Fifty Herbert Hoovers
By PAUL KRUGMAN
NO MODERN AMERICAN president would repeat the fiscal mistake of 1932,
in which the federal government tried to balance its budget in the
face of a severe recession. The Obama administration will put deficit
concerns on hold while it fights the economic crisis.
But even as Washington tries to rescue the economy, the nation will be
reeling from the actions of 50 Herbert Hoovers — state governors who
are slashing spending in a time of recession, often at the expense
both of their most vulnerable constituents and of the nation's
These state-level cutbacks range from small acts of cruelty to giant
acts of panic — from cuts in South Carolina's juvenile justice
program, which will force young offenders out of group homes and into
prison, to the decision by a committee that manages California state
spending to halt all construction outlays for six months.
Now, state governors aren't stupid (not all of them, anyway). They're
cutting back because they have to — because they're caught in a fiscal
trap. But let's step back for a moment and contemplate just how crazy
it is, from a national point of view, to be cutting public services
and public investment right now.
Think about it: is America — not state governments, but the nation as
a whole — less able to afford help to troubled teens, medical care for
families, or repairs to decaying roads and bridges than it was one or
two years ago? Of course not. Our capacity hasn't been diminished; our
workers haven't lost their skills; our technological know-how is
intact. Why can't we keep doing good things?
It's true that the economy is currently shrinking. But that's the
result of a slump in private spending. It makes no sense to add to the
problem by cutting public spending, too.
In fact, the true cost of government programs, especially public
investment, is much lower now than in more prosperous times. When the
economy is booming, public investment competes with the private sector
for scarce resources — for skilled construction workers, for capital.
But right now many of the workers employed on infrastructure projects
would otherwise be unemployed, and the money borrowed to pay for these
projects would otherwise sit idle.
And shredding the social safety net at a moment when many more
Americans need help isn't just cruel. It adds to the sense of
insecurity that is one important factor driving the economy down.
So why are we doing this to ourselves?
The answer, of course, is that state and local government revenues are
plunging along with the economy — and unlike the federal government,
lower-level governments can't borrow their way through the crisis.
Partly that's because these governments, unlike the feds, are subject
to balanced-budget rules. But even if they weren't, running temporary
deficits would be difficult. Investors, driven by fear, are refusing
to buy anything except federal debt, and those states that can borrow
at all are being forced to pay punitive interest rates.
Are governors responsible for their own predicament? To some extent.
Arnold Schwarzenegger, in particular, deserves some jeers. He became
governor in the first place because voters were outraged over his
predecessor's budget problems, but he did nothing to secure the
state's fiscal future — and he now faces a projected budget deficit
bigger than the one that did in Gray Davis.
But even the best-run states are in deep trouble. Anyway, we shouldn't
punish our fellow citizens and our economy to spite a few local
What can be done? Ted Strickland, the governor of Ohio, is pushing for
federal aid to the states on three fronts: help for the neediest, in
the form of funding for food stamps and Medicaid; federal funding of
state- and local-level infrastructure projects; and federal aid to
education. That sounds right — and if the numbers Mr. Strickland
proposes are huge, so is the crisis.
And once the crisis is behind us, we should rethink the way we pay for
key public services.
As a nation, we don't believe that our fellow citizens should go
without essential health care. Why, then, does a large share of
funding for Medicaid come from state governments, which are forced to
cut the program precisely when it's needed most?
An educated population is a national resource. Why, then, is basic
education mainly paid for by local governments, which are forced to
neglect the next generation every time the economy hits a rough patch?
And why should investments in infrastructure, which will serve the
nation for decades, be at the mercy of short-run fluctuations in local
That's for later. The priority right now is to fight off the attack of
the 50 Herbert Hoovers, and make sure that the fiscal problems of the
states don't make the economic crisis even worse.