Government in US continues historic contraction
UPDATE: This from the New York Times.
FOR the first time in 40 years, the government sector of the American economy has shrunk during the first three years of a presidential administration.
The latest job numbers out today show only a modest uptick in private sector employment, but they also give another indicator of the on-going, historic contraction in government work.
From April of last year to April of this year, the Bureau of Labor Statistics found that government at all levels shed another 215,000 jobs.
That continues a sort of stealth austerity movement that began in earnest as the Obama administration’s stimulus program — which provided massive subsidies to state and local agencies — began to phase out.
We’ve seen it reflected here in the North Country, as school districts, counties, and state agencies have implemented hiring freezes, left empty positions unfilled, and laid off hundreds of workers.
The trend has slowed in recent months, which suggests that the public sector may be stabilizing. This could reflect the fact that most state income tax revenues have finally recovered to levels approaching record highs in 2008.
But property tax revenues — which fund school districts — continue to lag and that may be reflected in continuing job cuts among teachers in the US. Layoffs among K-12 teachers took the largest hit within the public sector over the last year.
In most parts of the country, the downsizing of government may have slowed the recovery, but it doesn’t appear to have derailed it entirely. Yet in some pockets, the trend may be more damaging.
While most states saw employment expand significantly in the last year, Wisconsin lost a net total of 23,900 jobs and the vast majority of them — 17,800 — were cut from government agencies.
That’s not exactly priming the pump.
One question going forward is whether the national debate over stimulus vs. austerity might not be a little too simplistic. Perhaps most of the country is recovering, albeit too slowly, without a new wave of government hiring or spending.
But there might be some parts of the US — Florida, Nevada, North Carolina, Wisconsin — where some economic caffeine is still needed.
There are also many pockets within states that are lagging badly, from inner city neighborhoods, to rural small towns — and those areas have been stung particularly badly by government layoffs.
What do you think? Is it a good thing overall that our government is getting smaller? Should there be another stimulus? How about a targeted stimulus plan that identifies parts of the country that need a boost? As always, comments welcome.
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I do think more government intervention is needed to increase employment. One way to to this is to provide wage subsidies and job sharing programs for all sectors of the economy, not just government.
If we are going to provide stimulus again and I think you can make a case for it; it should be actually directed to do something for our infrastructure, and to create new projects and jobs, not just a gap filling remedy for special interests at the state level.
This is all complicated by the fact that a good portion of government spending is not related to the US federal government. New York Schools are paid for by New York state at the state and local level. Sure the federal government can give us help, but it really is a state financial issue rather than a federal one.
That Wisconsin data is indeed interesting. Do we have any idea what the national data looks like when it comes to this? (% of lost jobs that were govt jobs)
Tell me again how increasing government jobs is like “priming the pump” of the economy.
The money to pay a government worker has to first be collected, as a tax, either on land, or income, or gain. Then it is paid to the government employee.
Nothing is created in the process. Certainly, nothing is “stimulated”.
One would argue that money is actually lost in the transaction, given all the bureaucratic mouths that must be fed to hire one employee.
JDM –
Government jobs clearly have a powerful effect on economies — ask the folks in Tupper Lake or Malone or Moriah.
Most economists — including most conservative ones — believe that in times of severe recession, governments can slow or reverse a downward spiral by pumping money into the economy.
Some of this is raised through taxes, but sometimes it’s generated by borrowing, or simply by printing more money.
The argument in favor of it goes like this:
If you don’t prime the pump in this way, the overall economy will contract even further. That means even lower tax revenues, which means that despite austerity measures, government deficits expand even further. This downward spiral is worsened by the fact that laid off government workers often wind up using social service programs, from unemployment to welfare to government-subsidized healthcare. Which means that even though you’re not longer paying them to do something productive, they still demand a sizable taxpayer outlay.
The argument against “priming the pump” goes like this:
The government skews the economy in dangerous ways by intervening. The best way to insure long term prosperity is by allowing market forces to decide winners and losers, in as unfettered a way as possible. Even if this means short term turmoil (the demise of the auto industry, for example, or the collapse of the financial sector) the long-term benefits outweigh the immediate pain.
Partisans of both approaches have their arguments. But again, it’s important to note that this isn’t a 50-50, he said-she said sort of balance.
Most economists think that when the private sector stalls (as it appears to have done in several states), government can play an important role in breaking up the downward spiral.
–Brian, NCPR
True or false. Public employees who spend money in America on America made goods and/or services certainly stimulate the American economy.
If you want to do more “stimulus” lets increase the budgets for things like NIH, NSF, etc. There you really get something for your money. No more bridges to nowhere please!
zeke: It is also true that a private sector employee can spend money and stimulate the economy.
And don’t think that because it’s a public sector job that the money gets spent in the USA. Who made Obama’s tour buses? Where does Michelle Obama go for vacation?
Brian Mann: Conservatives think that taking less money out of the private sector is stimulative.
Letting those who earn the money spend it is much better than printing “funny money” or giving it to Obama (and Michelle) to spend.
We now have enough data from QE1 and QE2 to conclude that printing money, in and of itself, is not stimulative.
Didn’t happen.
$800 billion in stimulative government spending didn’t do the trick, either.
Died of a theory. Facts are stubborn things.
How many times can one really wealthy person go out to dinner(there by creating jobs in all kinds of sectors) in one week? Now if we take (that’s right take) some of that weathy persons money(hard earned as I’m sure it was) and give it to someone (working hard too)in the public sector, is there a better or worse chance that the economy will be more stimulated?
JDM –
Facts are stubborn things, but so are ideological stances, which is what makes this so hard.
There was a huge tax-cutting effort at stimulus during the Bush years and it didn’t product significant economic growth.
It’s also true that a huge percentage of Obama’s stimulus came in the form of tax cuts.
My point isn’t that tax cuts are good or bad.
Only that it’s far more complicated than ideological stances can grapple with.
–Brian, NCPR
Brian Mann: “Facts are stubborn things, but so are ideological stances, which is what makes this so hard. ”
Agreed.
zeke: Taking someone else’s money is stealing. If someone took your money, wouldn’t you want them arrested and your money (and some of their hide) given back in return?
The issue of course is the debt. Raising taxes to pay for increased government spending does nothing, it is a wash. Lowering taxes is the same thing as government spending as far as their net impact.
Priming of the pump happens and works only when you borrow the money you are using to prime the pump so you don’t have to raise taxes. Right now our debt has had no negative impacts on our ability to borrow, thus a case could be made that we could borrow even more to do something now.
I think the long term issue though is how long can you do that? As JDM points out we have been doing that already, we have been massively borrowing and spending and it has not been enough. When would it be enough? How many more years would we have to keep priming the pump? Is it just endless?
I would be for some sort of plan to decrease unemployment, but not necessarily for another massive borrowing spree. Germany has come up with several innovative ways to reduce unemployment without increasing the debt.
Another thing to consider here is that the cuts to typically government-funded operations like infrastructre maintenance/improvement, and public education bear a very serious long-term cost on our society. So, not only are those layed-off teachers and road crews unemployed, but our schools must cut programs and increase class size, and our roads and other lines of transportation (which affects business in a big way) suffer.
It’s hard to find people who lived through the Great Depression bemoan the type of public works spending/stimulus that the government engaged in back then. Why is it so different now? Stubborn idealogy.
“Only that it’s far more complicated than ideological stances can grapple with. ”
This is for sure. That is why I would be careful about leaning toward any “solution” that will further increase the debt at this point. That is why I think that moving federal spending into programs like NIH and NSF are smart moves. These are government programs that help to develop new technology that is the basis for companies and jobs in the private sector. At the same time they fund excellent jobs in the public sector.
These “public worksy” kind of infrastructure spending ideas are good for votes if you are a democrat but I don’t think they are necessarily the most effective way to spend federal dollars. This will sound awful but in a sense we need to ignore the temptation to always try to help the average joe and start by helping the guy or gal who just got their PhD and can really make a difference if they have the opportunity.
This kind of work is the “rail road” of the twenty first century. We have to get away from the idea that we should still be funding the actual railroad!
JDM
I think it was clear to all(except perhaps you) that “take” refers to increasing taxes on the wealthy. I’m sorry for not making the point more clearly for you.
Mervel
I think we have been printing money and I disagree with a good portion of that. However what we are not doing is circulating,(creating a simple tax system) in America, the money we do have. It is not good to spread the wealth if we are spreading it to China for instance. It is good to spread the wealth if it is to Americans(public or private) willing to provide a good or service that other Americans take advantage of.
zeke: are you wealthy? do you spend too much on recreation? how much gas do you put in your vehicles?
My point is clear (I hope you get it), who is going to be the “wealthy” police?
Aren’t we all wealthy in some aspects? Don’t we all over-indulge as we our freedom allows?
i’m certainly no economist, but i believe that one simple answer to this question is that we stop when the bond market tells us to. right now (as you note, mervel) the bond market is practically begging us for more debt.
hermit thrush: “we stop when the bond market tells us to”
I thought the “bond market” was the enemy. They are the epitome of Wall Streeters. They make gazillions of dollars and don’t pay taxes. They are the 1%. They live off our misfortune.
We are going to listen to them and give them more debt (i.e. feed the fuel of their income) so that they can make multiples more gazillions of dollars??
Hmmm.
That is true hermit. I mean why not lock in at these rates? If the world is willing to loan us money practically for free, it seems like a good time to borrow.
I have to say though we must do something about our basic public capital or infrastructure in this country. Roads, bridges, airports, schools, teachers etc. are investments that I think you can make a case that borrowing for is logical.
JDM You and your ilk are fond of saying; “The problem with taxing eventually you run out of other peoples money” or something to that effect. Well What do we do when one or two or x people have all the money? Secondly, yeah I’m fairly wealthy by the standard of the places; Madison Wisc., Florida and a small adk lake. I live. I spend a significant amt.(opinion) on recreation. Now, what about you?
Look here is some government spend that is creating some good private sector jobs. This on the new review of the Keystone pipeline:
“The State Department said it will now hire “an independent third-party contractor to assist” it in determining whether granting a permit for the proposal would meet the US national interest.”
I hope they don’t hire a Canadian firm. Probably some firm from the Russia or the middle east!
zeke: “Now, what about you?”
Me? I think you should pay more taxes. I’m fine with what I pay. A little less would be better.
zeke: “JDM You and your ilk”
Sorry to inform you that I don’t belong to the ilks.
Unemployment has a disease like quality on a country that goes beyond the direct impact of the lost income. It is in many ways a moral and human issue as much as it is an economic issue. People need to work, people who are working are healthier both emotionally and physically than people who are unemployed. It is also a form of human freedom to have any sort of job, without work you are in dependence either on the government or other people, you lose a bit of your personal dignity and freedom.
So I believe we should have very targeted programs to increase employment, that may mean some will make less. You could increase employment in the government by spending less on benefits of those currently employed for example. New infrastructure projects are also net job creators.
I don’t think handing giving money to state governments to simply pay those currently employed their annual step increases will help at all. Federal money needs to be tied to new jobs only in my opinion.
As far as taxing the rich more, yes go for it I have no problem with it and it will make us all feel better. It won’t generate nearly enough revenue to make much of a difference though.
so much craziness from jdm in this thread, so little time to combat it. let’s just take this:
i don’t know how to say it politely, the ignorance behind a statement like that is staggering. the money to pay the worker does not have to first be collected — it can be borrowed. that’s the way to get out of the slump, by big-time short-term government borrowing! the stimulus we’ve had has helped somewhat, but we need more.
(and that’s not just hindsight talking. people like paul krugman have been tearing their hair out all along that the stimulus was too small relative to the size of the hole in the economy.)
You can always avoid government layoffs by simply paying all of the employees less. It is about cost savings not about jobs per-se/
hermit thrush: thank you for restraining yourself. I shall do likewise.
“the money to pay the worker does not have to first be collected — it can be borrowed”
Ok. Let’s suppose it is borrowed. How does it paid back? It has to be collected, as a tax, either on land, or income, or gain.
All borrowing is a delay of payment…. to our grandchildren.
Shame on anyone who advocates borrowing from our grandchildren.
In response to Zeke – You said: Well What do we do when one or two or x people have all the money?
Money is not a zero sum issue. There isn’t a set amount of money that the wealthy are taking from the poor. It is not like a pie that is unevenly divided.
Perhaps that will make you feel a little better.
Also, my problem is with government waste. Poor use of money whether it is gotten by taxes or borrowed is what bothers me. I would have less problem with either if I felt it was being used wisely.
JDM
Yeah I figured you for the type that is fine with soldiers dying and injured in foreign lands and you not paying one red cent more for your wars. I think the “shame is on you JDM.
Oh and by the way JDM, then you are saying we wealthy(not you but me) should pay more in the tax code, right?
zeke: I am actually more agreeing with Red. Too much money going into the government encourages waste.
Please try to restrain from personal attacks, as hermit thrush and I have discovered through our many discussions, it is hard, but we try to stay focused on the message, not the messenger.
JDM it was you who “shamed ” hermit thrush above.
okay, gang – deep breaths all around. and while i’m at it, let me throw out an outside the box moment.
anybody see anything in the other guy’s arguments that DO make sense?
–brian, ncpr
“Public employees who spend money in America on America made goods and/or services certainly stimulate the American economy.”
But where can you find American made goods? Certainly not in any mall. I suppose you can buy American made goods by a local artisan, but in truth not much is made in this country anymore.
Interesting that Wisconsin has such weak numbers. Apparently, the labor reforms havent worked that well in creating jobs.
zeke: “JDM it was you who “shamed ” hermit thrush above.”
Please re-read my exact words, zeke: “shame on anyone who advocates borrowing from our grandchildren.”
I did not single out hermit thrush.
Brian Mann: you’re asking a lot. I did acknowledge your comment about ideologies as true from my perspective. The rest of these guys??….. (jkjk)
a couple points from me.
first, i’m happy to play along with brian: i completely understand that adding more debt is, in and of itself, totally undesirable, and i don’t mean to suggest that the government can take on debt forever and ever. i get that part of the story.
the problem is that it’s not just in and of itself. we have a severely depressed economy right now. millions of people are out of work right now. mervel’s 3:03 comment put it beautifully — people’s lives are being ruined right now. the private sector is unable to generate sufficient demand to end the slump, which leaves us in need of temporary debt-financed government spending. it worked to end the great depression, and it’ll work again right now.
debt sucks, but we have to make a choice. in this case debt is by far the lesser of two evils.
for the second point (which basically echoes zeke), it’s really is something to see died-in-the-wool tea partiers like jdm up on the high hog about “borrowing from our grandchildren.” these are the same people who gave us reagan and w and their enormous deficits at times of relative prosperity. these are the same people who were diametrically opposed to bill clinton and his policies, despite the incredible success of those policies in getting our fiscal house in order and paying down debt. these are the same people who have turned their backs on george h. w. bush, a man from their own party(!) who prudently helped to set the course for deficit reduction in the 90’s. it’s just really something.
I am opposed to borrowing simply because there is no need. Government is wasteful in what it does, and it tries to do more than it should.
I would rather see government spending cut, instead of borrowing to meet an ever-increasing revenue demand.
Reagan made and kept his deal about increasing revenue to the government. He did it by decreasing the amount government took from the private sector. Congress went back on their 2-for-1 spending cut arrangement.
Bill Clinton turned almost conservative during his second term. He backed welfare reform after several veto attempts.
George H.W. and George W. were a mixed bag of ideologies. The W. tax cuts worked. Obama never “cut” anything, but at least he kept the old cuts in place (which is second best), and didn’t raise taxes. That will change if he is re-elected.
Brian Mann makes a good point. There has been some research lately showing that when most people are confronted by information that contradicts their beliefs that information will only make them hold their incorrect beliefs more adamantly.
There is an intersection here with the thread about traditional trades. If you pound in a nail and it bends believing that it isn’t bent will not make it straighter as you hammer it. We could all do with some more practical, down to earth thinking and with less fuzzy-headed ideology.
Oh, and to answer Brian’s other qustion, yes I do see the other guy’s argument. Hermit is spot on.
JDM, do you remember Reagan saying that it was only fair for the capital gains tax rate to be 28% ? Much higher than the current 15% rate?
khl: Not sure of the actual quote to which you refer. I found that Reagan considered it “fair and rational”, not absolute, however.
Also, to get the same bang that Reagan got for lowering the top rate from the high 70% to 28%, one would have to lower it to 5%. Oh yeah!
khl: I think Brian Mann was referring more to “stepping across the aisle”, if at all possible, not “amen” the preacher from the choir.
JDM, Reagan RAISED the capital gains tax rate. I’m not sure why you would not want to do what is fair and rational?
I was being funny about the HT bit. And yes, I laugh at my own jokes.
jdm writes:
here in factland, a third of the obama stimulus consisted of tax cuts, and the reagan and bush tax cuts resulted in less revenue coming in than otherwise would have, i.e. they created more debt.*
i don’t mind saying it over and over: no one should ever believe anything jdm says. with him, ideology trumps reality every time.
*obvious caveat: we don’t get to do controlled experiments in economics, so you can’t prove claims like this with the same level of certainty as you get in the hard sciences. so you make do with what you can. and the evidence we have says that the bush and reagan tax cuts made the deficit worse not better.
zeke, “” True or false. Public employees who spend money in America on America made goods and/or services certainly stimulate the American economy.” False! Spend $1 at Walmart and only 17 cents stays here!
It would be a terrible shame if we lay off all of the lower ranking government workers, and are left only with the good-‘ol-boys, who have been feeding at the trough, un-noticed for years, Getting rid of the lower ranking folks, the new-hires, the fresh faces, leaves us with only the career bureaucrats…the fat cats, who have made a long habit of taking care of their own interests first.
“i don’t know how to say it politely, the ignorance behind a statement like that is staggering. the money to pay the worker does not have to first be collected — it can be borrowed.”
hermit, this is a pretty unfair comment. It is not ignorant I am sure you understand that borrowing is one form of collecting the money. You are both right, you need to get it first.
sorry paul, i don’t think so.
here’s the quote again, this time with my emphasis:
this is clearly not allowing the possibility of borrowing. jdm’s subsequent comments in this thread (esp. 3:19) only reinforce this.
i stand by what i wrote.
Gary
“Walmart! I said “American made” those are for sure NOT American made.
Gosh, hermit. If it means that much to you, then you’re right. When you borrow money, the [bold]first[unbold] thing that happens is you get the cash, and subsequently, you pay it back.
That wasn’t the focus of my point, by the way.
Let me try rewording it to make the point I was after.
Money is [bold]first[unbold] created in the private sector.
People who earn that money can spend it, or the government can tax them, and do some other thing with it.
Either way, the money gets spent. The first way, the money gets spent by the people who earn it. The second way, someone else spends someone else’s money.
It’s back to the 4 ways of spending money according to Friedman.
The first way is the most efficient. The second way is the least efficient.
I think hermit had it correct though. The debt will essentially be brought under control by the international bond markets.
I would go farther, we don’t have the ability to really cut the debt on our own volition, to do that we would have to raise taxes AND decrease spending, we won’t ever do that of our own accord. Certainly we are laying off government workers, but total government spending is NOT going down, the debt is not going down because we are reducing government employment. We have had to reduce the government workforce because the costs of keeping the current workforce have risen due to built in raises, and an insane pension and health care benefit system for government employees. They could have avoided all of the teacher layoffs by simply reducing the health care payouts for ALL teachers including retired teachers. But that system won’t change at least not in NY, which is fine that is a choice we make.
But we will stop borrowing when the cost of borrowing becomes to high, not before.