How will shrinking government affect the economic recovery?
One of the weirder aspects of the economic narrative that now exists in the US, especially in the 2012 presidential race, involves the size and shape of government.
Economists point out that since September of 2008 — in other words, through the entire Obama administration — local government employment has declined by 535,000 jobs.
That trend continued last month, with another 34,000 positions slashed from schools, as well as local and county governments. (Many of these cuts were triggered by cuts in Federal aid, following the end of stimulus programs.)
Teachers have been particularly hard hit. But at the Federal level, postal workers are also facing deep cuts, with an another 5,000 jobs cut last month, with far more postal worker positions on the line.
The Obama administration has also proposed cutting 50,000 soldiers from the Army ranks over the next four years.
I’ve seen various estimates, but it appears that government work still accounts for about one in six jobs in the US. Still, these reductions are beginning to add up to a major shift in America’s culture of work.
It’s also worth noting, that all this slashing hasn’t actually put much of a dent in our deep deficits. In terms of balancing the nation’s books, we’re still at the starting line, which means some tough decisions still lie ahead.
One wrinkle in all this is that recessions don’t always create such dramatic public sector cuts. After the 2001 recession, local government slowed its growth, but didn’t actually shrink.
In the past, dependable government employment — in places like the North Country — helped to stabilize the economy when the private sector struggled.
This time, however, governments are facing a perfect storm of rising costs, declining tax revenues, and unsustainable debt levels.
In New York, the situation has been complicated by the 2% property tax cap, approved just as the recession was ending, which is forcing counties and school districts to contemplate another wave of deep reductions.
Questions are also being raised about the sustainability of long-term government subsidies for organizations like the Olympic Regional Development Authority, which receives roughly $4.6 million a year from Albany.
In the long run, a leaner, more efficient government may be a good thing.
But in the short term, public sector cuts and talk of more cuts is clearly slowing the jobs recovery and contributing to a climate of uncertainty.
“In New York, the situation has been complicated by the 2% property tax cap, approved just as the recession was ending, which is forcing counties and school districts to contemplate another wave of deep reductions.”
How is that? They are all overriding the cap around here.
Due to the definition of the voting group, the counties and townships will have an easier time over-riding the cap than the school districts.
Should we expect the St. Lawrence County style scare tactics (re: Sheriff’s Road Patrol) from the schools? Are we going to hear from the school districts about dropping the football program, chess team and language club field trips if the voters don’t approve their 7% increase?
St. Lawrence County has been working very hard to make it look like they are working very hard on keeping any potential property tax increase to a bare minimum.
It’s difficult to do less when everyone expects more.
More people out of work really helps the economy grow. Not investing in education, roads and bridges is another great idea to help the economy grow.
We seem to have decided to eat ourselves alive.
Pete, Rainy days and Mondays?
Slashing government jobs has a similar (but maybe worse) effect as raising taxes. It takes money out of the economy. It isn’t something we should be doing during a weak economy/recession. It directly makes the jobless situation worse. And yet many people are gleefully forcing the government to slash jobs claiming that this will somehow create jobs. It is mean and shameful.
“But in the short term, public sector cuts and talk of more cuts is clearly slowing the jobs recovery and contributing to a climate of uncertainty.”
That may be true, but there is no way of proving it for certain. That seems to be more opinion than fact as one could argue that public sector cuts aid private sector employment.
In my view, the key to sustaining job growth is to reduce our trade deficit by reviving the nation’s manufacturing sector. Stimulating consumer spending really isnt that effective as consumders go out to Wal-mart and buy junk made from China. not much of a stimulus.
Economics 101. Consumer spending is the bedrock of our economy and all other economies. That is what it is all about. Other spending is still dependent on one simple part of the system, the consumer.
Show us another way to do it and next year I guarantee you will be the person or persons that gets the Noble Prize in economics, and it will be a much bigger deal than the guys who got the award this morning!
Good luck.
The products made in China are not junk. The same is true for products made (often made by American companies) are not junk just because they are not made here.
Some foreign based companies manufacture their products here. Are those junk too just because they are not American owned companies?
The world is changing, very rapidly I might add, and if we refuse to recognize and adapt, we will soon become Number Last.
When people shop, they usually are looking for the best value their money can buy. Price is often the deciding factor but they want the best quality they can afford. If the product happens to be manufactured in the USA, great!
What we need is LIMITED government, not SMALLER government. a limited government will naturally lead to a smaller government. There is a big difference.
People are protesting tax laws that have developed into wealth-hoarding schemes, hence our third-world wealth disparity problem. The tax laws were written 15- 20 years ago, primarily as estate planning tools. They can be re-written just as easily as they were written.
This is what needs to be focused upon.
We need to focus on more jobs.
It is not a time to cut government jobs and I think we have far too many government jobs. The actual size of government today is still substantially larger than even 20 years ago in real terms. But as Brian pointed out government jobs are not the cause of our deficit at the Federal level.
For example look at the USPS. They provide good local jobs and the lose of those jobs really really hurts local economies. The loss of the USPS jobs does very little to help the federal deficit, in fact you could scrap the whole USPS and have almost zero impact on the deficit.
Locally it is a different story though, the state and local budgets in NYS ARE about jobs. If we can’t pay we can’t pay, I am not sure how much of this cutting is optional?
Paul,
Allow me to direct your attention to Germany, which has one of strongest economies in the world and a unemployment rate much lower than ours. They are an export leader, exporting more than what we export despite having a population 1/4 of ours. And they have fairly high taxes, labor costs, and social benefits, as well.
Exporting more and importing less will create many jobs in this country and is ultimately, the only way we will have a strong economy. it will also stimulate more consumer spending. Service based jobs, while very necessary, won;t cut it, as they usually aren’t wealth producing to the extent manufacturing jobs are. Government jobs, for example, take money from teh private sector and growth in health care often raises health care costs, making US companies less competitive. that being said, jobs in those sectors are very important, serving a vital funciton. but they are not enough to sustain a healthy economy.
Im not sure how can revitalize manufacturing, though perhaps a better infrastructure, corporate tax reform, cracking down on unfair trade practices by China, and producing more engineers and scientists will help.
Peter Klein,
I may have exagerrated in saying products in China are junk, though I personally would prefer to buy furniture made by a local artisan than something imported or made by a major corporation. If everyone bought local and US made products, it would really help the economy.
another thing about Germany, they are balancing their budget and are amending their constitution to require a balanced budget.
John Maynard Keynes has finally been deemed worthy of appearing on the In Box! Thanks, Brian.
scratchy, thanks I understand all that. All of that is still based on “consumer spending”. Sure many of the consumers are not here in the US.
There are a number of trade agreements that have been passed by the house that can help do some of the things you are looking for. Call your senators and the white house and tell them to get going on them.
Jobs. Every time you buy something you help to create jobs. Every time you sell something you help create jobs. Nothing happens until something is sold.
You can make something but until you or someone else sells it, nothing happens unless you purchased products to make what you made. In other words, trade is the grease for jobs.
I mention this because all the talk about creating jobs is darn near next to meaningless unless there is a demand for a product. We seem to be caught in a debate over which comes first, the chicken or the egg. But if there were not a demand for either the chicken or the egg, or no one had the money to buy either product, it wouldn’t really matter.
When I was in sales, my employer told me to sell the sizzle, not the steak. With the recent death of Steve Jobs, I was reminded of those words of wisdom because Steve Jobs was excellent at selling the sizzle. We always buy the dream, or at least as much of it as we can afford.
Maybe we just need to dream again because if you dream, you usually are willing to make the sacrifice needed to achieve it. If you don’t dream, nothing happens.
Pete, you did a much better job of making my point. I think we are all in agreement. The key is in consumer demand, here in the US and abroad. This is the ball that the president and the congress have taken their eyes off. That fact doesn’t really bother me since there is really little they can do to affect these changes. What does bother me is that they are doing a good job of getting in the way.