WSJ Ignores The Public Sector's Role In Boosting Economic Growth

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The Wall Street Journal ignored the role of government employment in economic recovery, writing that "government needed austerity" and that hiring "is unsustainable given current debt and tax burdens." The decline in total government employment, which is historically unusual following a recession, is harming the recovery and slowing economic growth.

In a May 3 editorial, the WSJ claimed the decline in government employment was a response to President Obama's stimulus package, advocated further austerity for federal hiring, and ignored the public sector's role in boosting economic growth. From the article:

Another good sign is that private hiring continues to make up for flat employment in government. Public payrolls fell marginally by 11,000 in April, which has the Keynesians on Wall Street and in Washington moaning about "austerity." But after the artificial hiring of the Obama stimulus, government needed austerity and should get a lot more. Private hiring can build on itself as the economy grows, while government hiring is unsustainable given current debt and tax burdens.

In fact, total public-sector employment, which was increasing after 2007, has been in decline for the past four years. The austerity in the public sector has gone beyond counteracting hiring from the recovery act, falling significantly below pre-recession levels:

Public sector employment change

In the past, economic recoveries following a recession have benefitted from public-sector job growth. This graph from the Economic Policy Institute demonstrates the difference in public-sector employment following the 2007 recession compared to recessions since 1981:

Change in public sector employment

The Economic Policy Institute's research and policy director Josh Bivens explained that the difference in public-sector hiring has hurt the economy's recovery compared to other recessions:

If public-sector employment had grown since June 2009 by the average amount it grew in the three previous recoveries (2.8 percent) instead of shrinking by 2.5 percent, there would be 1.2 million more public-sector jobs in the U.S. economy today. In addition, these extra public-sector jobs would have helped preserve about 500,000 private-sector jobs.

The Washington Post's Ezra Klein elaborated further, explaining that "government, at all levels, is spending and investing too little":

Despite the stimulus and various other policies we've passed to help the recovery, and despite the large deficits the government has been running, government spending and investment have, at all levels, been contractionary since 2010.

The new numbers the Bureau of Economic Analysis released on fourth-quarter economic growth have received considerable attention for the clear damage that falling government spending did to the economy. According to the BEA, "government consumption expenditures and gross investment" knocked 1.33 percentage points off the total change in economic growth. If government spending had just been neutral -- that is to say, if it had neither contracted nor expanded -- the economy would have grown by 1.23 percentage points rather than shrunk by 0.1 percentage points.

But this isn't the first time that total government spending and investment has been a drag on growth. It pulled growth down by 0.67 percentage points in 2010, .34 in 2011, and .33 in 2012. This is the strange, counterintuitive truth of government policy over the last three years: We haven't been spending enough to keep growth steady, much less help it along.

Posted In
The Wall Street Journal
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