For the second stimulus, Obama should listen to Richard Nixon

The big news out of this afternoon’s press conference, as far as I can tell, is that Obama opened the door up to a second stimulus. He didn’t announce such a proposal, but he pointedly didn’t rule one out, either. He just doesn’t think it’s appropriate–”yet.”

Good. With the economy still in trouble, another stimulus may very well be needed. And to be more effective than the first, it would have to look different than the first.

One aspect of our current trouble that’s often unremarked upon is the degree to which the federal government’s stimulus is being counterbalaned by the behavior of cash-strapped state governments. Just as the federal government ramps up spending, state governments across the country are winding down spending–firing employees, cutting programs and looking for pennies under every couch they can find. While the feds are stimulating, the states are anti-stimulating. Of course, the first stimulus did plan for this kind of thing by throwing some money at states–$144 billion, according to early White House estimates. But it wasn’t enough. As the Center for Budget and Policy Priorities reported in May, the stimulus will cover only 40% of the $350 to $370 billion deficit state governments face in the next two and a half years.

Can this problem be solved? Maybe. Last December, esteemed economist James Galbraith took to the pages of Mother Jones to explain, among other things, the necessity of re-implementing General Revenue Sharing, which shoveled federal funds to state and local governments. Wrote James:

…We must backstop state and local governments with federal funds. Otherwise falling property (and other) tax revenues will implode their budgets, forcing destructive cuts in public services and layoffs for teachers, firefighters, and police. And when these public servants are laid off, guess what? They have trouble paying their mortgages. General revenue sharing—unrestricted federal grants to states and towns, a program invented by Richard Nixon and killed by Ronald Reagan—is required. Luckily it can be reintroduced quickly on a large scale.

As Galbraith says, General Revenue Sharing was a Nixon brainchild. But that shouldn’t make it politically or substantively unpalatable to the Obama Administration. The point of the program was to better fund the necessary work of state and local governments. That’s a liberal goal–and it’s a common sense goal during a recession. Back in January, Steven Maguire of the Congressional Research Service penned a pretty fascinating look back at the program. Take a look here.

If we adopted GRS today for states only, Maguire anticipates a “significant fiscal stimulus.” Adopting it, then, for states as well as towns would have a doubly significant impact. Implementation would be difficult. But isn’t that what the Administration is all about? Doing what’s hard but necessary? Nothing’s harder for a Democrat to embrace the Nixon legacy, but this thing seems too tempting to resist.