Monday, December 8, 2008

Obama unstimulating stimulus

Another one of the questions on my U.S. Financial Policy final was about the National Council of State Legislatures (NCLS) recommendations for the Obama stimulus plan. NCLS is the more liberal version of the American Legislative Exchange Council (ALEC) in case you were wondering.

I'm still not a huge fan of bailouts and stimulus spending, but a couple of the NCLS recommendations are not too shabby. For instance, I do see a need for broad, discretionary grants to alleviate state shortfalls. Normally, I'd want the states to be held accountable, but given the falling property values and hard economic times it will be hard for the states to recover on their own. And while I applaud the fact that 49 of our states have balanced budget requirements, it's times like these that you worry about their ability to finance their deficit. Another recommendation was sales tax "fairness." Basically, states want the right to collect on remote sales that are purchased in their state. This is one recommendation that wouldn't actually cost the feds any money and could help with those pesky state shortfalls. But then the question is how much of a stimulus is it to balance state budgets? What's going to directly benefit individuals?

The problem is that the recommendations are very broad and in the hands of Obama who knows how it will turn out. But maybe it won't be so bad....from what we've seen of the Obama stimulus plan so far, it's pretty tame. I agree with Tyler Cowen:

When it comes to fiscal policy, many projects are not very good. Most
projects take a long time to come on-line. The fiscal stimulus should,
most of all, be directed at an effective marginal incentive scheme to keep up
state and local spending. I am still enthusiastic about Obama's economic
team, but I am starting to worry a little. How many of these expenditures
actually help needy people? How many actually will help the economy?
In fairness to Obama this was a radio address, and thus hardly the setting for
meaty analysis, but still I am a little underwhelmed.


Timothy said...

For the first time in your blog, I have to disagree with you. The Obama stimulus proposal could be devastating, and the states shouldn't get a penny of aid from the federal governemnt. After all, many states like Texas and South Carolina were able to balance their budgets-- why can't all the others? Becuase they spend too much, and forcing a reduction in spending is the right thing to do. If you reward their behavior, they have no incentive to change it.

Whitney Lynne said...

We'll have to discuss this further then! :)