If we need more stimulus, what form should it take? Matt Yglesias comments:
In an ideal world at this point what I’d like to see is more aid to state and local governments. Probably this should just be done in a very crude way — some flat per capita disbursement that could be implemented very rapidly at the federal level and kick specific decisions to someone else. Some of the money would be wasted or used in bad ways, but it wouldn’t be congress or the executive branch doing the wasting, so it’d be someone else’s problem. That kind of thing would work quickly, would be highly stimulative, and would allow structural shifts in the private sector to proceed apace.
Well, one quick way to do this might be to stop dinking around with alterations to the Medicaid funding formula (as the first stimulus bill did) and simply turn Medicaid into a purely federal program funded entirely with federal dollars. This would instantly save states something on the order of $100 billion or so. Here in California, we'd save a little over $10 billion, which would be $10 billion less in demand-destroying budget cuts we'd have to make. Eventually this might lead to Medicaid becoming more standardized throughout the country, rather than being a hodgepodge of 50 different plans, but that's probably OK. I'm not sure Medicaid has really been a great poster child for states as laboratories of democracy anyway. Maybe it's time to turn the entire program over to the feds so it's not constantly a procyclical drain on the economy and be done with it.