TW: This Krugman column frames an issue we have discussed before, state governments contracting spending when the economy most needs it. This state level contraction is occurring for the same reason individuals are contracting, they have less money. In normal times if u have less money, spending less is a great idea in fact in normal times saving some of one's money is a great idea too. Unfortunately most states and most individuals saved little. But now that aggregate demand has plummeted state governments cutting services and investments only exacerbates the economic contraction.
I have a feeling some of the state level announced cuts are game playing as the worse things seem at the state level the more likely perhaps that they will receive federal assistance. Cutting infrastructure spending locally for instance is literally committing economic suicide.
From Krugman at NYT:
"...state governors who are slashing spending in a time of recession, often at the expense both of their most vulnerable constituents and of the nation’s economic future.
These state-level cutbacks range from small acts of cruelty to giant acts of panic — from cuts in South Carolina’s juvenile justice program, which will force young offenders out of group homes and into prison, to the decision by a committee that manages California state spending to halt all construction outlays for six month...
...shredding the social safety net at a moment when many more Americans need help isn’t just cruel. It adds to the sense of insecurity that is one important factor driving the economy down..."
http://www.nytimes.com/2008/12/29/opinion/29krugman.html?_r=1
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