"You've seen the stimulus. Now, meet the anti-stimulus."
Ezra Klein of the Washington Post asks this question: "Did the stimulus a) work; b) fail; c) end up locked in an unexpected battle with the massive anti-stimulus that's ripped through the states?"
"But ask Bruce Bartlett, a conservative economist who worked for Ronald Reagan, George H.W. Bush and Jack Kemp, and you'll hear all about it. "When the history of the current crisis is written, much of the blame will be placed on the sharp fiscal contraction of state and local governments," he says. "I think economists will view this as a preventable error equivalent to the Fed's passive shrinkage of the money supply in the early 1930s.
Klein criticizes state governments for increasing taxes and cutting spending during the recession, instead of working to create jobs, but acknowledges that this is largely a function of the fact that 49 of 50 states (excluding Vermont) require states to balance their budgets each year, prohibiting deficit spending.
Klein cites a new Center for Budget and Policy Priorities report, which states that 48 states faced shortfalls in the current FY 2010 budgets, and at least 46 will face shortfalls in the upcoming fiscal year. It estimates that in 2011, the states will face budget gaps of over $180 billion.
Consequently, Klein calls on additional federal stimulus in the form of state and local aid. The chief economist for Moody's Economy.com, Mark Zandi, estimates that for every dollar spent on state and local aid leads to $1.41 in stimulus. Klein describes it as "the best anti-anti-stimulus you could ask for."