MS:
State governments are likely to spend what they get to prop up
services that otherwise would take a hit due to falling tax revenue.
In that respect aid to states is one of the most efficient types of
stimulus, though there are limits to the amount that states could
absorb, and the distribution of aid makes a difference.
JG:
I don't really have a dog in this fight, so with my follow-up here I'm
strictly seeking illumination.
Is it not true that assistance to states and localities will have the
three following primary effects? 1) Services that would have been cut
remain partially or wholly intact... the various state medicaid schemes,
for example. From a humanitarian/social justice point of view this is great
but in and of itself this is not stimulative, save for generating demand
for the inputs of public service contractors (firms embedded in the medical-
industrial complex, for example). But even this generated demand does not
create new jobs, it keeps old jobs from being shed. 2) Public sector workers
who might have been permanently dismissed get to keep their employment.
Very nice, but again, are new jobs being added? 3) Public sector workers
facing pay cuts don't have to cough up give-backs. Hunky dory, but won't
the preserved income simply go toward paying down personal debt? Certainly
no new jobs are being incubated here.
(Yeah, I know, my depiction is kinda crude...)
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