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ThePlumLIneGS whorunsgov plumline
Posted at 03:51 PM ET, 07/04/2011

Economic stabilizers: States are the key

To prevent a repetition of the Great Recession, Congress and the president needed to do two things: repair the economic markets and repair the political responses. They’ve made a bit of an effort at the former, but President Obama and the Congress have been silent about the latter.

What’s the biggest need? If you ask me, Matt Yglesias nails it: reforms to provide improved automatic stabilizers. And the focus of those stabilizers, as Yglesias has argued before, should be federal transfers to the states. As Jared Bernstein (no relation) says, this is an enormous problem. He doesn’t provide an estimate of the total (direct and indirect) cost in jobs and GDP; anyone have one? Certainly, it’s substantial.

Liberals and conservatives have legitimate disagreements about the proper number of state and local employees. However, it makes no sense at all to run things so that during good times we hire lots of people, and then during hard times we lay them off – and put every teacher, cop, firefighter, prison guard, and the rest of them into reasonable fear of losing their jobs so that they sit on their wallets instead of spending. And yet that’s the consequences of state balanced budgets; revenues go up during good times and crash when the economy crashes. There’s no principled reason why both parties shouldn’t support some means of automatically pouring revenues into state governments during recessions and then recovering that money when growth resumes.

Of course, that doesn’t mean that Republicans wouldn’t block an Obama proposal, principled reasons or not – but the problem now is that the president hasn’t proposed any such program. Democrats at least made an attempt at structural reforms of the economy (in Dodd-Frank), but so far there’s been absolutely nothing about structural reforms of the ability of government to respond. Even if nothing can pass now, Democrats should be putting both the concept and some specific proposals on the table. 

By  |  03:51 PM ET, 07/04/2011

 
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