Krugman: For A Real Recovery, States Need More Federal Aid

Compare and contrast: While Beltway insiders insist there is nothing more we could have done to heal the economy, the Shrill One (who, I seem to remember, is supposed to know something about economics) is pointing out the effect of providing

Compare and contrast: While Beltway insiders insist there is nothing more we could have done to heal the economy, the Shrill One (who, I seem to remember, is supposed to know something about economics) is pointing out the effect of providing only inadequate aid to the states.

Now, it's certainly true that the Republicans continue to obstruct any of the president's efforts. (Hell, you just know when Gov. Kasich turns down federal aid for his tornado-devastated state that more Republican posturing on the debt is imminent.) When Congress balks at raising the debt ceiling, the administration has some real problems.

But Obama doesn't have to encourage them. He doesn't have to lead cheers for the budget hawks. He doesn't have to keep talking about how the U.S. needs to cut, cut, cut to live within its means, just like Americans do when they budget at their kitchen table.

Because here's the thing: Americans don't usually pay cash for their houses, their new cars or their kids' college educations. We frequently go into debt for our long-term good, and he's just undermining the public perception of a nation hopelessly in debt when he talks like that. (Bug, or feature?)

I have this habit of getting off the highway when there's a traffic jam. I just can't stand sitting in traffic, so I get off at the nearest exit and find my way via alternate routes. But here's the thing: Usually it's faster to sit in traffic and wait it out, but I'm too impatient.

I wonder if President Obama is doing the same thing. Maybe he's so eager to present the appearance of progress that he'll settle for any damn thing at all - much to our detriment:

Under President Obama, however, the dire fiscal condition of state and local governments — the result of a sustained slump, which in turn was caused largely by that private debt explosion before 2008 — has led to forced spending cuts. The fiscal straits of lower-level governments could and should have been alleviated by aid from Washington, which remains able to borrow at incredibly low interest rates. But this aid was never provided on a remotely adequate scale.

This policy malpractice is doing double damage to America. On one side, it’s helping lose the future — because that’s what happens when you neglect education and public investment. At the same time, it’s hurting us right now, by helping keep growth low and unemployment high.

We’re talking big numbers here. If government employment under Mr. Obama had grown at Reagan-era rates, 1.3 million more Americans would be working as schoolteachers, firefighters, police officers, etc., than are currently employed in such jobs.

And once you take the effects of public spending on private employment into account, a rough estimate is that the unemployment rate would be 1.5 percentage points lower than it is, or below 7 percent — significantly better than the Reagan economy at this stage.

One implication of this comparison is that conservatives who love to compare Reagan’s record with Mr. Obama’s should think twice. Aside from the fact that recoveries from financial crises are almost always slower than ordinary recoveries, in reality Reagan was much more Keynesian than Mr. Obama, faced with an obstructionist G.O.P., has ever managed to be.

More important, however, there is now an easy answer to anyone asking how we can accelerate our economic recovery. By all means, let’s talk about visionary ideas; but we can take a big step toward full employment just by using the federal government’s low borrowing costs to help state and local governments rehire the schoolteachers and police officers they laid off, while restarting the road repair and improvement projects they canceled or put on hold.

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