12/03/2009 - If the world’s eighth-largest economy were a company, it would have been on the edge of bankruptcy all year. California’s legislature and its governor have already plugged more than $60 billion-worth of holes in the state budget, either by raising taxes or cutting spending. But as soon as one hole is filled, the economy—still bad, even if no longer technically in recession—digs another. Mac Taylor, the state’s non-partisan legislative analyst, now expects to see a deficit of $6.3 billion for the current fiscal year, which ends next June, rising to $14.4 billion next year.
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California’s problems may be in a league of their own, as the Pew Center on the States puts it, but about nine other states face similar difficulties relative to their size. They include California’s neighbours, Arizona, Nevada and Oregon; that other burst housing bubble, Florida; the rust belt of Michigan, Wisconsin and Illinois; and the eastern basket-cases of New Jersey and Rhode Island. Altogether the ten states represent more than a third of America’s economy and population.
Read the full article Keynes in Reverse on the Economist's Web site.