Ten Economics Pieces Worth Reading: January 25, 2010
In Which Paul Krugman Leaves the Order of the Shrill for the Order of the Despairing

Financial Aid to the States Is the Long-Hanging Fruit Here...

Mark Thoma has a nice piece on automatic stabilizers:

The Importance of Automatic Stabilizers: [D]espite their importance in smoothing the impact of economic shocks, very little discussion of the recent crisis has been devoted to whether the automatic stabilizers we have in place have been adequate.... One reason is that they are automatic and hence largely outside the political process, this is one of their advantages, and it’s only when programs such as unemployment compensation threaten to come to an end that they catch our attention....

However, while automatic stabilization policies bypass the political process once they are operative, the political challenges of putting automatic stabilizers in place to begin with are just as great.... But... negotiations over automatic stabilizers can be carried out when the economy is doing well and delay isn’t as costly.... We need to do a careful and thorough assessment of the strengths and weaknesses of existing automatic stabilizers....

The lags in the effects of policy and the existing political atmosphere mean it’s too late to do much more to help the economy this time around, but we should be as prepared as we can the next time this happens.

There is one area of automatic stabilizers for which it is not too late. We could act right now to create some state-level automatic stabilizers, rather than let our state governments exert downward pressure on the economy by acting even more like fifty little Herbert Hoovers. Large federal aid packages to the states to prevent big additional cuts to state and local government services starting in July is one of the very best things we could do.

Of course, it is unlikely to happen. Senators dislike transfers to states. State governors use those transfers to accomplish initiatives, and then run against senators to take their jobs.

Yet another reason why we would all be better off without a U.S. Senate...

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