INDIANAPOLIS — Gov. Mitch Daniels sits in his grand cave of a Renaissance Revival office and reviews Indiana’s economic fortunes, his self-effacing manner not entirely disguising satisfaction. The state’s pension funds are relatively healthy, the unemployment rate is dropping slowly and per capita income is ticking up, slowly....

Indiana’s history shapes its response to economic crisis. It experienced a vast speculative financial collapse in the 19th century, known as the Failure. In 1851, in the angry aftermath, its leaders were among the first in the nation to enact a balanced-budget requirement.

The state’s DNA has remained conservative and cautious ever since.

“Indiana is risk averse; it’s in the soil and the air,” said James H. Madison, a history professor at Indiana University Bloomington. “You add that to a moderate political orientation, and liberal welfare legislation is not highly regarded.”...