Did federalism cause stimulus to fail?

This may not be the only explanation for why the stimulus has not been as effective as hoped, yet we can't fail to mention that the federal stimulus bill has been counteracted by the states' tax hikes and spending cuts, and this explanation surely jibes with what many economists have argued all along: the stimulus must be big enough or it will fail.

The two-year Obama stimulus amounted to $787 billion, of which $70 billion was really just the usual taxpayers' annual exemption from the alternative minimum tax, and $146 billion was actually appropriated for the years 2011 to 2019. That leaves $571 billion that the federal government is pumping into the economy during 2009 and 2010. Subtract the amount that state and local governments are withdrawing from the economy (they have a combined shortfall of around $365 billion, but let's say they do enough fiscal finagling so that the total of their cutbacks and tax hikes is just $325 billion), and we're left with $246 billion.

At $787 billion, the stimulus came to 2.6 percent of the nation's gross domestic product for 2009 and 2010 -- not big enough, but a respectable figure. At $246 billion -- the net of the federal stimulus minus the state and local anti-stimulus -- it comes to just 0.8 percent of GDP, a level lower than those of many of the nations that the U.S. chastised for failing to stimulate their economies sufficiently.

But other major nations don't have federal systems that turn them into unstopped bathtubs in times of recession.

Fed Up With Federalism
How America's commitment to states' rights is undermining our economic recovery.

By Harold Myerson
December 2, 2009 | The American Prospect

URL: http://prospect.org/cs/articles?article=fed_up_with_federalism