It’s not just California that threatens to sabotage the Obama stimulus. State and local governments across the nation are gradually unravelling federal efforts to revive growth.

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The states have been inveterate stimulus eaters in the past. For most of the 1930s the expansionary policies of the federal government were just sufficient to offset the shrinking of state and local governments. Click here for PDF.

States also raised taxes in the recession of the early 1990s and in 2001. It was a problem that Obama — his team stocked up with renowned  scholars of the Great Depression — was determined to avoid.

Sadly, the financial woes of the states and cities — many of them self inflicted — are overwhelming these good intentions. The maths now looks distinctly unpromising.

The Obama administration has pledged around $140 billion in fiscal assistance to the states with the express goal of saving them from tax increases, layoffs and painful cuts in services. But as state tax revenues have tanked, they now appear to be heading for a $370 billion shortfall over the next few years. Federal largesse will cover just 40 percent of the gap.

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