Last week the Washington Post Editorial Board came out with an editorial blasting a second stimulus package as an unnecessary election year ploy:

We understand the political logic of a second stimulus; the economic case is less convincing. Any fiscal stimulus must be targeted, timely and temporary. That is, it must put money in the hands of people who are likely to spend it quickly -- while not committing the federal government to new long-term spending.

Naturally to make their case the Ed Board selectively picks and chooses which parts of the stimulus package to highlight.

House Speaker Nancy Pelosi has called for a $50 billion package, possibly including increases in food stamps and home heating assistance as well as more Medicaid money for states and new infrastructure spending. Fleshing out Ms. Pelosi's concept, Senate Appropriations Committee Chairman Robert C. Byrd (D-W.Va.) has unveiled $24 billion in proposed energy, infrastructure and disaster relief money.

We'll move beyond the fact that many people think supplemental medicaid funding is a really good idea to the more pressing point; the Wapo Editorial Board failed to mention or mention only in passing two plans that many experts say should be the staples of any second stimulus package; aid to states and infrastructure spending. AWall Street Journal article from last month (subscription only) shows Congressional leaders getting on board with the idea so I am lost as to why it received no attention in the Op Ed:

The bill, which would likely include spending on road projects and aid to stated, isn't expected to come up in the House until September

We proved earlier this year that stimulus checks on their own are not the solution to the nation's economic woes. However not recognizing the obvious need for help that states have been screaming about over the last several months is just irresponsible. Not to mention their editorial reads just barely on the sane side of illogical.

Their suggestion that we don't know the effects of the first stimulus yet is asinine. The Post even admitted this on Thursday. On page 10 of the Washington Post Express they ran an article entitled "Stimulus Checks Run Out"

Analysts said retail sales would have been more feeble without the $92 billion in rebate payments the government sent out in May, June, and July. Those checks helped to counter plunging home prices, rising unemployment, and soaring gasoline prices. The bulk mailings are now over, though, leaving economists worried about what will happen next.

WaPo can't have it both ways. They can't report that the stimulus checks are running out but then opine that we shouldn't have a second stimulus because we don't know the effects of the first.

And sure gas prices have been falling over the last couple of weeks, but today's national average for a gallon of gasoline is still $3.77. Am I glad its down from the high of $4.11 that we saw in mid July? Yes. Am I convinced that this means I don't have to worry about gas destroying my wallet? Absolutely not.

According to the Fuel Gauge Report, gas is still $4.07 in California where their budget crisis has gotten so bad that over 200,000 state employees had their pay rolled back to minimum wage. It's $3.89 in Michigan, where unemployment is skyrocketing. Its $3.98 in New York where Governor Patterson has been forced to slash medicaid by $500 million this year and $1 billion next year. The relief at the pump will be short lived because state governments don't have the resources to ensure normal citizens won't feel the pain of floundering state economies.

The Washington Post should know better. After all, the situation is going from bad to worse in their own back yard. A Richmond Times Dispatch article has Governor Kaine says the budget shortfall could surpass $1 billion. This coming on the heals of cutting $2 billion out of the budget this year. He says he's going to apply the same formula:

Kaine said he probably would apply the same basic principles to the next round of economies that he did previously -- to not cut across the board but target more precisely areas that can be reduced. Some lawmakers and lobbyists aren't sure that's possible.

I'm not sure thats possible either. There are a limited number of areas that can be reduced before you start having to cut education, public safety, health, and other essential services. We may be months away from the endgame, but counties and cities are bracing for the worst.

"We expect, and are preparing for, very bad news," said Michael L. Edwards, a lobbyist for the Virginia Association of Counties.

What the Washington Post fails to understand is that dealing with the nations economic problems has to go beyond fixes for the individual. I would love to receive another check in the mail but it's not what's going to fix this thing. The real solutions lie in federal aid to the states and spending on infrastructure, two moves that will help states who are being forced to make dramatic cuts to essential services and potentially create jobs in states were there are far two few of them. These solutions received little to no attention in the Op Ed, which is really the biggest flaw of all in the piece.

Matthew D. Shapiro and Joel Slemrod of the University of Michigan know what they're talking about. They wrote what many consider to be THE paper on the 2001 stimulus payment and now, according to the Wall Street Journal Real Time Economics Blog, have taken a look at the preliminary data on the 2008 stimulus payments. Where did the money go? It's not too surprising:

The change in the personal saving rate corresponds closely to the size of the rebate as a percentage of disposable income. The figure shows how most of the rebate payments appear to have gone straight into saving.

Which is clearly not what President Bush had in mind when he drew up the checks in the first place.

That most of the rebate checks were saved is, though, consistent with the results we find using the University of Michigan Survey of Consumers. When consumers were asked whether their stimulus check would lead them to "mostly spend, mostly save, or mostly pay down debt," only 18% answered that it would lead them to mostly spend more.

That statement is also pretty much in line with what has been reported in the past couple of months. Still, many have been hearing reports recently that feature consumers talking about how they are spending their rebate checks, making some question whether or not it had more of an effect than originally thought. Shapiro and Slemrod don't buy this argument all the way:

Does such consumer behavior correspond to spending that would stimulate the economy? That depends on what the consumers would have done if they had not received the rebate check. If they would have not made those purchases absent the rebate, then the rebate was spent. If the rebate let them avoid running up higher credit card bills for gas and groceries they would have purchased even without the rebate, then the rebate was saved.

Thus the rosy predictions of Americans flocking to stores to spend their rebate checks may not necessarily indicate that they are having the desired effect of stimulating the economy. And what is their overall analysis of how this first stimulus package worked out?

Nonetheless, the rebates are likely to be less effective in stimulating the economy than policymakers had hoped.

In reality Shapiro and Slemrod only add another reliable source to the masses who have highlighted the failure of the first stimulus package to boost the economy. They also join another group that has been picking up steam lately; those who think investing in the states should be a central tenant of any new stimulus package:

If a second round of stimulus is necessary, other options that should be on the table. These include payments to states that will need to cut spending because of balanced budget provisions as their tax revenue falls. Additionally, policymakers should consider increased infrastructure investment on items such as roads and bridges.

Both of these are great ideas. Though they ask the question, is a second round of stimulus necessary? All I can say is look around.

In California the state budget impasse is rounding the track on its 6th week (they were supposed to have something figured out by July 1st.) Governor Schwarzenegger has been favoring scare tactics over real negotiation with state Democrats. Ask the 200,000 state employees who had their salaries reduced to minimum wage if they think a second round of stimulus is necessary. Ask the 10,000 plus seasonal and student workers who lost their jobs if they think a second round of stimulus is necessary.

In New York, Governor Patterson is calling the state legislator back into session to address a projected $6 billion budget gap next year and a gap that could ballon to $26 billion in three years. They say everything is on the table for cuts. I'm sure they could use a little help.

These are just two of countless examples of states in need of some aid. Here's to hoping that when Congress comes back into session next month they do so with the recommendations of Mr. Shapiro and Mr. Slemrod in mind.

Friggin State Farm, bumped, jerome

With tropical storm Edouard running up the coast of Texas, coastal residents should check up on their insurance policies.

After Katrina, thousands of Gulf Coast residents found that their insurance companies were nothing at all “like a good neighbor.” State Farm, for instance, refused to honor claims for water damage and fought to classify the damage as “flood” instead of “wind” so they could abandon their customers. Worse, State Farm ordered some of their contract engineers to alter their damage reports, so they could avoid paying claims. They would have to pay $30 million more and “re-evaluate” more than 3,000 Hurricane Katrina clams as a result of a settlement with policyholders in April 2007.

State Farm’s actions during Katrina helped it earn the ranking of #4 on the “Worst Insurance companies in America.”

You can read more about State Farm’s anti-customer behavior in a new report on the ten worst insurance companies in the nation.

Based upon exhaustive research, court documents, state insurance records and news accounts, the legal organization, the American Association of Justice compiled the report.

You can read a synopsis of the report here: http://www.justice.org/pressroom/PressRe leases/2008/july09.aspx

Or view a pdf of the full report here: http://www.justice.org/docs/TenWorstInsu ranceCompanies.pdf

The Biloxi (MS) Sun-Herald writes up the "Worst Insurance Companies" report here: http://www.sunherald.com/business/v-prin t/story/675669.html>

I wrote earlier today about the need for the Federal Government to get a grip on state aid. Perhaps we are seeing a dim light at the end of a tunnel. The Wall Street Journal (subscription only) is reporting that aid to states will be included in a second economic stimulus bill of at least $50 billion:

The general consensus, among people including former Clinton administration officials Lawrence Summers and Alan S. Blinder, was that checks for individuals and additional government spending would help boost the economy, stem job loss and alleviate the pain of higher prices that people are paying for food and gas.

Thankfully Congress seems to finally be coming to terms with what we all have known for a long time now; that the health of the national economy is reliant on the health of the state economies. Speaker Pelosi brings home this point in getting into the finer points of what the bill will entail:

Along with rebates and spending on infrastructure projects, Ms. Pelosi said other possible proposals under consideration are help for states with their share of costs in the Medicaid health program for the poor. Some form of state aid is likely to be included, as Democrats said they are concerned that states, to balance their budgets, will cut programs or increase taxes in ways that would further slow the economy.

Newsflash, this has been happening for the last 5 months as states attempted to balance their budgets. The legislation isn't expected in the House until September, but I am thankful that Senator Reid and the Democratic leadership took the time to make sure the stimulus package would address the right needs. The question now is whether we should be saying "better late than never" or "too little too late."

Monday brought word of another corporate bailout by the Federal Reserve. The "victims" this time around are Fannie Mae and Freddie Mac. Stephen Labaton broke down the plan in yesterday's New York Times:

...the Federal Reserve said it would make one of its short-term lending programs available to the two companies... ...the Fed’s decision to permit the companies to borrow from its so-called discount window was approved at the request of the Treasury but that it was temporary and would probably end once Congress approved Treasury’s plan. Some officials briefed on the plan said Congress could be asked to extend the total line of credit to the institutions to $300 billion.

Fine, saving the nation's two largest mortgage finance companies from peril is an acceptable use of resources. The article cites lawmakers on both sides of the aisle are in agreement with the decision to bail the two companies out. What concerns me however is what this could mean for taxpayers in the future:

...the package, if adopted, would bring the Treasury closer than ever to exposing taxpayers to potentially huge new liabilities. The two companies could face significant new losses this year as the wave of housing foreclosures continues. Officials seemed to suggest, however, that they had little choice but to intervene.

So what does this actually mean? Since the economy is absolutely tanking, more and more foreclosures and defaults on mortgages can be expected, and since Fannie Mae and Freddie Mac are already government sponsored entities, guess who is going to be paying if the two companies continue to lose money. Thats right, you and me.

Meanwhile, while the federal government is busy establishing $300 billion credit lines and potentially exposing tax payers to even more grief, or bailing out Bear Stearns for $30 million, lets see how the states are doing in the face of a federal government that refused to recognize their importance.

In Illinois, the Chicago Tribune just released their version of winners and losers of the budget cuts. Child Welfare and healthcare were two of the biggest losers.

The Department of Children and Family Services saw a decrease of $32 million over last year, a figure the administration said would increase the number of abused children served by each caseworker from 15 to 20. Blagojevich also cut subsidies for student and disabled riders by $37 million, putting pressure on local transit agencies as people seek ways to fight high gas prices.

A Baltimore Sun editorial downplayed the potential $200 million budget shortfall for being less than the previously mentioned $1.7 billion shortfall. The Board is quick to remind us that folks in Maryland are not out of the woods yet:

But that is the short-term view. In fiscal 2010 (the budget year that begins nearly one year from now), the gap could widen to $500 million. And after that, the state's budget health may depend on whether voters approve this fall's slots referendum - or find an alternative source of new revenue.

The Associated Press reported on Sunday that Governor Sanford of South Carolina has set new expectations for his state's budget shortfall:

Gov. Mark Sanford said last week he expects the shortfall at the end of the year to wipe out 1 of the state's rainy day reserve accounts. And he says he won't be surprised if it the state's remaining reserve account takes a hit.

In California fewer and fewer students are able to take summer school courses, at the detriment to struggling and superior students alike. The Associated Press again has the story:

Trying to slash more than $2 million from its budget, (Santa Rosa)...is giving priority this summer to students needing help passing the high school exit exam and to seniors needing five or fewer credits to earn a diploma. That means no enrichment courses in subjects like Mandarin or creative writing — and none of the accelerated classes that in the past had enabled good students to enhance their transcripts.

And the same thing is happening in Florida:

In Florida's Bevard County, home to the Kennedy Space Center, the school district cut all of its free summer enrichment programs In all, more than $1.8 million is being cut from Bevard's summer programs, including subsidies for transportation. With students having to make their own way to school, and facing fees for some programs, there's concern low-income families will suffer disproportionately. "We want to help everybody, but we're handcuffed by the budget," Agapinan said.

It really is a shame that the government doesn't have the same "must save" mentality when it comes to helping states suffering from crippling budget cuts. But thats alright, its not as though states and municipalities represent $1.8 trillion of the $14 trillion economy.

Foreclosures are putting a lot more than Fannie and Freddie at risk. States are seeing their revenues plummet too and that means the shared fate of our communities and common good are also threatened. When state budgets are in a vice grip – quality of life is squeezed too. We share a common interest in having our state and local governments keep our roads safe and water clean, protect our communities, educate our children, provide good stewardship over our parks and public resources, and making sure we all have a fair shot at the American dream.

Federal relief geared towards states isn’t charity. State spending is a massive engine of our economy – about 13% of GDP. By removing much-needed spending and investment from the economy, state and local budget cuts have the potential to cause our economic downturn to nosedive even further.