So why does all this matter? For one thing, it’s journalism—accuracy always matters. And casually asserting that a government is “broke” when it isn’t can’t do much to improve the economic literacy of readers.
For another, as the Bloomberg story makes clear, there is a political motivation behind the “we’re broke” rhetoric, which is to force cutbacks in government spending. To bring this back around to where we started, one reason the state budget outlook is so grim is that federal aid provided under the stimulus bill has now been cut off, even as the economy hasn’t fully recovered. Because the federal government isn’t broke, it could, as a matter of economics, continue to provide that aid to the states. Federal policy-makers, though, are choosing not to do that.
That may be the correct choice; it’s certainly a bipartisan one. But when journalists write, incorrectly, that the federal government is “broke,” they elide that choice, and in the process shield policy-makers from accountability for its consequences. We can do better than that.