Tags: Stiglitz | State | Budget | Cuts | Recovery

Stiglitz: State Budget Cuts Foolishly Hinder Recovery

Thursday, 18 Mar 2010 11:10 AM

States including California, Illinois and New York that are planning to slash their budgets are foolish in that such moves will hamper economic recovery, says Nobel-prize winning economist Joseph Stiglitz.

According to data published by the Huffington Post, 45 states have announced budget cuts.

In California, Governor Arnold Schwarzenegger wants to trim a $20 billion shortfall with cuts to public schools, higher education, and social services, which Stiglitz says is bad for the economic recovery.

State cutbacks would amount to “a negative stimulus of half the magnitude of the positive stimulus that is coming out of Washington,” Stiglitz says.

The United States and many state governments are struggling with budget deficits in the wake of the worst economic downturn since the Great Depression.

The ratings agencies, meanwhile, are watching.

The United States and Britain are more likely than Germany and France to witness debt downgrades, agency Moody's Investors Service said.

In a report evaluating the prospects of triple A-rated countries, including Spain and the “less fiscally challenged” Denmark, Finland, Norway and Sweden, Moody's warned that the economic recovery remained fragile in many advanced economies, the Associated Press reports.

“This exposes governments to substantial execution risk in the implementation of their exit strategies, which could yet make their credit more vulnerable,” says Arnaud Mares, senior vice president in Moody's sovereign risk group and the main author of the report.

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States including California, Illinois and New York that are planning to slash their budgets are foolish in that such moves will hamper economic recovery, says Nobel-prize winning economist Joseph Stiglitz. According to data published by the Huffington Post, 45 states have...
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2010-10-18
 

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