A Public Spending Spree

When the housing boom of the 1920s ended with the Great Depression, Washington state, dependent as it was on the timber industry, suffered far worse than the rest of the country. As part of the New Deal, the United States government invested huge sums to erect dams and to build an expansive transmission grid. The enterprise created thousands of jobs and laid the foundation for the region’s current success, including an aerospace industry dependent on the energy-hungry process of smelting aluminum.

Today’s housing collapse hasn’t led to the massive unemployment of that era, but with credit tight and companies and individuals holding back on spending, public investment has once again emerged as a crucial component of the economy.

Under the American Recovery and Reinvestment Act, Washington state will receive from $7 billion to $10 billion in federal money this year—the exact amount will depend on the state’s success in competing for grants—to spend on everything from roads and transmission lines to social programs, research and new energy. The money, combined with state funds already budgeted for public works projects, will create new jobs and help reduce the damage to the state from the worst downturn in the global economy since the Great Depression.

Although the stimulus won’t be able to stop Washington’s economy from shrinking this year, says Arun Raha, the chief economist for the state, it can reduce the severity of that decline. “The federal fiscal stimulus will create or save 75,000 jobs in the state of Washington,” he says. “Without the stimulus, the job losses would have been more severe.”

Skeptics say the stimulus will not have as dramatic an impact as might be expected because much of the money will be used to backfill a state budget deficit estimated to be as high as $9 billion through 2011, the result of a sharp decline in revenues collected through sales and business taxes.

But at times like these, when new private investment has all but ground to a halt, public spending can play a critical role in keeping the economy humming. The most immediate impact will come from the more than $2 billion in federal money Washington will receive to fund Medicaid, education and other social programs where shortfalls might have otherwise led to significant job cuts. “Saving a job is just as good as creating a new job,” says Seattle economist Dick Conway.

But