Today Paul Krugman turns his attention to the the crucial question: what happens to state governments?
America is literally entering a blackout (states are turning off the lights to save power), he argues, and states are in need of cash, but the GOP is preventing them from getting any help.
And the federal government, which can sell inflation-protected long-term bonds at an interest rate of only 1.04 per cent, isn’t cash-strapped at all. It could and should be offering aid to local governments, to protect the future of our infrastructure and our children.
But Washington is providing only a trickle of help, and even that grudgingly. We must place priority on reducing the deficit, say Republicans and “centrist” Democrats. And then, virtually in the next breath, they declare that we must preserve tax cuts for the very affluent, at a budget cost of $700 billion over the next decade.
Note that by including “centrist Democrats” among his villains, he sidesteps the political problem of acknowledging that the Democrats still control Washington, and thus it’s not fully proper to blame the GOP for the lack of aide.
Regardless of whether you think Krugman is correct — that Washington ought to provide more help — his assessment of the problem is correct.
Even excluding Census layoff, state and local layoffs contributed another 50K to the unemployment rolls according to last Friday’s jobs report.
And anecdotal stories of state and town layoffs are coming hot and heavy. We could literally fill the site all day with these stories.
He’s also right that the scene in Washington isn’t helpful right now, and it will probably get worse.
Thus the question you have to ask is: how much will the pain of the states contribute to a real drag on the economy, and can they stabilise on their own?
Got a good guess?
Don’t miss: 16 reasons that California is the next Greece >
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