by Bill Kavanagh: Paul Krugman writes this morning on a subject I’ve been thinking about for the last month or so; what happens to a stimulus package when the states keep cutting their budgets?
…even as Washington tries to rescue the economy, the nation will be reeling from the actions of 50 Herbert Hoovers — state governors who are slashing spending in a time of recession, often at the expense both of their most vulnerable constituents and of the nation’s economic future.
In his “50 Herbert Hoovers” column, Krugman favors aid to the states for their most crucial endeavors in health, education, and infrastructure at this time. States can’t print their own money and thus are stuck cutting aid at precisely the moment when it is needed most. It’s left to the feds to fill the gap.
A corollary point that Krugman isn’t addressing is my suspicion that the governors are playing a smart game with the stimulus plan by cutting spending that they figure the feds will pick up as “shovel ready.” I wonder what the net effect is when many of these projects are cancelled, then are re-started under the feds. These jobs are ones that would have been funded by the states, but are now shifted, not newly created.
It will be worth considering whether a separate category of funding, as Krugman suggests, should be created specifically as aid to the states to pay for currently scheduled projects and expenditures, funding which would not be provided under the stimulus plan. If currently scheduled projects were not then included in the stimulus package, the states would be wise to use their aid money to keep them going. Therefore, it would not be smart politics for the states to cancel needed projects with the expectation that the feds would step in.
The last thing we need now is for one side of the boat to be bailing while the other side is busy opening the drains.
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