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Why the Stimulus Was Smaller Than It Looked

The Washington Post had a nice piece out Monday on the way state spending cuts have crimped the economy these past few years, and on the difficulties Obama encountered trying to mitigate that problem. 

As the piece reports:

Obama had tried to address the problem in the 2009 stimulus bill by including more than $150 billion in aid to state and local governments to fill budget gaps.
But as his second year began, economic advisers told the president that state and local governments were still poised to lay off huge numbers of workers, posing one of the biggest threats to the burgeoning economic recovery. Independent analyses by an organization consulted by administration officials suggested that states and localities together still faced at least a $180 billion shortfall. Up to 900,000 jobs would be at risk.
Obama asked his legislative advisers if there was any chance Congress would step in if he made an all-out effort.
None, they responded. The politics were terrible.

It’s worth unpacking what was going on here. As I understand it, the vast majority of state aid that Obama procured in the stimulus was designed to be doled out in 2009 and 2010. But, as it happens, that stimulus money didn’t quite pack the punch it was supposed to. The reason, as Bob Greenstein of the Center on Budget and Policy Priorities explained to me a while back, is that state fiscal years generally end in June. And because there was no sign that the state aide would be extended when most states crafted their 2011 budgets back in early 2010, they simply operated under the assumption that no more aid was going to materialize. Which is to say, they started firing a lot of teachers and first-responders in mid-2010, not at the end of the year, depriving the economy of six months of stimulus that had already been approved. “You could see the state cutbacks in the second half of 2010, further dampening the economic recovery,” Greenstein told me. (The administration did procure $26 billion in extra state aid late in the summer of 2010 to bring back some of the laid-off personnel, but not nearly enough to offset this effect.) 

This was one reason the economy was even weaker than a lot of analysts realized heading into 2011, when we came close to sliding back into recession. And it was an especially maddening development given how glaring the needs were at the state level, how easily they could have been plugged in principle, and how damaging it was to the economy that they weren’t (even when some of the money was technically available). 

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