California Here We Come

02/08/2009 06:24 pm ET | Updated May 25, 2011

By gutting vital aid to states and under-capitalizing infrastructure spending, many more of our states may soon look like debt-distressed California. What happens then when we combine this with more TARP money and the set of private investment subsidies in the Reinvestment Act that we sometimes call tax cuts. Despite partisan and cameral bickering, this is not an oil and water bill. Instead, we need to ask what this mix is likely to get us in practice, good and bad. Here are 5 possible outcomes:

1. We introduce mutually-reinforcing stimulus provisions: Short term infrastructure and other construction spending mean more shovel-ready jobs over the next two years. At the same time, tax incentives and TARP money unclog our credit markets flowing large pools of private capital into the US economy reinforcing the job creation and economic growth of the short-term spending programs.

2. By weakening states and strengthening banks, the stimulus distorts the market and artificially depresses the price of state assets further.

3. We lure bankers out of their lair with more TARP money and more tax incentives so that they start purchasing or capitalizing increasingly distressed state and private assets and also investing in sustainable growth opportunities.

4. Out-of-work citizens with a hole-ridden state safety-net become increasingly friendly to the idea of trading state assets for jobs, whatever the wages and benefits.

5. By unraveling our safety-net in an economic crisis, we risk not only having the cost of recovery born mainly by those persons least able to shoulder it, but we also may kick the foundation out of our economy undermining economic growth for everyone.