Opinion: For Real Stimulus, Government Has to Stop Bailing Out the States

Friday, October 21, 2011 - 01:37 PM

U.S. Senate Majority Leader Sen. Harry Reid makes his way through photographers and journalists while returning to his office July 31, 2011 in the District of Columbia. (Astrid Riecken/Getty Images/Getty)

Along with a large majority of the country, shown in poll after poll, I'm perfectly fine with raising taxes on the wealthy and I want the government to get to work on serious job creation. As is typical with the Democrats, however, they're only listening to the first part of that equation. Reid, Obama and company are more intent on using the money to help political allies and bailing out state government budgets.

This mistake is one of the major reasons that the economic stimulus package that Obama and company passed in 2009 resulted in so much less job growth than was predicted. Instead of focusing spending on things with economic multipliers that would create jobs in both the short and long run, it spent far too much on bailing out state government budgets so those states wouldn't have to deal with their own fiscal realities, and of course passing hundreds of billions in debt onto our kids in the process.

Reid and the Democrats are spinning this as a magic pill that will save tens of thousands of jobs for teachers, fire fighters and police. What they aren't saying is how the states that they want to bail out with this money are in far better shape fiscally than the federal government (which still has to borrow more than a third of everything it spends). It's beyond time the federal government stopped bailing out state governments, especially when the federal government has dug itself into such a deep hole.

What this really is is another example of hacking away at the leaves of the weeds that are hindering our economy, rather than getting to the root. Instead of trying to score short term political points, we should be looking for spending that would create jobs in the short run, but also boost the economy long after the money is spent. This isn't the case with short term thinking behind Reid's bill here - once the money is spent, the effects largely dissipate.

There are no shortage of ideas along these lines, and ask a different economist or wonk and they'll each have their own favored projects that fit the bill. I could list a whole bunch of examples, but to illustrate how economic multipliers can work I offer up light rail and streetcars.

Light rail or streetcars systems can be built in a medium sized city for dozens of millions, to perhaps a few billion in a larger city. In the short term you'd create engineering jobs in the planning, as well as the construction jobs in the physical build out and more jobs in maintenance of the systems once they are up and running.

In the medium to long run, the benefits keep racking up. They have a proven record of taking traffic off the road and slowing down the need for expensive expansions of city streets and highways, which can save cities and states tens of millions. They encourage "in fill", leading to more people moving into the city rather than suburbs and exurbs (which leads to much less cost per person to the city infrastructure wise). They even have a proven track record of increasing property values within a few blocks of stations. There is more, including non-economic environmental benefits, but you get the picture.

The original stimulus could have put a light rail and/or streetcar system in every single town in the country where it would be appropriate, and city and state budgets would be benefiting from them. Instead of putting off problems just a couple years, which is all Reid's bill would do, the same amount of money you could get from a half percentage tax increase on millionaires (personally I'd go higher) could pay for a short term job creation program that only spent money on projects with the same sort of proven long term economic stimulative effects as light rail, and then went directly to paying down the deficit once the economy recovers.

This is the sort of long term thinking we need to get ourselves out of the economic mess that was created by the short term thinking that got us into this mess in the first place.

Solomon Kleinsmith is a former nonprofit worker, serial social entrepreneur and strident centrist independent blogger from Omaha, Nebraska. His website, Rise of the Center, is the fastest growing blog targeting centrist independents and moderates.


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Comments [4]

Solomon Kleinsmith from Omaha, NE

Sales taxes on online sales wouldn't even come close to fixing the problem, but if you think it's fair (which I don't) then it would dent it. States have just been spending more than they could afford, especially in the area of underfunding pension funds. People need to realize that either they need to accept higher taxes for EVERYONE, not just the group of people they don't like, or accept less from their government.

Oct. 22 2011 06:51 PM
Jack Jackson from Central New Jersey

For all that I love Al Gore and the Internet, the advent of sales over the Internet blew a big-*ss hole in state sales tax revenues. Why not let the Feds collect the state sales taxes on Internet sales and turn ALL of that revenue back to the state of residence except for a possible hundredth or a tenth of one percent for the expense of setting up and maintaining the revenue collecting machinery? The states get the revenue they would otherwise be collecting, the Internet sales makers get one set of standards and rules to follow. Consumers begin paying the sales taxes that they are otherwise avoiding.
Win-Win-Lose...but at least it's not borrowed money.

Oct. 21 2011 07:30 PM
Solomon Kleinsmith from Omaha, NE

Problem is... the other guy is usually just as owned by their party and it's special interest allies. We need better options.

Oct. 21 2011 05:23 PM

here's the fix the game is rigged right now...we asked the gov;t to help everyday people and what do they do...they jump in on the side of big business...the riggers. how can we tell? where did all the money go? i didn't get any. here's what the occ. wall street people should put out there........ vote the other guy......that way all the big business money would not matter...........and if the new guy gets voted in all the time than.....these guys are smart.......if they can't buy influence.....maybe they would chg there behavior.......if you are voted in and know you only have one term....and you can't get rich in office .....may be i would do the right thing and get something done........sounds easy.......just vote the other guy.........

Oct. 21 2011 03:53 PM

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