Sunday, August 23, 2009

Stimulus Again

Robert Frank has a nice article that disusses the impact of state balanced budget rules. These are leading to cuts that will offset the benefits of the stimulus package.
The more than $15 billion excised from California’s budget last month was just a small fraction of recently announced cuts. Although some people object to the federal stimulus program on grounds that government spending is inherently inefficient, most recent state cuts have been for services widely viewed as essential. These cuts were mandated by laws meant to stop politicians from spending beyond their means. While such measures may be beneficial on balance, sharply reduced government spending is exactly what the economy doesn’t need right now.
The problem is that these cuts are a negative stimulus program. The federal government ought to be transferring funds to states that maintain expenditure and do not raise taxes. But this is rational, so I doubt it will happen.

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