Paul Krugman makes the case for federal fiscal aid to state and local governments. But I also wanted to highlight this more general point:
In fact, the true cost of government programs, especially public investment, is much lower now than in more prosperous times. When the economy is booming, public investment competes with the private sector for scarce resources — for skilled construction workers, for capital. But right now many of the workers employed on infrastructure projects would otherwise be unemployed, and the money borrowed to pay for these projects would otherwise sit idle.
And shredding the social safety net at a moment when many more Americans need help isn’t just cruel. It adds to the sense of insecurity that is one important factor driving the economy down.
It’s important to recognize these points. There’s a certain line of sentimentalist moralism that holds that amidst a general economic downturn, it’s somehow improper for anyone or any institution to be spending money — we ought to be all tightening our belts and battening down the hatches for the lean years. And one needs to understand that things don’t work that way. It’s actually good for institutions that have the capacity to keep spending money — the public sector chief among them — to take advantage of the falling cost of a lot of stuff to expand their operations. That’s how you pull out of a recession. If everyone cuts back, then everyone just keeps cutting back.