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Column: Meet the anti-stimulus

2010.05.27__Fig2HowBadChart_htm_opt.jpg

A multiple choice question for you: Did the stimulus a) work; b) fail; c) end up locked in an unexpected battle with the massive anti-stimulus that's ripped through the states?

Most people would choose "a" or "b" (though I'd say "a" has the better of it). They probably haven't heard of "c." But ask Bruce Bartlett, a conservative economist who worked for Ronald Reagan, George H.W. Bush and Jack Kemp, and you'll hear all about it. "When the history of the current crisis is written, much of the blame will be placed on the sharp fiscal contraction of state and local governments," he says. "I think economists will view this as a preventable error equivalent to the Fed's passive shrinkage of the money supply in the early 1930s."

Take my home state of California, with an unemployment rate of more than 12 percent. We need the government to help create jobs, and quick. But instead, Sacramento is raising taxes and cutting services. That's like bailing water into the boat rather than out.

The Golden State has its reasons. Its budget is in terrible shape, and the constitution doesn't allow officials to run deficits. But in an effort to do right by the numbers, they're doing wrong by the economy. And they're not alone. Some 46 states are facing budget gaps that will require them to cut spending or raise taxes. The Center on Budget and Policy Priorities estimates that in 2011, the states will have to come up with a total of $180 billion.

These budget shortfalls are the equivalent of a massive anti-stimulus, which some experts believe has overwhelmed the $787 billion stimulus passed by the federal government in 2009.

Keep reading...

By Ezra Klein  |  June 18, 2010; 3:50 PM ET
Categories:  Articles , Budget , Stimulus  
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Next: Republicans don't oppose stimulus when it fits their policy agenda

Comments

That makes perfect sense. Sadly, what you've just shown is way beyond the comprehension of most Americans, who appear to be easily seduced by the Republican mantra that "government doesn't create jobs, businesses do!"

Posted by: jp1954 | June 18, 2010 4:19 PM | Report abuse

Got the money...spend it.

Don't got the money...don't spend it.

Now, that wasn't so hard was it? Simply cut services to those you can afford

Posted by: WrongfulDeath | June 18, 2010 4:27 PM | Report abuse

Actually, we need to cut California loose -- just drop it as a state and see how the economic picture looks.

It's an easy calculation: is a supermajority of states better off if California simply sinks into the ocean (or just simply stops draining US resources)? The state's governor has admitted that the state has been, for the past several years, taking more than it offers to the federation as a whole: if an arm is gangrenous, is it wise to chop it off to save the whole life? Or should the whole body be killed because one of its parts has failed to perform?

Posted by: rmgregory | June 18, 2010 4:39 PM | Report abuse

I was and am a believer in federal stimulus. I thought the 2009 Recovery Act overemphasized social services allocations and underemphasized direct expenditures on public projects like roads and bridges and broadband and information technology systems for the health care industry, but in general, it was well worth a try.

That being said, states have to cut their budgets and/or raise taxes to respond to the new reality of their new recurring budget baseline. This is necessary so that the people and the business community understand the new reality.

Public leadership is really about setting realistic expectations. By inflating the capabilities of the states by continuing state aid, we are just deceiving the people.

Borrowing is essentially pushing pain further down the road. States and more importantly the people these states serve need to start getting used to the new economic reality now. The anti-stimulus is a necessary pain that reflects reality. The people need to adjust to this reality and its effect on public services.

If you want to support a new federal stimulus based on the direct spending on one-time projects, you would have my support. Other federal stimulus I believe is foolish.

Posted by: lancediverson | June 18, 2010 4:44 PM | Report abuse

"The trick, however, is that you don't want to reward bad budget practices under the cover of mitigating an economic disaster."

If they had reform conditions on aid to the state governments, similar to the Race to the Top conditions on the education grants, there might be more support of a federal bailout of the states. Public employee pension reform would seem an excellent candidate as it would improve the long term fiscal outlook of the states in exchange for short term federal assistance.

An excellent question for your intern might be which states had "rainy day" funds at the start of the recession, how large were they, and what condition are they in now? In lieu of the ability run deficits, this is how some states have dealt with previous cyclical budget issues.

Posted by: jnc4p | June 18, 2010 4:50 PM | Report abuse

>>It's an easy calculation: is a supermajority of states better off if California simply sinks into the ocean (or just simply stops draining US resources)?>>

California sends a lot more in taxes to the feds than it receives back

Posted by: fuse | June 18, 2010 5:14 PM | Report abuse

Cal gets $0.78 from the fed for every dollar it sends in.

http://www.taxfoundation.org/press/show/22659.html

Posted by: fuse | June 18, 2010 5:16 PM | Report abuse

"If they had reform conditions on aid to the state governments, similar to the Race to the Top conditions on the education grants, there might be more support of a federal bailout of the states."

Federal programs that are designed to diminish policy-making at the state level make me uncomfortable.

I think Ezra's formulation of allocating money based upon unemployment rates, coupled with an additional requirement that the money can must be spent first to preserve existing jobs, with the remainder going only to the most stimulative forms of spending, is a sensible strategy.

I am happy whenever any journalist raises the simple fact that the size and effect of federal stimulus spending cannot be coherently discussed without also taking into account government spending cuts at the state and local level.

Posted by: Patrick_M | June 18, 2010 5:42 PM | Report abuse

State and local overexpanded. Recession forces the necessary reallocation of people. Instead of helping gov create jobs- help businesses create jobs.

Posted by: staticvars | June 18, 2010 11:45 PM | Report abuse

--"The role of the government is to step up and keep the economy moving until consumer confidence returns."--

You got an Article/Amendment number on that, Klein?

What a garden of idiocy you have blooming in your head.

Posted by: msoja | June 19, 2010 11:22 AM | Report abuse

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