Progressive States Network is one of the progressive organizations I support. This is a particularly good issue on what needs to be done to use the states as an effective means of distribution for the economic recovery — well worth a read. Click through the link at the end to read the whole article.
We are in what the Center for American Progress has called a “labor market free-fall.” The economy shed 524 000 jobs in December the 12th month in a row of job losses. The unemployment rate spiked half a percent to 7.2 percent and 11.1 million workers are unemployed well above expectations. Over the past year the economy has lost 2.6 million jobs—more than in any year since 1945. If nothing is done the Economic Policy Institutes estimates that more than 5.5 million jobs are likely to be lost during this recession unless a major job-creating stimulus plan is enacted. The effects on state budgets and communities around the country will be profound. Without help and if state governments address their budget shortfalls with only spending cuts the Center for Economic and Policy Research estimates their budget belt-tightening would lead to losses of over 425 000 jobs in FY2009 and almost 900 000 jobs in FY2010.
Avoiding 50 Herbert Hoovers
Paul Krugman wrote in the NY Times about the dangers of a pro-growth federal spending plan being derailed by what he calls “50 Herbert Hoovers — state governors who are slashing spending in a time of recession often at the expense both of their most vulnerable constituents and of the nation’s economic future.” Krugman acknowledges that most of those cuts are because states are “caught in a fiscal trap since unlike the federal government lower-level governments can’t borrow their way through the crisis.”
To deal with this fiscal vice at the state level there is a bipartisan consensus that helping states must be a key focus of the recovery package. This is important both to prevent the massive layoffs that will ensue without federal assistance and because programs administered by the states are some of the most effective for reviving the economy. Mark Zandi chief economist for Moody’s Economy.com and a former advisor to presidential candidate John McCain argued in testimony to Congress on January 7 2009: “The most efficacious spending for economic recovery includes extending unemployment insurance benefits expanding the food stamp program and increasing aid to hard-pressed state and local governments.”
Even groups like the United States Chamber of Commerce who often oppose government spending have said that a massive stimulus is needed for the economy a “defibrillator…to shock the economy” in the words of its head Thomas J. Donahue but the debate is on the priorities in that stimulus. And while business groups like the Chamber favor a lot of tax cuts as the solution as Mark Zandi noted in Congressional testimony “Tax cuts will not pack a big economic punch as some of the money will be saved and some used to repay debt.”
States and Effective Stimulus Options:
Ultimately support for the states is a key to recovery not just to avoid the negative effects of state cutbacks but because the programs administered by the states from transportation systems to health care to unemployment insurance systems are key levers for reviving local economies across the country. The Center for Budget Policy and Priorities notes a few key principles that should guide stimulus spending including that low-income families don t just need help the most; but as the Congressional Budget Office has explained “… policies aimed at lower-income households tend to have greater stimulative effects” because such families have a higher tendency to spend money they receive. Fully funding unemployment programs and other benefit programs run by the states along with the transit and health programs largely administered by state and local governments will therefore get the most bang for the taxpayers job-creation buck.
via Why States Need to be a Focus for Any Economic Recovery Plan | Progressive States Network.
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