The American Prospect’s Harold Meyerson eloquently sums up a problem — maybe the problem — with American government’s response to the recession:

Here is a classic algebra problem in which water pours into a bathtub from the tap at a specified rate but also exits the tub at a different rate because someone has neglected to stop the drain. If you know the rates, you should be able to figure when the water will rise to a certain level. During a recession, the United States becomes a version of that bathtub. The federal government is the tap. The state and local governments are the drain.

That’s no way to fight a recession. When investment, production, and consumption are all in decline, the only way to keep the economy from shrinking is for the federal government to deficit spend and create a stimulus. But while the federal government pours money in, the state and local governments, which cannot deficit spend, see their tax revenue shrinking, so they cut spending, raise taxes, or both — taking money out of the economy. America’s distinct brand of federalism inherently impedes an economic recovery.

Consider the state with the biggest tap and the biggest drain: California. The sum total of the federal tax cuts for Californians included in last year’s Bush administration stimulus legislation and this year’s Obama administration stimulus came to $15.5 billion for the years 2008 to 2010 — money desperately needed to boost consumer spending in the midst of the worst downturn since the Depression, says Jean Ross, executive director of the California Budget Project. But the sum total of state tax increases enacted by the California Legislature and signed into law by Gov. Arnold Schwarzenegger in 2008 and 2009, Ross says, came to $12.5 billion for the years 2008 to 2010 — money desperately needed to keep public services in California from grinding to a halt in the midst of the worst downturn since the Depression. “The state negated 80 percent of the feds’ tax cut,” Ross says. “And the cuts and the increases pretty much targeted the same lower-income groups.”

Meyerson points out that the majority of the “stimulus” goes so states can balance their budget without laying off too many public employees or cutting too many services. I’ve argued that this is a good use of stimulus money, but Meyerson is right to point out how, in the big picture, this is an absurd set-up: while the federal government runs up debts, state governments bend over backwards to balance their budget. With different, even opposed, fiscal standards for federal and state governments, Meyerson’s leaky bathtub analogy is depressingly right on.

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