Vermont Stimulus Czar Has Smart Critique of the Stimulus

One of the most misleading criticisms of the Recovery Act -- commonly known as "The Stimulus" -- is the claim that it dramatically expanded the role of government when in fact the vast majority of the money went to helping states and families do stuff they were already doing.

The best way to think about the $800 billion law is in three parts. A third went to tax cuts. A sixth went to grants and loans for long term projects. And half went to states, not to create new stuff, but to fulfill old obligations like Medicaid, education, and infrastructure.

So the best criticisms of the stimulus aren't the loud cries of socialism, but rather the exacting question: Was bailing out state obligations the best use of $400 billion?

Tom Evslin, Vermont's "stimulus czar," makes a strong case in the Wall Street Journal that the stimulus was poorly designed. His reasons fall into two buckets. First, the grant money has been held up by a lengthy federal approvals process and byzantine regulations. Second, the money we spent quickly went to "[continue] bloated programs rather than providing a transition to a sustainable future."

Here he makes the case that money spent on Medicaid and education -- a huge unsung part of the stimulus -- was a partial waste:

There would have been huge pain in the states without federal help for Medicaid and education. However, the federal money came with strings attached to prevent state reductions in services or to restrict program eligibility. Nevertheless, states didn't cut where they could or push back hard enough on federal restrictions. In Vermont, for example, public-education staff continues to grow even though student counts are declining.

On the one hand, protecting Medicaid and education should be paramount for the government during a downturn. On the other hand, stimulus money should be a crutch to help states walk again. It shouldn't raise state spending obligations and leave them with even further to fall in 2011 and 2012. Based on conversations with Treasury officials, I think it's nearly a consensus that the administration would want any future state aid to come with strings attached to plan for state reforms rather than try to freeze pre-recession staffing levels forever.

As Evslin acknowledges, the neediest would have suffered in the absence of Medicaid and education assistance. Low-income families would have suffered more without their $400 tax cut. And it's unclear that hundreds of billions in state aid had "a negligible effect on overall unemployment" because it obviously saved the livelihoods of hundreds of thousand of teachers, fire fighters and low-income families that need Medicaid to survive. But that aside, this is a smart criticism of the inner-workings of the stimulus and more evidence that even smart ideas in the abstract can run up against the messy array of interests at the local level.