The recently passed unemployment benefit extension was widely hailed as a hard-fought success. And for that small slice of policy, it was. Unfortunately, that extension was intended to be part of a much larger "mini-stimulus" that included aid to states and local governments, intended to forestall expected mass layoffs of teachers, policemen, firemen, and other public employees as well as keep state Medicaid programs in the black.
That money isn't coming. Now states, already deep in the red, are looking at an even bigger funding shortfall. CNN is reporting that up to 500,000 city employees could be laid off in the coming months. (There are some odder consequences, as well.) It's not just the spike in unemployment that would result from those layoffs, but another stake through the ailing heart of the aggregate demand in this country. It may not actually drive us into a double-dip recession, but it sure won't help the recovery.
Once again, I think its worth pointing out that this is an insane and stupid way to deal with state aid. We need better automatic stabilizers, probably pegged to unemployment. This round of layoffs underlines how this is as important now as when I wrote that back in April. We'll have recessions in the future, and something has to be done to take the politics out of the recovery.