Thursday, March 17, 2011

What’s Your State’s Deadweight Ratio?

Forbes reports:
The traditional measures of credit risk in state and city bonds are the ratings from Standard & Poor’s and Moody’s, budget deficits, outstanding debt and pension underfunding. These measures are all valuable to investors. But they are only symptoms of the disease.

The structural problem is that government has too many mouths to feed. It’s possible to quantify that problem. The result is a metric that I call the Deadweight Ratio. It tells you how many beneficiaries of government spending there are for every private sector job.

The Deadweight Ratio suggests that Connecticut and New Jersey are, despite well publicized budget deficits, in better shape than most states. It also says that California and New York are going to be sickly credits for a long time to come.
An article well worthy your time.