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Federal stimulus not keeping pace with state and local woes

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From Ezra Klein: As everyone knows, the federal government is still spending a $700 billion stimulus package passed at the beginning of 2009. As most people know, state and local governments have had to sharply cut spending because the recession has decimated their tax revenues. But as fairly few people know, these two forces are canceling each other out. Stephen Gordon explains:

It’s important to remember that the proper measure for fiscal stimulus is not spending by the federal government; it is spending by all levels of government. And when you look at the contributions to U.S. GDP growth (Table 1.1.2 at the BEA site), total government spending has been a drag on growth over the past two quarters. The increases at the federal level have not been enough to compensate for the spending cuts at the local and state levels.

As you can see in the graph atop this post, as the stimulus spending begins to drain out, we’re actually seeing the drag from state and local governments overwhelm the boost from the stimulus money. That is to say, the state and local cuts are bigger than the federal increases. As Gordon said, the U.S. economy might be recovering, but it’s a slow recovery. “The question [is] how much better it could be doing if it had an expansionary fiscal policy.”

Peter Schorsch is the President of Extensive Enterprises and is the publisher of some of Florida’s most influential new media websites, including SaintPetersBlog.com, FloridaPolitics.com, ContextFlorida.com, and Sunburn, the morning read of what’s hot in Florida politics. SaintPetersBlog has for three years running been ranked by the Washington Post as the best state-based blog in Florida. In addition to his publishing efforts, Peter is a political consultant to several of the state’s largest governmental affairs and public relations firms. Peter lives in St. Petersburg with his wife, Michelle, and their daughter, Ella.

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