As many different Missouri outlets have been reporting (links via Combest), the state government is trying to sort out what it will do with $1 billion in stimulus funds allocated by the federal government. Show-Me Institute commentators have largely stayed away from this issue, in part because there really is no good answer. Even to the extent that the stimulus was well-intentioned, it was a poor decision on the part of the federal government to plunge the nation even deeper into debt. The borrowing and money-printing that are making the stimulus package possible are almost certain to hobble our future economic growth, because of the higher levels of taxation that will be necessary to pay for it, but also because of the government’s backward policy of propping up failing businesses rather than encouraging the growth or expansion of new and successful enterprises.

But, for now, the die has been cast and we must decide how to make the best of this bad situation. A number of politicians have suggested that the best course of action would be just to refuse part of the money, sending it back to Washington as a symbolic disapproval of the policy that led to the stimulus package. This definitely has a certain appeal, seeing as how spending the money might well be perceived as encouragement for similar federal action in the future, but there is another unpleasant truth to be considered: Missourians are going to be on the hook for the use of that money, regardless of how it is spent. And it will be spent, even if Washington has to send it to another state. So, Missouri’s free-market thinkers have to decide whether it is wiser to take a principled stance that will effectively donate our future tax dollars for other states’ benefits, or whether it is wiser to figure out the most effective way to use these dollars in our own state.

So, what might we do with this $1 billion in federal stimulus funds? While I can’t speak for my colleagues here, I’m intrigued by Gov. Jay Nixon’s plan to promote loans for small businesses. One of the great challenges we face in this recession is the contraction of available credit just at the time when many out-of-work people will be interested in starting their own businesses. I can’t speak to the details of the governor’s plan, because I haven’t reviewed it closely, but the central idea strikes me as a very, very good one in terms of jump-starting innovation and growth in our state. If private non-profit agencies are helping to ensure that small businesses have the funds they need to get off the ground, it just might spur the banks to start lending more freely, as well.

Of course, if the state government is really serious about spurring entrepreneurial growth in Missouri, the perfect compliment to this sort of a lending plan would be an effort to lower some of the regulatory barriers that make it difficult to start new businesses.