If you're worried about unemployment, you've got to worry about the fiscal situation in the states, which is cancelling out the beneficial effects of federal deficit spending and exacerbating the vicious cycle of unemployment -- fewer jobs creates less demand, which in turn leads to fewer jobs. President Barack Obama is asking Congress for $50 billion in aid to the states in the jobs bill, a smart investment when we can borrow cheaply to take advantage of slack in the economy. The CBPP points out that we're already losing hundreds of thousands of jobs at the state level, and will stand to lose more if cash-strapped local governments need to keep cutting.
The U.S.'s window to use fiscal policy to limit the recession's worst short- and long-term effects won't last forever. You get the sense that the de facto supporters of austerity in Congress are aware of this and are happy to delay, letting unemployed workers hang and the economy stagnate. But Democrats in Congress -- whose political incentives to act now ought to be clear -- need to realize that there is a short window of time, due to economic and institutional factors, for them to pass smart policy decisions, and rise above their concerns about "spending fatigue," as as House Democratic leader Steny Hoyer puts it.
-- Tim Fernholz
