessive government spending and debt, as well as bad monetary policy that results in artificially low interest rates and excessive leverage. There’s not much that state officials can do about those mistakes, but it is important to avoid similar policy errors that compound the damage.

There are two types of budget deficits: cyclical and structural. Policy measures aimed at eliminating a deficit must be tuned to the type of deficit they are applied to. This paper, the first in a series of four, suggests a method for determining whether or not Wyoming is faced with a structural or cyclical deficit. Subsequent papers will propose appropriate policies to eliminate the deficit.

First, the paper series of which this report is a part is focused on reform models to expand economic freedom in Wyoming; the path to more economic freedom runs through the reform and eventual termination of tax-funded, government-provided entitlements. Education is one type of entitlements on this list. However, reforms of entitlements must be executed based on a solid understanding of economic principles and the functioning of free market system.

One of the biggest obstacles to a structural reduction of state government spending is the role that federal money plays in state budgets. Under the umbrella of “Federal Aid to States” the U.S. government funds hundreds of programs run by the states. In total, the federal funds in these programs account for approximately one third of total state spending.