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Stimulative Action

SOURCE: AP/Rich Pedroncelli

Many states face serious budget challenges that the stimulus can help address. Governor Arnold Schwarzenegger (R-CA) told his state legislators earlier this week, “California, the eighth-largest economy in the world, faces insolvency within weeks.”

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During the 1930s, John Maynard Keynes wrote that the health of the economy could be restored “if the Treasury were to fill old bottles with bank-notes, bury them at suitable depths in disused coal-mines,” thus encouraging private businesses to hire workers to dig them up. His point was that under certain economic conditions, the creation of economic demand is so critical that even the most wasteful type of government activity can serve to restore a failing economy.

Fortunately, the economic stimulus package released yesterday after weeks of work by the Obama transition team and leaders in the new Congress offers the prospect of restoring life to our rapidly sinking economy and simultaneously providing taxpayers with some solid long-term value—above and beyond the restoration of economic growth.

One of the biggest problems faced by the country is the fiscal meltdown in state and local government. As state and local revenues fall, needed services are cut back by budget reductions that add to the rolls of the unemployed. As California’s Republican governor Arnold Schwarzenegger told his state legislators earlier this week, “California, the eighth-largest economy in the world, faces insolvency within weeks.”

The Center on Budget and Policy Priorities reports that California is not alone. According to their research, 44 states now face serious budget challenges that are likely to not only disrupt services but place the broader economy in a sharper downward nose dive. More than half of the $550 billion in spending contained in the package is aimed at simply preventing layoffs of teachers, firefighters, state-paid health care workers, and other critical state and local public servants.

A very large share of the remainder of the funds contained in the package are expenditures that will eventually be charged to taxpayers whether they are contained in this package or not. These include billions of dollars in maintenance needs at various federal properties and facilities across the nation, repairs of bridges and roadways, and the acceleration of mandatory efforts such as the clean up of federal nuclear facilities. In many instances taxpayers will save money by funding these necessary repairs now rather than deferring them into the future and will benefit from strengthening a deteriorating economy at the same time.

Finally, the stimulus package contains important investments that we need to make in order to improve the way this economy functions over the long term. Perhaps most important among these are numerous efforts contained in the package to reduce U.S. dependence on imported oil and to reduce the impact that our transportation and industrial needs make on our environment.

Most of these proposals would be high-priority investments in the absence of an economic crisis. Policymakers in the incoming administration and the new Congress have woven together a package that addresses both the immediate needs for stimulus with the long-term investment needs that we must address regardless of the state of our economy. Unfortunately, the brazen attacks of those who have contributed so much to creating the current crisis are only to be expected. Hopefully, the weight of their arguments will be weighed along with the alternative choices they offer and the track record they bring in efforts to improve the performance of the nation’s economy.

Scott Lilly is a Senior Fellow at the Center for American Progress.

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