State Budget Shell Game

There is a very good article in The New Republic by Gregg Easterbrook on state budgeting. He argues, as I have (take my word for it, I have no archives), that the current practice of states recieving additional money from Washington is good for no one. He fails, however to answer my fundamental question: what would state borrowing look like? Because the Federal government has so much more control over various levers of the economy, it is safer for them to run a permenant deficit. If states could run a deficit, they probabaly would. And permenant deficits might just result in the current state deficits on top of what ever dept they were carrying. That's not good. What mechanism would lead states to avoid deficits as a general practice, but adopt them when there was a compelling reason? This is probabaly a good place to mention Tyler Cowen's excellent daily postings on macroeconomics over at The Volokh Conspiracy . On the final post of July 29, 2003, he observes that "State budget cuts are extending our recent recession," through contraction of government spending. Some new model of state budgeting must be devised.