by Mitch Kokai
Senior Political Analyst, John Locke Foundation
In today’s world, decreases in the low single-digits are difficult enough to achieve. For example, the mandated spending reductions that were supposed to happen Jan. 1, now postponed to March 1, will be more than offset by the increase in spending on entitlements. Net federal spending will still show a small gain.
Those fiscal realities were surely acknowledged when House Budget Committee Chairman Paul Ryan (R., Wis.) told The Wall Street Journal last week: “We want to try, in installments, to get a down payment, year by year, on preventing a debt crisis….” If the yearly installments amount to 1% to 2% of real cuts in the federal budget, they can be pretty significant when accumulated over a decade.
MEANWHILE, THE FREED-UP LABOR can be absorbed for more productive uses in the private sector, just as freed-up labor from private-sector downsizing and bankruptcies is normally absorbed by other private firms. Even in good times, more than a million jobs are destroyed in this way every month, with those who lose their jobs generally shifting to other employment. So, for example, when the media misleadingly report that, 200,000 jobs were “created” in a single month, that’s actually a net figure; more like 1.2 million jobs were created, with one million of them offsetting the one million destroyed.
In that light, try a few back-of-the envelope jottings. With federal employment at 2.8 million, a 2% annual cut means 56,000 jobs eliminated each year. Even double that to 112,000 to reflect layoffs by industries that do business with Uncle Sam, or from states and localities that lose subsidies, and it comes to fewer than 10,000 jobs eliminated each month — certainly absorbable against the reality of the million positions a month normally destroyed.
What I’ve said so far might seem hardly worth saying if it weren’t for some of the recent indictments of government downsizing.
For example, articles in the New Yorker (“It’s Official: Austerity Economics Doesn’t Work,” Dec. 7) and the New York Times (“God Save the British Economy,” Dec. 19) blamed the slowdown in the U.K. economy on supposedly draconian cuts in spending by the national government there. But neither article reported the actual decline in the U.K. government’s budget. In fact, citing standard sources, Café Hayek blogger Russ Roberts has found that nominal government spending rose during the relevant years, with decreases recorded only after inflation — less than 1% in 2010 and 4.1% in 2011.
In comparison, although it came off an admittedly huge jump in spending in 2009, the federal budget in the U.S. did fall by 1.7% in fiscal 2010, and by an inflation-adjusted 3.1%. Yet in calendar 2010, the U.S. economy grew faster than it did when the budget rebounded in 2011 and 2012.