State-Level Anti-Stimulus


Atrios says “All the various cuts that our horrible new Republican governors are trying to implement aren’t just going to make the residents of their states suffer, they’re also going to work against the macroeconomy.”

I don’t really think that’s true. Federal spending cuts shrink the federal budget deficit and constitute a negative shock to aggregate demand. States have to balance their budgets, so the alternative to a lower level of spending would be a higher level of taxes. In AD terms, it’s basically going to be a wash either way. Its the failure of congress to enact some kind of state/local bailout appropriation that’s forcing the anti-stimulative state level stuff.