As E.J. noted earlier this week, Gov. Paterson is taking a “minimalist” approach to the $2.1 – 3 billion deficit that is starting to yawn in the current budget, suggesting only $500 million worth of cuts (many of which were quickly criticized by state legislative leaders).
Paterson’s move, or lack of one, would be fiscally irrational in a fiscally rational world. The problem is that the world is (still) not very fiscally rational — and Paterson may have been told that it’s OK just to wait around a few more months, because (more) help from Washington is on the way.
Witness Paul Krugman’s article today — in which he says that all Americans will suddenly become very stupid unless Congress realizes that it “needs to undo the sins of February, and approve another big round of aid to state governments,” largely to push more money into education, which is an “investment in our future.”
Krugman’s comments come three days after the WSJ ran a Capitol Journal piece filled with suggestions for Washington policymakers who are already quietly thinking a new state stimulus. The piece, called “States Offer Route for Jobs Spending,” had this to say:
[O]ne word [Democrats] might want to keep in mind: states. Getting additional help to states in coming months might well be both the most efficient and the most politically feasible action Washington could take to avoid sinking deeper into the jobs hole. The newest unemployment numbers have, of course, ignited speculation about another round of economic stimulus from Washington. Yet the term “stimulus” has become politically charged since President Barack Obama signed a big stimulus package in February. … So if there is to be something more done to stanch the job losses, what could it be? … [T]here aren’t many ideas with much prospect of bipartisan backing. Help to the states, though, is one. Every House and Senate member, regardless of party, comes from a state having serious problems making ends meet in this recession. And getting money out to states quickly may have been the single most effective impact of the February stimulus package. That money — which went for construction projects, education and health-care programs — helped financially strapped states avoid even bigger disasters as they put together budgets for the current fiscal year.
And a few months before the Capitol Journal piece, Felix Rohatyn offered some reasonable, eminent outsider cover for a new save-the-states plan, too.
Problem is, the first stimulus was way too heavy on education and medical care — two-thirds of the $229 billion that went toward states went to these two purposes — at the expense of physical infrastructure.
The way people are talking, the next one, which seems more and more inevitable, may be more of the same.
Encouraging such spending means that when the stimulus runs out (or even before), New York will simply have to hike taxes to keep it up — killing private-sector jobs at the expense of public-sector ones.
It also means that infrastructure will continue to crumble, having the same result.
Meanwhile, state leaders can continue to wait, as spending grows more out of control.