I’d go further than Matt on this subject and observe that states have significant control over some of the “automatic stabilizers” that he’s attributing to the federal government (e.g., Medicaid, SCHIP and transportation programs); without some new assistance, states may not only counter-act the “automatic stabilizers” but could actually subvert them. That’s clearly what some Republican governors like Mark Sanford have in mind when they call for abolition of federal “mandates” rather than federal assistance: let us completely decimate Medicaid beyond what we are already allowed to do, and we’ll be fine!
So an effective stimulus package must not only provide heavy assistance to state and local governments; it must also be sufficiently conditional to ensure that the Mark Sanfords of the world don’t use the money to cut taxes as well as services.
Indeed. Of course a governor really fanatically committed to the idea that pro-cyclical spending cuts and making sure poor people can’t get medical treatment is the key to economic success is going to find a way to do it. But congress will have a lot of power to shape state policy through an aid package, and it’s important to use it wisely.