End the duopoly

A prolonged depression is guaranteed without significant federal aid to state and local governments

Congress is currently debating a new relief and recover package—the HEROES Act —that would deliver significant amounts of fiscal aid to state and local governments—more than $1 trillion over the next two years, all told. This is a very welcome proposal.

The incredibly steep recession we’re currently in is guaranteed to torpedo state and local governments’ ability to collect revenues . Further, nearly all of these governments are tightly constrained—both by law as well as by genuine economic constraints— from taking on large amounts of debt to maintain spending in the face of this downward shock to their revenues.

The result will be intense pressure for large cutbacks in public spending by state and local governments in coming years. Such cutbacks would be absolutely devastating to the cause of restarting the economy and allowing people to find jobs, even if the virus has completely abated.

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We know how devastating these cutbacks would be because we have lived through the mistake of allowing them to drag on growth in the quite recent past. State and local governments became relentless anti-stimulus machines during most of the recovery from the Great Recession of 2008–09.

This post highlights a couple of findings from […]

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