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  2. Helping the States: The Mad Biologist Was Ahead of the Curve

Helping the States: The Mad Biologist Was Ahead of the Curve

By mikethemadbiologist on June 9, 2009.

Economist Brad DeLong is thinking about writing President Obama a letter suggesting the following:

â¢That it is past time for you to seek from the Congress for authority to guarantee the debt of states that, in response to the current recession, (a) seek to conduct their own state-level fiscal expansions, and (b) devise plans and strategies for the long-term repayment of the debt the federal government guarantees that the Secretary of the Treasury certifies as prudent and sustainable.

â¢That it is time for you to seek from the Congress an amended Budget Resolution: to include in this year's forthcoming Reconciliation process an additional $500 billion of federal aid to states, distributed per capita and conditioned on their maintaining effort at the provision of public services--on their not repeating the mistake of Herbert Hoover of cutting government employment and spending in a downturn.

He's right on both accounts. But regarding the second suggestion, while later is better than never, over a year ago, I suggested that the states needed help immediately, that they were already cutting jobs which would contribute to a downturn.

Nobody ever listens to the Mad Biologist....

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All it takes is a little perfunctory knowledge of standard macroeconomics to know that states cutting employment and projects will exacerbate a recession. If Obama and the Democrats hadn't low-balled the stimulus to avoid pissing off the Republicans, aid to states would have been much more substantial than it ended up being.

If Obama and the Democrats hadn't low-balled the stimulus to avoid pissing off the Republicans, aid to states would have been much more substantial than it ended up being.

This is what angers me most about the Democrats. They are still acting like the Republicans are the majority party.

"devise plans and strategies for the long-term repayment of the debt the federal government guarantees that the Secretary of the Treasury certifies as prudent and sustainable."

Treasury certifies as sustainable? They can't even certify their OWN debt as sustainable. I'm sure Timmy G would just love to come up with another set of no-fail "stress tests". The economy is already worse than the "adverse scenario" they used for the banks, so why should we trust their opinion on the states? Well, what the hell--we're already hosing out money to the banks, AIG, Fannie, Freddie, Citi, as fast as the Fed's computers can print it.