This is the Cato Daily Podcast for Monday, January 5th, 2009.

I'm Caleb Brown.

The incoming Obama administration would like to spend by some estimates a fresh trillion

dollars on state infrastructure projects and a few other things in the we hours of this

new year. Chris Edwards, director of tax policy Studies at the Kino Institute, wonders

when the evidence is mixed on the effectiveness of big government spending in tough economic

times, why not focus on things that are known to work?

Well, the first reason why Congress shouldn't bail out the states with this big stimulus package is that the federal government is broke.

It frankly doesn't have the money to bail out state governments who are in deficit these days.

The federal government is in worse fiscal shape than the states,

who have been coming to Washington in recent months

asking for bailout money frankly they put themselves in the fiscal crunch that

they are currently experiencing state government spending has increased over 7% this year in 2008 and an

increased over 7% last year in 2007. So the cause of Red Inc. among the state governments is their own high

spending. So to fix the problem states need to restructure and retrench in their

budgets.

Okay.

What about the idea, this, the classic Keynesian idea that taking this money from the

government in the short run will stimulate a lot of this spending and the economy will pull itself up by its own bootstraps.

Well, I call the basic Keynesian spending idea, kindergarten Keynesianism, even the most basic

macroeconomics textbook introduces the Keynesian idea that a spending stimulus can boost GDP growth, but then immediately goes into the reasons

why that may well not be true.

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