As you'll recall, we passed a stimulus bill earlier this year. The original proposal was already too small. But then a group of centrist Senators led by Ben Nelson and Susan Collins demanded additional significant cuts to aid for states. They ultimately cut about $25 billion from the original proposal, most of which cut the "flexible" money that states could use on anything. (Ed Kilgore explains the details).
These cuts had no discernable policy basis, but were simply political and ideological posturing. It's one thing to oppose the stimulus. But once you agree to spend 700 billion, there's no justifiable policy reason to oppose this additional amount, particularly given how stimulative state aid is (especially in terms of keeping people employed).
And now the NYT shows the inevitable effect of not spending more on state aid. In short, state cutbacks are limiting the effects of the stimulus:
The layoffs at New Flyer are a vivid illustration of the way that some of the economic impact of the $787 billion federal stimulus law is being diluted by the actions state and local governments are taking to weather the recession.
Let's hope this lesson is learned on health care. The goal must be to get the policy right. If limiting spending hurts the overall policy, then we need to spend more (e.g., subsidies in a world of mandates).
[UPDATE 11:35: Dean Baker and Rivka Deutsch wrote a paper on this very topic back in May 2009 (pdf).