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What Spending Contraction?

by Matt Mitchell on June 23, 2010

in Stimulus, Tax and Budget

Eileen has a great response to Ezra Klein’s piece on the “anti-stimulus.” Klein writes that “[state] budget shortfalls are the equivalent of a massive anti-stimulus, which some experts believe has overwhelmed the $787 billion stimulus passed by the federal government in 2009.” Have state budget cuts really overwhelmed federal budget expansions?

The National Governors Association, in conjunction with the National Association of State Budget Officers, recently released their “Fiscal Survey of States. In it, they show that, indeed, aggregate state general fund expenditures declined by 4.3% in 2009 and 6.8% in 2010. Assuming fiscal stimulus actually works (and that is not a point that should be readily conceded), it is plausible that these huge declines would be enough to offset any increases in spending by the federal government. But the fact is they come nowhere close to offsetting the Federal Government’s massive spending spree.

If you pop over to the White House’s Office of Management and Budget website, you can see what the Federal Government has been up to. At the same time that aggregate state spending was falling by 4.3% and 6.8%, federal spending was increasing by a whopping 17.9% (2009) and 5.8% (2010). This, combined with the fact that the Federal Government spends trillions while states spend hundreds of billions (in the aggregate), means that the state spending contraction comes nowhere close to offsetting the federal spending increase.

In the chart below, I combine the data from NGA/NASBO with the data from the White House Office of Management and Budget. You judge for yourself. Does this look like a massive fiscal contraction to you?

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