By James D. Agresti
May 9, 2012
Writing for the Wall Street Journal, economics reporter Justin Lahart declares that “sharp cuts in state and local government spending in the wake of the 2008 financial crisis, and the layoffs those cuts wrought” may be a reason behind the “persistently high” unemployment rate.
This cannot possibly be the case because there were no sharp cuts in spending. According to the U.S. Bureau of Economic Analysis (BEA), which provides the “only comprehensive estimates of state and local government [fiscal] activity available on a timely basis,” state and local government spending grew by 6.6% from 2008 through 2011. During this same period, the consumer price index for all items grew by 4.4%, which means that state and local government spending expanded faster than the rate of inflation.
Likewise, if government spending is measured as a percentage of the nation’s gross domestic product, state and local government spending increased by 0.9% over this period, although it peaked in 2009 and decreased by 2.3% between 2009 and 2011. It is impossible to determine from the article if Lahart is using such a measure because he provides no data to support this claim. Regardless, a 2.3% decline in this context hardly qualifies as “sharp,” especially since by the same measure, spending rose by 7.0% in the two years prior to this.
Similar to Lahart, Floyd Norris, the chief financial correspondent of the New York Times, reported last week:
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. Spending by the federal government, adjusted for inflation, has risen at a slow rate under President Obama. But that increase has been more than offset by a fall in spending by state and local governments, which have been squeezed by weak tax receipts.
Norris uses BEA data to support these assertions, but he fails to tell his readers that his definition of government spending excludes a host of major government programs, such as unemployment benefits, food stamps, and Social Security (credit belongs to Morgen Richmond and Dustin Siggins at Hot Air for bringing this to attention).
More specifically, Norris equates government spending with “real gross domestic product for the government.” However, as the BEA has explained, “Total spending by government is much larger than the spending included in GDP” because “transfer payments and interest payments are excluded” from this measure. Transfer payments, by the way, include items such as Social Security, Medicare, Medicaid, food stamps, foreign aid, and United Nations support (“A Primer on BEA’s Government Accounts,” page 34).
Going back to at least 2010, commentators such as Paul Krugman of the New York Times have been making misleading statements about government spending. Others are doing the same by using unsupported assertions, redefining government spending to exclude large portions of it, and cherry-picking misrepresentative baselines from which to make calculations.
Hence, to accurately convey the realities of this issue, Just Facts is providing raw data and graphs for federal, state, and local government spending from 1990 through 2011. These graphs (below) express spending as a percentage of GDP because debates about the size of government are often centered upon how much of a nation’s economy is consumed by government and because this measure accounts for population changes and some of the effects of inflation/deflation. However, for reasons detailed in a Just Facts Radio episode entitled “Fathoming the National Debt,” readers should be aware that this measure inherently favors advocates of higher government spending.