Wednesday, February 4, 2009

Hoisted from the comments!

Anonymous guy I met in Puno responds to my post "Stimulus, What Stimulus":

Well said.
But maybe you should be concerned that Kevin "Dow 30,000" Hassett at the AEI agrees with you about funding through the states? I guess even he could be right sometimes:

CNN says that the state budget shortfalls are about $90 billion total, which seems lower than your $200 billion estimate. It's not clear at how they arrive at that figure, nor how they decide how much individual states receive (and in what form). They also raise an interesting point - given fungibility, how do we assess the contribution to state finances (in terms of preventing layoffs) from giving money directly to states and from giving money to specific programs that could alleviate pressure on state budgets?

Anyway, I love the new blog and plan to check in often. I'm even learning new things like the unholy alliance of Larry Summers and Laura Ingraham.

To which I can only say, Lol, yes, it is troubling that I agree with Kevin "Dow-36,000" Hassett. Certainly, I suspect many small states may likely get more money than they can spend, but, on the other hand, the linked article says that California will get about $63 billion over two years (this is definitely more than I'd read previously, and certainly a good sign), with a budget shortfall estimated at $42 billion over the next 17 months, so it does seem like it should get states out of the woods. My main argument is that the state and local budget shortfalls make the real size of the stimulus much, much smaller than it looks.

According to this site (which I've linked to before), state budget shortfalls the next three years, the duration of the stimulus, is around $350 billion, and this does not count local shortfalls, like in Chicago which has a $4 billion infrastructure budget shortfall, or in New York City, where the government is reported to be planning laying off 23,000 and has raised Metro fairs, or in Philadelphia, where they are expecting a $1 billion deficit over the next five years. It also already factors in tax hikes and budget cuts that have already been made -- state government spending actually fell .5% last quarter, after increasing by 1.3% the quarter before, so this is substantial. (The $90 billion shortfall is the state budget shortfall for this fiscal year alone...)

Mankiw linked an article yesterday suggesting that money earmarked for upgrading inner-city Milwaukee schools is likely to be largely a waste. The question is, however, would this money be wasted more than if we just sent checks to people for doing nothing (Mankiw's bright idea)?

Anyway, the way I see it is that, at a bare minimum, state and local spending should not be cut. On top of that, I back huge investments in state and local spending, increasing salaries for teachers, using this opportunity to expand health care, etc... And using the public backlash against Wall Street bonus's to go after all executive pay, not just for those who get government money. (Although today's announcement capping exec pay was definitely heartening!)

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