Economics - General

Did the Stimulus Hurt the Economy?

Although the stimulus money may have helped the economy in the short run (1-2 years), in the near-term it seems to have exacerbated problems by bloating state government spending and postponing necessary cuts.

As part of the 2009 stimulus package, Washington gave the states $150 billion. The states became dependent on a higher level of federal aid — 35 percent of their budgets, compared with about 25 percent before. But the stimulus is ending, and the states will have to cut.

I would guess that there are asymmetric costs to increasing and decreasing the budget.  Increasing the budget is easy and generates short-term jobs.  Cutting budget, however, produces significant administrative costs as interest groups fight to maintain funding.  Further, more creative solutions to spending shortfalls are postponed when the Feds inject stimulus money for states.

Consider Vallejo, CA in the Bay Area.

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