Ezra Klein did a great interview with Larry Summers a little while back that I didn’t get around to reading until last night (as I’ve said, Klein’s interviews are always great and always must-reads), and while there are several fascinating bits this is the one that stood out to me:
Third, politics aside there were difficulties in moving spending rapidly in 2009. So-called shovel-ready projects often were not in fact ready to go. Almost everyone close to the process feels that Joe Biden and his team did a very good job of moving the stimulus money through the system and, as a consequence, money moved more or less on the schedule we projected in 2009. They would be the first to say that it would not have been possible to move vastly more money into quick trigger infrastructure projects. Of course it would have been possible to increase the tax cuts or assistance to state and local governments, but there were severe political limits in both those areas (my emphasis).
I’m not buying it, and I think Summers is engaging in a bit of a shell game here. I buy the “shovel-ready” part of it; for better or worse, the way the world was set up in 2009 made rapid federal government spending on public works far more problematic than it would have been in 1933. Fair enough.
But then he shifts as sort of an afterthought to the failure on state and local governments. It wasn’t an afterthought! I’d still like to see a good economic estimate of the damage done directly and indirectly by state government contraction, but I’m willing to bet it’s very large, given that we already know that the direct effects are large.
Matt Yglesias has a great chart today showing the magnitude of the problem — that is, the decline in state and local government revenues. And he’s absolutely right: “If this could have all been ‘automatic stabilized’ away with access to the federal government’s current cheap, cheap, cheap borrowing costs we’d be in much better shape.” Summers says there were “severe political limits” to state and local government aid, but I don’t believe that at all. If they had treated it as a top priority during fall 2009 — when the Democrats actually had 60 Senators — I’m pretty confident they could have passed both a short-term and a long-term fix. Yes, the already-active Tea Partiers would have screamed about another bailout. But that would have only opened up a chance for the White House to contrast the Democratic bailout for teachers, cops, and firefighters with the Bush bailout for the banks. And anyway, who cares? As long as the mechanism worked, the White House (and skittish Democratic legislators) should have been very willing to take some hits in fall 2009 in exchange for putting the recovery on much sounder footing.
[Cross-posted at A plain blog about politics]