From the AP:
"the Obama administration...rejected South Carolina Gov. Mark Sanford's (R) request to use his state's $700 million in stimulus money to retire debt. "White House Budget Director Peter Orszag said in a letter to the Republican ... that the federal stimulus law doesn't allow President Barack Obama to make an exception for that cash. Sanford sought a waiver last week, asking to pay off debt rather than use the money to create jobs and avoid deep program cuts."
TW: Much has been discussed on certain Republicans wanting to adopt Hooverite economic policies calling for greater savings amidst the largest demand contraction in decades. To repeat we are all caught up in the Paradox of Thrift by which individually it makes sense to squirrel away our nuts but in doing so we create a cycle of more demand destruction and associated asset depreciation. But there is another angle to an effort such as Sanford's, crass selfishness in pursuit of another economic concept: free-rider effect.
Some have expressed concern about our stimulus program "leaking" to other countries benefit. If the stimulus money goes to buy Chinese steel or German machine parts then we are stimulating Chinese and German instead of the presumed American target. This is a legitimate concern and why you hear about the need for "global stimulus" so that all countries are participating in the process.
The same concept can apply within the U.S., if a state like South Carolina could opt out of the program by using the money to retire debt (thereby offsetting indirectly their contribution to the stimulus program via federal taxes) they could enjoy the demand (e.g. by exporting goods or services to the other states) created by the other 49 states without incurring the costs. They would in effect become a free-rider. Nice try Mr. Sanford.
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