The anti-stimulus

When it comes to understanding public policy and its effects on the country, it is all too easy to focus on just what is happening at the federal level.  But, of course, we have a federal system of government, and often, what happens in this states is just as , if not more important, that what’s happening in Washington, DC.  The stimulus spending is a great example of this, as Ezra Klein has been frequently pointing out.   In the case of stimulus spending, the fact that most states have (state) constitutional requirements for balanced budgets means that state cuts are largely counter-acting what good the federal stimulus is able to do.  Ezra:

The government is now impeding an economic recovery. But it’s not for the reasons you often hear. It’s not because of debt or because of taxes. Nor has it scared the private sector into timidity. It’s because, at the state and local level, it’s firing people. There are more than 14 million Americans looking for work right now — to say nothing of the 9.5 million who have been forced into part-time jobs when they want, and need, full-time work — and the government just added 159,000 more to the pool. Consider this: If we only counted private-sector jobs, we’d have had positive jobs reports for the last nine months. As it is, public-sector losses have wiped out private-sector gains for the past four months.

It doesn’t need to be like this. The government can’t make the private sector invest. They can’t demand that Wal-Mart start hiring. They can offer incentives, and tax breaks, and encouragement, but that’s it. The same cannot be said when it comes to public sector jobs. The government can, if it’s willing to run deficits, keep those workers employed. But Senate Republicans, alongside some conservative Democrats, have decided to make the government pro-cyclical: Rather than fighting the downturn in the business cycle, the government is now accelerating it.

Of course, the fairly straightforward solution to this is simply more aid to the states from the federal government.  But that’s what’s being blocked by Senate Republicans and the conservative Democrats who share their deluded understanding of economic policy– or have made incredibly mis-guided political considerations.    Here’s Jon Cohn on the latter:

Some of these conservatives who blocked more state aid were basing their position on principle. They think the potential damage of running higher short-term deficits, even modest ones, outweighs potential gains in employment. Or they simply don’t buy the Keynesian logic of deficit spending to boost growth. I think the majority of mainstream economists would disagree, as would I, but at least it’s a substantive prefrence.

But some of the conservatives, particularly those within the Democratic Party, were thinking more about politics. Running higher deficits, they thought, would incur the wrath of voters and make re-election difficult. Well, now they’ve gotten their way. The deficit is coming down. Let’s see how much the voters care come November.

All in all, its really just depressing.  Just think how bad (and out of touch with reality) policy will be when Republicans are in charge.

[Oh, and for any conservatives reading this thinking, "but the deficit!" get a grip and think long-term instead of short-term, and admit the need for tax increases; and we can talk].

About these ads