(Click on Image to Expand.)
Suppose you are MaxB, the stereotypical budget maximizing bureaucrat found in the public choice literature. Suppose further you are standing in 2003, with full knowledge of the upcoming bubble and bust (pick your own dates for these events), and you can pick between two hypothetical portfolios:
- Portfolio A: Participate in the bubble, grow quickly for several years, then take a large hit.
- Portfolio B: Do not participate in the bubble, stay the course, and have a relatively smooth growth transition through the bubble.
In the graph above (obviously I did not desesasonalize the data, deal with it x11 lovers), national totals seem to indicate that the trough of post-bubble total tax revenue is in the ballpark as 2002-2003 revenues. National aggregates cover-up the many individual state declines, and no government official is literally in the situation I describe above. Nevertheless I think the question is worth thinking about anyway: For MaxB, do the budget benefits of the bubble exceed the budget costs of the great recession?