Arnold Kling

State Governments

Arnold Kling, Great Questions of Economics
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In Our Wretched States, Paul Krugman discusses the fiscal situation of state governments. The mainstream analysis and policy prescription is:

One impact of a recession is to reduce state revenues. Because they are obliged to balance their budgets, this leads them to reduce spending. The result is to reinforce the downturn. However, with revenue sharing, the states would have less need to cut back.

In conclusion, I believe that a large, temporary revenue-sharing program would be a good approach for fighting a recession. This form of fiscal stimulus would quickly find its way into the economy.

However, that is not what Krugman writes. It is what I wrote, in December of 2000. I'm sure that Krugman would understand my position. In fact, I believe that he would agree with it. But for his columns, he wants to stick to pure anti-Republican hysteria.

Discussion Question: Consider two issues:

  1. the appropriate share of government spending in the economy
  2. the appropriate short-term fiscal stimulus

Are these issues best lumped together or treated separately?

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