Fiscal Policy, in the Wrong Direction

The NY Times reports on widespread budget cuts by state governments, who are seeing tax revenues fall and are much more constrained then the federal government in their ability to run deficits.

A good candidate for any fiscal stimulus legislation would be increased federal aid to state and local governments. The state cuts do have macroeconomic consequences - state and local government purchases accounted for 12.1% of GDP last year and are the bulk of the "G" component of aggregate demand (bear in mind that much of federal spending is on transfer programs; federal government purchases were 7.1% of GDP in 2007, and this was mostly military spending).

The Times story is accompanied by a nifty interactive graphic with state-specific information; they put Ohio's gap at $1.3 billion, or $111 per resident.