Stimulus Working as Intended to Plug State Budget Holes, But It’s Not Enough

Posted on  

"Stimulus Working as Intended to Plug State Budget Holes, But It’s Not Enough"

Clearly the overall national economy is performing worse than all of us had hoped, and worse than the administration forecast in its official projections. This is, naturally, leading to a lot of “stimulus failed” type of talk. But when you bore in and look at it, the stimulus is pretty clearly making a difference for the better. This useful report from the Center on Budget and Policy Priorities demonstrates that stimulus funds are sharply reducing states’ needs for tax hikes or budget cuts. Here’s Virginia, for example:

5-26-09sfp-f11

I think stimulus critics have been remarkably blind to the dynamics here. Certainly conservatives don’t seem like the kind of folks who’d deny that steep tax hikes amidst a recession will make things work. But tax hikes are, obviously, one way to plug a hole in state budgets. And sharp state spending cuts have the same pro-cyclical impact. I’ve heard people say that the problem with stimulus is that it ignores the need for the economy to make structural adjustments. But huge state budget cuts don’t make structural adjustments easier, they simply increase the quantity of structural adjustments that are needed. And the biggest impact of federal stimulus spending has been to reduce the need for such cuts. And yet if you look at any of these state pie charts what you see is that stimulus money, though helpful, has not been adequate to fully plug the hole. The result is a situation, not only the situation prevailing during the Great Depression, when it’s not clear that the public sector is providing much if any overall stimulus when you account for state and local budgets. What we can say is that absent federal stimulus, overall fiscal policy would be sharply pro-cyclical at the moment plunging the country into deeper recession.

« »

By clicking and submitting a comment I acknowledge the ThinkProgress Privacy Policy and agree to the ThinkProgress Terms of Use. I understand that my comments are also being governed by Facebook, Yahoo, AOL, or Hotmail’s Terms of Use and Privacy Policies as applicable, which can be found here.