When the stimulus meets the anti-stimulus

WHEN THE STIMULUS MEETS THE ANTI-STIMULUS…. Senate Minority Leader Mitch McConnell (R-Ky.) recently suggested the very idea of government stimulus has, to his mind, been discredited. “If government spending would stimulate the economy, we’d be in the middle of a boom,” he said.

The misguided comments came in the context of multiple, independent reports that showed proposed Republican cuts costing the nation hundreds of thousands of jobs. But the more important point was the value of the observation — when the economy stood on the brink of collapse, Democrats injected stimulus into the economy. It prevented a depression, but there was no “boom.”

And why not? Some of it had to do with the nature of the crisis — the collapse of the financial industry isn’t the kind of disaster an economy quickly recovers from, no matter how big the stimulus. But just as importantly, nearly every dollar in federal stimulus spending was counteracted by comparable cuts in state and local government spending. As Paul Krugman recently explained, “The only way we could have avoided a prolonged slump would have been for government spending to take up the slack. But that didn’t happen: growth in total government spending actually slowed after the recession hit, as an underpowered federal stimulus was swamped by cuts at the state and local level.”

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The Center on Budget and Policy Priorities drove this point home nicely yesterday, noting exactly what states were doing while the federal government was trying to rescue the economy. Specifically, we had, in effect, 50 or so little Hoovers, scrambling to scale back and pull money out of the economy, just as the Recovery Act was trying to do the opposite.

The state cuts were so severe, they effectively canceled out federal stimulus investments. It’s also why we see such a discrepancy on jobs — the private sector keeps hiring new workers, but the larger job market is held back as state and local governments keep laying off Americans by the thousands.

This is, by the way, how Republicans think the economy will get better — take money out of the economy, force public-sector workers into unemployment, and watch the recovery soar.

And it’s not over. The CBPP chart is reflecting budget cuts for fiscal year 2012, which means states will continue to deliberately undermine the national economy going forward.

All of this is preventable, by the way. Congress could, in theory, decide that to help the economy, it will redirect resources to states so that they won’t have to scale back so severely.

But thanks to Republican gains in the midterms, such an idea is little more than a fantasy. GOP officials want a “boom,” but don’t want the policies that would create one.