by Jon Sanders
Director of the Center for Food, Power, and Life, Research Editor, John Locke Foundation
The economic model in use by The News & Observer is rather, well, unique. I inferred some of the N&O’s Keys to Economic Growth a few weeks ago based on a column trashing the idea that low-tax South Dakota could be a national model for economic growth because it’s still South Dakota (a column that was almost immediately rubbished by CNBC naming South Dakota America’s top state for business in 2013). They were:
- Governing As If Democrats Were in Power
- Keeping Business Taxes and Giveaways High So As to Please Site Selection Magazine
- Not Squeezing Public Spending Like a Lemon
Today’s editorial, “GOP measures do little to halt NC unemployment,” offers more insight into N&O-nomics. The paper takes issue with GOP boasts of working to, in Sen. Neal Hunt’s words, “create a competitive business climate to lower our unemployment rate and to put our citizens back into high-quality jobs; tax reform and regulatory reform will accomplish this”:
So there we have it, the problem and the solution. Yet the problem isn’t going away, and the Republican solution seems to be making it worse. North Carolina’s unemployment rate ticked upward in July, putting the state in a tie with Rhode Island for the third-highest level of joblessness at 8.9 percent.
Even as the state tries to spur private-sector hiring, it’s increasing unemployment – and cutting demand for goods and services – by squeezing the public sector with tax cuts that lead to budget cuts that lead to job cuts. Employers added 8,200 jobs last month, but that gain was offset by a loss of 5,300 public-sector jobs.
As you see, the GOP ran afoul of N&O-nomics’ anti-public-sector-squeezing dictates. The money belongs to the public sector because they make the jobs. (And don’t ask where the money comes from and if there’s any squeezing involved there; N&O-nomics apparently doesn’t make allowances for that. More on that in a sec.) This tenet of N&O-nomics is given a subhead, it’s so important: “Low spending cuts jobs.”
Here is the money passage:
Sen. Hunt uses the future tense in his claim about what will happen, but after two and a half years of Republicans’ controlling the General Assembly, that “will happen” is changing into “when will it happen?”
Two years ago, Republican lawmakers refused to extend a temporary 1-cent sales tax despite a plea from Democratic Gov. Bev Perdue. Republicans said the money should be returned to taxpayers who would use it to boost the economy. The tax disappeared into its sunset, costing the state $1.2 billion annually. Two years later, unemployment is ticking upward, and North Carolina is nearing the top of the list for jobless rates.
So Hunt argues that cutting taxes and regulations will yield future positive economic returns. I argued the same recently, based on established research and objective data. With a nod to another revealed aspect of N&O-nomics, I wrote:
Only the most doctrinaire devotees of the theory that the state’s economy grows by outsiders’ perception of its “progressive image” could object [to the job-creation potential of North Carolina’s historic tax cut], after carefully ignoring the returns when said image was yet intact. What that theory lacks in empirical evidence or peer-reviewed studies, it makes up for in vociferous, ipse dixit editorials.
The N&O does indeed object, and they offer an example: the end of the [why did they call it] temporary 1-cent sales tax increase. The N&O makes it sound as if the loss of that portion of the tax is responsible for unemployment “ticking upward,” and that therefore the money shouldn’t have been returned to taxpayers because they didn’t use the money to boost the economy.
Let’s see how unemployment ticks, starting in June 2011 when the budget passed (over Perdue’s veto), ending the temporary 1-cent sales tax increase:
Source: Bureau of Labor Statistics
Do you think that is “unemployment ticking upward”? Or put another way, could the N&O have written, say, last month that unemployment was ticking upward? Or last May, or last April, or last March … or December 2011? It does tick upward from June to July, up one-tenth of a percentage point to 8.9, but down 1.5 percentage points since June 2011. There have been similar upticks (up one-tenth in January 2013 to 9.5; up two-tenths over Summer 2012), but they didn’t last. The overall trend has been an unemployment rate ticking steadily downward.
Incidentally, in 2011 economists at the Beacon Hill Institute forecast that ending the temporary sales tax increase would lead to 11,195 net new jobs by 2013. How’d that pan out?
|June 2011 employment||4,172,289|
|July 2013 employment||4,278,516|
“Perhaps years hence,” the N&O scoffs,
North Carolina will be thriving economically, and credit will belong to these stout Republicans who persevered in their faith that Keynesian economics is wrong, that Obamacare is evil, that unemployment assistance fosters unemployment and that, on the third or fourth try, trickle-down tax cuts for the rich really will trickle down to everyone else.
And there is the first and only mention of Obamacare, which is the elephant in the room when it comes to preventing job growth, as has been discussed here. Well, it’s the elephant in the room next to the 800-lb. gorilla of Obama administration’s regulatory avalanche. Nevertheless, both of those factors will be significant obstacles to the state’s economic growth, but they will be faced by competing states as well.
But what about these other revealed tenets of N&O-nomics? Is Keynesian economics right? Even the Obama administration cannot make that case. You may remember that Obama’s Keynesian stimulus was supposed to have returned the national unemployment levels to its long-term “natural” rate of 5 percent last month. It didn’t, of course, and the Obama administration projects it will take at least another 10 years before that happens.
Or what about the link between unemployment assistance and persisting unemployment? The N&O is guilty of a straw man in presenting the case in that way. The issue isn’t unemployment assistance itself, but how much it should be and how long it should last. It is a consensus finding among labor economists, left and right, that the amount and duration of unemployment benefits have an effect on whether jobless workers choose to take an offer of employment or stay unemployed. (Even Paul Krugman has made that argument in his book Macroeconomics with Robin Wells, although he recently revisited it to carve out an exception for “meanspirited” North Carolina.)
The final bit about “trickle-down tax cuts” is just odd, considering it comes after a complaint about cutting the sales tax. The sales tax was steeply regressive, and hiking it “temporarily” made it more so, as we argued back in 2006. That means it hurt the poor the most.
Furthermore, it doesn’t touch the other half of Hunt’s case for creating a more competitive business climate; i.e., regulatory reform, though that is just as important in the long term.
Then again, the “trickle-down” meme doesn’t work for cutting regulations. As I wrote in my Spotlight report on sunset provisions with periodic review,
regulatory reform doesn’t require government making do with less revenue in Year One. Regulations are taxes on time, which for industry translate into real monetary costs, but their compliance yields nothing remunerative for government. Restoring lost time to industry doesn’t reduce the General Fund. … Reducing the hurdles means encouraging more entrepreneurship, more job opportunities, and more economic growth — which in turn means government collecting more revenue in a more vibrant economy.