Mark Thoma on Rainy Day Funds for States
I have to apologize to many in the blogosphere for not having been a regular blog reader in the past and so not being aware of posts preceding mine that are clearly relevant to my posts and so deserve acknowledgement. Unfortunately, writing this blog on top of all my other duties as an economics professor and in my private life also doesn’t leave me a lot of time for reading everything out there that I ideally should be reading. So please do let me know of things out there that are highly relevant to my posts and I will make an effort to acknowledge them–assuming I agree that they are highly relevant. This post is an acknowledgement of an article by Mark Thoma that is extremely relevant to one of my posts. Mark let me know by tweeting about his prior article with @mileskimball included in the tweet.
Back in October 26, 2010, Mark Thoma suggested in the Fiscal Times that the Federal Government help states out financially in return for states setting up rainy day funds. (I have to apologize to many in the blogosphere for not having been a regular blog reader in the past and so not being aware of many things that people have said.) This is very similar to my proposal in “Leading States in the Fiscal Two-Step." So (assuming that, like Ben Bernanke, Mark thinks more fiscal stimulus is in order at this point) both Mark and I are calling for this kind of action. One difference in our proposals is that I am suggesting that the Federal Government effectively require the states to repay the money given them now, and then go beyond that to accumulate positive balances in their rainy day fund. Thus, my proposal will not add to the Federal Government’s debt in the end, while Mark’s will.
Also, note that since my proposal works through changing the timing of Federal Medicaid Contributions, the Federal Government can easily do it unilaterally, and the effective rainy day fund requires no state legislative or executive action in order to come into existence.