Anticipating their stimulus dollars, states find federal intent baffling. Are the funds just supposed to be spent as rapidly as possible? To restore holes in the social safety net or redistribute income? Used as investments in the future of state economies?

Their confusion reflects design flaws in the stimulus package rooted in the way we theorize and teach economics, a field riven by an outdated macro/micro dualism. Recycling a theory worked out in the 19th century, micro-economists celebrate markets for their ability to efficiently allocate scarce resources to unlimited wants. Markets aren't supposed to fail. But when they do, up step the macro-economists, counseling that government can act as consumer of last resort, borrowing and spending to keep the economy moving. Few economists work at the mezzo-economic level, studying how industries and occupations form and operate, how state and local governments fund and supply public services, or how policy changes such as minimum wage hikes and welfare programs affect local economies.
   
What economic policy needs at this point is a good dose of mezzo-economics. For decades, despite being squeezed out by the deepening orthodoxy in the economics profession, some economists have quietly labored in the fruitful fields where institutional knowledge and detailed data analysis yield clear answers to formidable questions. They are the intellectual offspring of greats like John Kenneth Galbraith, whose interpretations of government, industry and labor made him the best-known economist worldwide in the last century. Wassily Leontieff, whose inter-industry input-output models enabled the Roosevelt administration to direct production investments during World War II and whose progeny are helping us understand how environmental pollution intersects with industry production. Walter Isard, whose work on firm location and space economies seeded regional science, now a robust interdisciplinary and international field.

They know industries' structure and conduct
How will mezzo-economics help in the current bind, where micro-economics has failed us and the macro-economic remedies of sheer size are not enough? Take the auto-industry challenge. Some industrial-organization economists still actually study the complexities of concentrated industries' structure and conduct rather than crafting hypothetical game-theory models. They can document just how central the auto industry, including its foreign branch plants here, is to U.S. manufacturing. The way its suppliers stretch to every state in the union — to 3M, for instance, in Minnesota, or Silicon Valley's electronics complex. How the industry is a cradle of engineering and design expertise that serves many other industries. Why the U.S. firms are in trouble, including huge, enduring tax subsidies states have given to their foreign competitors and their commitment to covering health-care costs and pensions for their retirees while competing against firms that do not. 
   
What about the catastrophe befalling states and cities, whose revenues are plunging while demands on public services are escalating? The stimulus money, as it filters through state legislatures, is being hoarded by some states (Kansas) and squandered by others, as on unneeded and environmentally damaging suburban freeways in Texas. The president and Congress could use the services of public-finance economists who study the composition of state and local revenues and their performance in downturns, the politics of budget-making, and the relationship between economic development strategies. They can demonstrate, for instance, the crippling effect of tax incentives to lure businesses from other places on long-term state budget resources.
   
What about why and how stimulus dollars recycle quickly? Will the elimination of the alternative minimum tax and construction spending, for instance, be banked by those benefiting from tax relief or jobs, or will they spend it? And on what? On goods and services that are labor intensive or on imported commodities at big-box retailers? Mezzo-economists who study the occupational composition of industries, associated pay levels and consumer behavior disaggregated by income can identify how fast spending on infrastructure, safety-net programs and green energy flows through local and regional economies.

Who will tend to spend — and where
Here's where collaborations between macro, labor and regional economists can help. Macro-economists have long documented that higher-income people spend smaller shares of their incomes than do low-wage workers and people in poverty. Refuting micro-economic theory (and business arguments), applied labor economists have found that higher minimum wages in practice do not result in fewer jobs. Urban and regional economists can explain why. Low-income workers spend their incomes immediately and locally, on food, health care, used cars and car maintenance, rent — relatively labor-intensive activities that put earnings in the pockets of neighbors and other low-income workers. Together, their research predicts that the large portion of the stimulus going to unemployment benefits and Medicaid will indeed have powerful ripple effects on employment. Fewer of these dollars will be hoarded, and less will be spent on imported consumer goods.
   
A second stimulus, if there is one, could build in guarantees that funds will indeed move quickly throughout the economy. If our elected leaders want to make longer-term investments in the economy that are less immediately stimulative, they should make these in separate appropriations, where mezzo-economic analysis is also useful for ensuring impact. Meanwhile, as we wait to see how this first round works its hopeful magic, widening the pool of economists working on the crisis in Washington and at the state level will help interpret relative success and failure of the current grand experiment.

Ann Markusen is a professor and director of the Project on Regional and Industrial Economics at the Humphrey Institute of Public Affairs, University of Minnesota.