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The Countercycle Problem


Catherine Rampell points out that Congress needs to provide more aid to the states as their tax revenues crater while their spending needs increase:

States are facing huge shortages — and not just of ventilators, masks and health-care personnel.

They’re about to confront enormous budget shortages, too. This is the sleeper issue of the current economic crisis, and aiding states now could well be the difference between a brief recession and a prolonged depression.

Particularly in ailing regions of the United States that still haven’t recovered from the last recession.

The bill the Senate passed Wednesday would give state and local governments $150 billion to help plug budget holes. It also includes $31 billion for local schools and colleges. That money is definitely welcome.

But it will be nowhere near sufficient to prevent cascading state and local government layoffs and cuts to critical public services that otherwise lie ahead. For context: States suffered a cumulative $600 billion revenue shortfall in the first five years after the Great Recession hit.

Whether they will, of course, is another question entirely. This is a good related piece on what a rational Congress would do with a subsequent round of relief.

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