Monday, January 24, 2011

Stimulus and State Budgets

A big problem with federal stimulus spending is its inefficiency. It is terribly slow in being spent and is often spent in unhelpful ways (such as unnecessary, unproductive jobs or construction projects that are less helpful than education, police, and fire department spending). Note: This is certainly debatable, the main point is that government spending is often less effective and efficient than private spending because of incentives and bureaucracy.

But consumers (the "private" sector) won't spend, mainly because they don't have jobs and are deleveraging, or paying down the debts they incurred in the build up to 2008. So in order to push the downward cycle the other way, the government has to spend and create jobs.

State governments are currently up against the wall with their budgets. They don't have the flexibility with deficits that the federal level has because they don't have control over the currency. So why not give the money to the States? They will certainly spend it more quickly and efficiently. It will likely go to needed areas to prevent cuts and not to add additional spending. This will enable policemen, teachers, firefighters, and other government workers to keep their jobs and prevent a rise in crime rate or a drop in education quality which further depress our economy.

From a Catholic Social Teaching perspective, this would be an excellent application of the "subsidiary function." The Federal government would allow the lower institution to do its job by providing it with the necessary funds. Once tax revenues kick back up, then the Federal government can pull out its funding and the States can resume independent financial operations. There is no federal take over or increase in big government. Stimulus funds will do what they should, prop up the economy until the private sector can lead the charge again.

For more read "The Real Job Killers? State Budget Crises"

For those concerned about deficits read:
Myths about the Deficit, Part 1
Myths about the Deficit, Part 2
Seven Deadly Innocent Frauds
Keep the Deficit, Ditch the Doves

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