What are the political effects of the blue-state budget crisis? In Washington, it will set up a conflict between desperate governors and the new Republican House. States will seek federal help and pressure their congressional delegations for support. But there is little chance that conservatives will add a new state bailout to all the bailouts that have come before. Any additional economic stimulus would likely be in the form of tax relief, perhaps a payroll tax holiday, not in cash payments to state governments.
For the president, entering his own re-election campaign, the teetering finances of blue America are a serious challenge. Obama, fairly or unfairly (but mainly fairly), has become a big-government brand name. West Virginia's governor and future senator, Joe Manchin, demonstrated that Democrats are willing to run in contrast to Obama when it serves their interests. Other Democratic governors -- perhaps in Colorado and Illinois -- might be tempted to distance themselves as well, establishing what Hood calls "alternative brands to Obama himself."
Most significantly, the blue-state financial misery continues and deepens the ideological crisis of American liberalism. Few politicians in traditionally liberal states now speak about the expanding promise of progressive government and the welfare state. New Jersey is already in conservative revolt. New York's Democratic governor-elect, Andrew Cuomo, campaigned on a promise of budget cuts without tax increases. The New York congressional delegation shifted significantly in a Republican direction. While California remains in denial -- even after a budget crisis that has lasted for a decade -- that could rapidly change as well. It may be Democratic governors who are forced by economic reality to limit the size and ambitions of government, delivering a body blow to liberalism itself. If progressive activism can't survive in these places, it will be difficult for it to survive anywhere.
All these calculations change, of course, with a dramatically growing economy, providing states with additional revenue and the president with political breathing room. But absent that desired development, Obama's political challenges, and the backlash against liberal government, are only beginning.