Most economists say that deficit spending is needed during a severe recession and that if the government cuts spending too much, it can trigger a depression, which is what happened in 1932. But Nobel Prize-winning economist Paul Krugman raised an interesting question about whether state spending cuts may undermine the federal spending. “Even as Washington tries to rescue the economy, the nation will be reeling from the actions of 50 Herbert Hoovers – state governors who are slashing spending in a time of recession, often at the expense of their most vulnerable constituents and the nation’s economic future,” Krugman wrote. Because states have balanced-budget requirements, Krugman supports directing some of the stimulus spending toward the states through funding for food stamps and Medicaid, state- and local-level infrastructure projects and aid to education.
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7 Comments
Although Franklin Delano Roosevelt was my favorite President, many present day historians, revisionist or not, are having second thoughts about President Herbert Hoover. Herbert Hoover was elected in 1928 and took office in 1929, at the end of the golden 1920’s. Suddenly at the end of his first year in office, in late 1929, the Great Depression slammed into America.
Somewhat similar to Barack Obama’s entering the Presidency at this time of the current economic downturn which no one really knows how long it will last.
Hoover thought that the government should basically stand back and let the business world step forward and bring back prosperity.
No one knows whether Hoover’s plan to rely on the corporate world would have worked vs Roosevelt’s comparitively massive federal government rescue programs via the New Deal, CCC, WPA, etc. Of course, Wichita benefitted by some of these programs.
Are we in an alternative universe when republicans are now agreeing with democrats?
Tough problem. We are victims of our success. Technology and productivity gains have reduced the need for a large and ever growing workforce.
Plenty of work to be done in the real world, it’s just not profitable. Gubermints can fill the void but nobody wants to pay for the programs. I think were screwed.
Unfortunately the governors could not really build up the size of ‘rainy-day fund’ they needed. Whenever they see surpluses, rather than banking it, they either spent it or slashed taxes. Now I hate taxes as much as anyone but it would sure be nice if our state/local could ride this thing out more smoothly and even accellerate infrastructure development while traffic is less and labor is available.
Fianncial advisors tell us we should have a cash reserve for our families ‘just in case.’ The same should hold for companies and governments.
Hasn’t Obama talked about sending the states money for infrastructure projects? Wouldn’t this also help with problem Krugman cites? In addition to responding to the neglected bridges and etc. that have suffered the last 8 years.
The problem is that when the money isn’t spent and there is a surplus, then the money gets cut from the budget the following year. Just like Medicaid recipients, they have to spend the money they receive, otherwise it’s seen as they don’t need it to survive and so they lose their allotment. They can’t have more than $2,000 in the bank.
I worked a short time at WSU. When the fiscal year end was closing in everyone scrambled to make sure they spent every cent budgeted for that year. It wasn’t spent prudently! But if it wasn’t spent they couldn’t possibly get more to spend the next year. What a vicious circle and misuse of public funds!