The Limits Of Federalism

by Patrick Appel

James Surowiecki on states and the federal government running in opposite directions:

[S]tate cutbacks have not been as severe as they might have been, thanks to the stimulus plan, which includes roughly $140 billion in aid to local governments. That aid, according to a recent study by the Center on Budget and Policy Priorities, has covered thirty to forty per cent of the states’ budget shortfalls. Money for the states translates directly into jobs not lost and services not cutwhich is why you can make a good case that more of the stimulus should have gone to state aid. Yet there’s no sign that those budget gaps are getting smaller, and, as the federal money runs out, state tax increases and spending cutbacks are only going to become more common. In the midst of this downturn, some of the biggest players in the economystate and local governments together account for about thirteen per cent of G.D.P.will be doing precisely the wrong thing.

Reihan Salam chimes in at his shiny new blog:

[If] social welfare spending in the states depends on state revenues and states have balanced budget requirements, surely this will deepen economic contractions. The solution is to move away from ad hoc stimulus efforts to federal transfers that kick in under certain economic conditions: a state is in recession, its unemployment rate reaches X amount, etc.