EdVANTAGE Blog

Nobel Prize winning economist Joseph Stiglitz has written that cutting public spending in a recession could cause more harm than raising taxes in a recession.

New York Times columnist Paul Krugman picked up on that theme this week, warning that current conditions could turn the nation’s governors into “50 Herbert Hoovers” — modern day versions of the U.S. president faulted (somewhat unfairly) for failing to respond effectively to the onset of the Great Depression.

Both Stiglitz and Krugman explain that governors don’t have the luxury of the nation government of running deficits year after.  States must annually balance their budgets, forcing the choice between spending cuts or tax increases.  Krugman argues for federal funding to address national problems currently borne by states — education, health care, and infrastructure.

As explained in another recent post, Governor Paterson has written to the incoming Obama administration to request inclusion of help for the state in a federal economic stimulus plan.

But stimulus projects are, by definition, short-term in nature and presumably cannot be counted upon to provide permanent fiscal relief for state government.

One area where the federal government could provide lasting help would be in taking over a larger share of the cost of Medicaid.  Senator Chuck Schumer says that the Obama Administration’s plan will include an increase in the federal share and that could give New York State $5 billion in additional aid — a sum approaching about one-third of the state’s projected state budget deficit over the next 15 months.

Historically, New York leaders have argued that the federal Medicaid sharing formula has shortchanged New York and other large states because the share is adjusted based on state per capita income.  That measure fails to recognize that a state with higher than average incomes can also have a higher than average share of disadvantaged people needing help with medical care.

The Buffalo News editorializes in support of the change, while warning that it cannot be taken as an excuse to avoid making structural changes in public services and how they are funded.