Meltdown

[eyeresist]

That's a good chart

I wonder how much of the govt expenditure increase is simply due to the collapse of the dollar.

[Coopmv]

I wonder how much of the govt expenditure increase is simply due to the collapse of the dollar.

The collapsing dollar certainly has played a part.  There is a steep price to be paid for having the cheap dollar policy.

[eyeresist]

The collapsing dollar certainly has played a part.  There is a steep price to be paid for having the cheap dollar policy.

When the Australian dollar is at parity with the US, there is definitely something wrong! OTOH, it's nice to think my extra Amazon orders are helping prop up your economy

[Coopmv]

When the Australian dollar is at parity with the US, there is definitely something wrong! OTOH, it's nice to think my extra Amazon orders are helping prop up your economy

The Australian government probably does not have the kind of deficit-spending problem the US has ...

[Todd]

Since unemployment is the big problem (here I am following Keynes) it makes more sense to look at how many people the government employs as a measure of size, as well as spending programs with substantial positive or negative effects on employment.

I'm not sure how you are following Keynes exactly, but his analysis and prescriptions were premised on boosting aggregate demand via public spending in a case where monetary tools will not work rather than on government employment per se.  (Perhaps you can refer me to the appropriate chapter in The General Theory that supports your assertion.)  Your assertion that it somehow makes more sense to look at how many people are employed by government is false.  The bulk of US federal spending is related to transfer payments, and that will continue to grow in importance over time.  Trying to shift focus to government employment misses both Keynesian theory and the reality of government spending today, and for the last several decades.

As to job losses, what evidence do you have that the public sector was hit hardest, and thus decreased as a percent of total employment?  The numbers I've all point to the opposite.  Public sector losses, if there were in fact any losses, were less significant than private sector losses.

Here's one chart.

 

Now this says that there public sector job gains.  That cannot be right.  Let's say it's not. 

Let's say that the highest number of public sector job losses was about 750,000.  (That's the highest number I've seen, perhaps you can offer something else.)  Out of about 19.8 million total civilian government employees (per the US Census Bureau), that's around 4% gone.  That's bad.  So if we assume the labor force started at around 155 million (roughly what it was when the recession hit) and full employment, and back out the public workforce, we end up with about 135 million private sector workers.  Let's say 8.7 million jobs were lost (or bump it to 9 million, if you want), that means that roughly 8 million private sector jobs were lost.  That would be about 6% of the total workforce.  6% is more than 4%.  That would mean that government employment as a percentage of total employment increased.  That is, not only is total government spending a higher percentage of the total, but government employment is a higher percentage of the total.  The economy is more reliant on the government now than before the recession. 

Again, if you have any actual figures, they would be helpful.  As it is, you appear to be making counterfactual assertions.

Now, overlay the GDP on it so you can understand it better.

I understand it perfectly well.  Your prior assertion was that the government had shrunk as a percentage of the "total economy."  Everywhere else, that means GDP.  You have established your own definition.  Be that as it may, as a percent of GDP, government has grown since the recession began.  I made it clear that was the result of federal spending and GDP reduction.  Looking to the 90s, yes there was more rapid economic growth which resulted in a decrease in government spending as a percent of total GDP.  However, you obviously missed the larger point.  If you overlay the spending trend line the direction is quite clear.  Government spending is rising and will continue to rise. 

People really need to get over the 90s, because back then, Boomers were not retiring.  Now they are.  That changes the entire outlook for spending going forward.  Social Security and especially Medicare expenditures are going to rise more quickly than in the past.  These programs will need to be cut to be made sustainable.  Repealing the Bush tax cuts won't solve the problem.  That's well known even among Democratic policy makers.

There is no evidence the federal government has shrunk.

Nope, and I ain't the one saying it has.

I wonder how much of the govt expenditure increase is simply due to the collapse of the dollar.

Increases tied to the CPI would mean relatively little is attributed to inflation.  Increases tied to other indices may result in slightly higher numbers.

[drogulus]

There is no evidence the federal government has shrunk.  In fact, the size of the federal government has increased since 2000.  Furthermore, there are now an amazing number of federal jobs that pay north of $100K.  No wonder the federal deficit has been running at $1T+ a year.  As recently as a decade ago, I read that the average congressman had about 40 staffers.  When Nixon was the vice president in the Eisenhower Administration, he only had about a half-dozen staffers.  Only state and local governments have been shedding jobs over the past few years since they are required to have balanced budgets even in a poor economy while the federal government has not shed any jobs.

     No, the federal government has shed jobs under Obama. All branches have shrunk. This is not what a proper stimulus would allow for, yet we let it happen.

     The government spends lots of money when it expands and it spends more when it contracts. And because of the job shedding it has to spend more while it contracts and revenues plunge. Is this big government? I wonder just how completely useless (in fact criminally negligent) a government would have to be to be small enough to satisfy the Meltdowners?

     It isn't the size of government that matters, it's the size of the task it must take on that tells you how big it has to be. Naturally there will be disagreement about the nature of the task and the means to undertake it, but I think the argument will go better if we give up the myth that we're concerned with the size of government in absolute terms.

     Todd, government spending has gone up, employment and revenues have gone down. I'm not following Keynes in detail since I haven't read him. I'm following him in terms of his concern for employment, which he hoped to assist by, as you say, boosting aggregate demand, which would in turn boost employment.

     What was the title of the Keynes book? I should read it.

     I was wrong about the federal jobs losses. They have been severe but there has actually been a small net gain. This is from U.S. News a couple of weeks ago:

     Federal government. President Obama may claim that the government he leads has gotten better under his watch, but he can't claim that it's gotten smaller. Overall, the federal bureaucracy has grown by about 39,000 workers since Obama took office at the beginning of 2009. That includes a loss of about 111,000 jobs at the troubled postal service, and a gain of 53,000 Defense Department jobs, which includes the uniformed military. Excluding defense and the postal service, the core federal workforce—what many people think of as the "Washington bureaucracy"—has grown by about 97,000 jobs since Obama took office.

     From the U.S. Bureau of Labor Statistics for January, after noting gains in private employment:

     Government employment changed little in January. Over the past 12
months, the sector has lost 276,000 jobs, with declines in local
government; state government, excluding education; and the U.S. Postal
Service.


     

[drogulus]

     

As to job losses, what evidence do you have that the public sector was hit hardest, and thus decreased as a percent of total employment?  The numbers I've all point to the opposite.  Public sector losses, if there were in fact any losses, were less significant than private sector losses.

    None, I think. Do I need any? I'm not asserting that government was hit worse, I'm asserting that it was worse that government was hit, too. And, as we all know, the latter was a situation we had some control over.

[drogulus]

     Incidentally, a significant point about the BLS numbers on government job loss is that the period covers 2011, not 2009-2010. The story here is that even as late as this January government job losses continue to delay the recovery.

[Todd]

I was wrong about the federal jobs losses. They have been severe but there has actually been a small net gain.

How can losses be severe yet result in a small net gain?  That is Orwellian doublespeak at its finest.  Either there are more federal employees or there are fewer.  It cannot be both. 

Todd, government spending has gone up, employment and revenues have gone down.

Incorrect.  Federal spending has increased, federal government employment has increased, and federal revenues have fallen.  And government employment as a percentage of total employment has risen, as well.

Keynes' major work is The General Theory of Employment, Interest, and Money.  I'd recommend adding something by Paul Samuelson to augment it if you want a more thorough review of the theories and analysis.

None, I think. Do I need any? I'm not asserting that government was hit worse, I'm asserting that it was worse that government was hit, too. And, as we all know, the latter was a situation we had some control over.

Well, let's start here. 

I'm referring to the shrinkage in employment at the federal, state, and local levels.

It's a statement that even you now say is not true at least with respect to the federal government.  And just what is the aggregate effect on state and local government employment over the period 2008 to 2012?  Perhaps I inferred that you were implying government employment was harder hit, and that was not correct.  Of course, if aggregate government employment is up, it is impossible to say it went down.  So I revise my prior post to say this: government growth appears to have been slowed slightly during the recession.  When things pick up, the government will grow faster.

[drogulus]

     

It's a statement that even you now say is not true at least with respect to the federal government.

     The losses in the states, cities and towns were real, as were the losses at the federal level (113,000 postal workers) which were felt all around the country. I'm sure the increases in the Washington, D.C. area were very helpful there, and I'm glad those jobs were not cut. Some of them will be soon, as we fight the next contractionary phase. But for now we have reason to be glad that I was wrong about the total federal employment, and sad that I was right over all that the drop in government employment has delayed the recovery, and, if expectations about future cuts are correct, will continue to do so.

     Here's the next paragraph from the U.S. News article I quoted earlier:

     The size of the federal workforce may have peaked, however. The postal service is likely to continue shrinking, and fresh cuts are coming in defense. Many agencies have hiring freezes in place, and cuts in discretionary spending due to begin in 2013 seem certain to further shrink the federal payroll. Intensifying budget pressures could compel whoever wins the presidency in November to enact even bigger cuts in 2013 and beyond. So Tea Party government-shrinkers may eventually get what they're after, no matter what.

     I think that's probably right. Obama is no Keynesian, and his team is whipsawed between the 2 camps. As a result Obama will do what's right when sheer terror makes him (just like Bush did), and split the difference the rest of the time. I expect full employment will take 3 more years at the current pace. If the Repubs are elected it will be about the same. They will be well motivated to walk back from the precipice once they get back in.

[drogulus]

     Barron's has a cool cover this week:

     

     This is what I'm expecting, actually. If it comes to pass I'll be.....pret-ty, pret-ty good.

     

     
   

[Todd]

The losses in the states, cities and towns were real, as were the losses at the federal level (113,000 postal workers) which were felt all around the country.

First of all, as your quote showed, there were no losses at the federal level.  There was an increase in employment.  Yes, the USPS had to shed jobs, but the overall number of federal workers went up, not down.  As to state and local, where are the hard numbers, please?  I'd like to see just how hard hit the government really was.  Then it could be compared to government job growth over the last seven decades.  A bit of trimming may very well be a good thing. 

Further reductions in the future would be good, too, though I'm a bit more skeptical about whether those cuts will appear.  Budget cuts usually just mean a drop in the rate of growth, not absolute cuts, just like the military cuts Obama and team are trying to push through.  Of course, Obama may be betting that even Republicans don't want to really cut defense and will alter or eliminate proposed cuts.  There may be greater success in other government agencies, though it would be more telling to revisit the figures in ten years to see what really happens.  It's pretty standard for politicians and pundits to talk about how cuts are needed and as such will happen this time, but it's a rare thing indeed for cuts to materialize.  And that doesn't even take into account ever expanding transfer payments.

Everything I've seen or heard from Obama indicates that he's Keynesian with hints of Institutionalism thrown in.  But first and foremost, he's a politician, which means that he must change course as conditions change.  I have a hard time thinking of a President who was actually a Keynesian.  FDR most certainly was not.  Maybe Nixon. 

[drogulus]

     In 2011 the total loss at all levels was 276,000 according to the BLS.

A bit of trimming may very well be a good thing. 

     No, it is not in any sense a good thing now or in the last few years. It might be a good thing in a couple of years to shed jobs in areas while staffing up in others. If the total was lower, that would have good effects. It does not have good effects now, or at least the bad effects make the good ones irrelevent. I don't want to throw people out of work in a recession because it makes the budget numbers better.  And it might not even do that. Efforts to balance budgets while in a downward spiral are like pilots trying to climb out of a stall.

     Edit: The Europeans climbed and stalled, we timidly dived and now the economy is growing. My question is this: If we had done what the Europeans did and refused to stimulate would we have been better off? That's what the Euro-Republicans are saying. Are they right? No, they are wrong, and Obama went down the right road, though not far enough as I see it.

[drogulus]

First of all, as your quote showed, there were no losses at the federal level. 

     The losses were considerable for the people who lost the jobs and the communities where the losses were felt, and while it was good that they were offset by gains elsewhere, they were still very bad and from a policy perspective counterproductive. There should not have been such losses. We should only have had gains.

[drogulus]

     Herbert Hoover is supposed to be dead. If need be I'll dig up his corpse to make sure, because all this talk about how good it is to balance budgets and fire workers and boohoo the deficits while unemployment skyrockets is a little too surreal for my blood. I'm done quibbling about whether job losses are real if someone else gets a job in Washington. I'm glad for the good, but it doesn't make the bad OK.

[Coopmv]

     The losses were considerable for the people who lost the jobs and the communities where the losses were felt, and while it was good that they were offset by gains elsewhere, they were still very bad and from a policy perspective counterproductive. There should not have been such losses. We should only have had gains.

There have been no net job losses at the federal level, period.  Those job losses at the USPS were due to early retirements and buyouts, as I personally know someone who is a supervisor at the local post office who will do exactly that in 2 months.  Keep in mind that there is this homeland security department, which did not even exist prior to 2001, that department has been growing by leaps and bounds.  With the annual federal deficit set to exceed $1T for the fourth year in a row, how can you even argue the federal government has been shrinking?

[Todd]

Efforts to balance budgets while in a downward spiral are like pilots trying to climb out of a stall.

States must balance budgets by law.  That's life.  It's not good policy from my standpoint, but it currently must be done.  However, the federal deficit has been so large as to ensure that in the aggregate, the US has run a deficit, which is intrinsically expansionary.  I know that some people have been talking about balanced budgets and balanced budget amendments (not me, though), but that's talk.  Ain't no balanced budgets at the federal level in sight in the real world.

The losses were considerable for the people who lost the jobs and the communities where the losses were felt, and while it was good that they were offset by gains elsewhere, they were still very bad and from a policy perspective counterproductive. There should not have been such losses. We should only have had gains.

Job losses are often, but not always, considerable for people.  The sting is often muted, and sometimes non-existent, if jobs are lost through attrition (eg, early retirement) as Coopmv pointed out.  No doubt not all of the losses were so kindly.  That's life.  The notion that somehow federal jobs, especially at a money drain like the USPS, are somehow sacred is ludicrous.  And so is the notion that there were real losses.  The federal payroll has increased.  It's simple fact.

As to Euro-Republicans, a new and rather confused phrase, well, that's meaningless.  Again, there is talk, and plenty of it, about cutting spending, etc, but the fiscal reality is simple.  We've been running and will continue to run $1 trillion+ deficits.  There are no spending cuts.  There ought not to be in the near future (through at least 2013), but at some point in the not too distant future, serious fiscal reform is needed, and that means higher taxes and big spending cuts, especially in Social Security and Medicare.  Seems pretty simple to me, but many Republicans won't admit the former, and many Democrats deny the latter.

[Coopmv]

Here is a good wake-up call: Social Security Is Failing Even Faster Than We Thought

[drogulus]

States must balance budgets by law.  That's life. 

     No, it's death, stupid, preventable and in hindsight as bad as it was in forsight when economists warned that we should not permit it. Now sadder and wiser, we shouldn't have permitted it.

     The Republicans have been pushing European austerity without calling it that, of course. Somehow they think there's a successful American way of shrinking towards prosperity that will work better than the European version. But there is not a way to do that.

     It's true that we will eventually recover from a crisis without doing enough to remedy it, and so will the Europeans who've done less. Generally economists say that you don't get back the lost GDP, you just rebuild from the lower base. And of course there are the ruined lives, millions of them. It curious how important the "job creators", the Repub term for upper income people, are supposed to be (they must be shielded from even the slightest disturbance lest they refuse to shower us with benefits!), and how unimportant the actual jobs and, least important, the people who would do them if the jobs existed. Quick, find a job creator and cut his taxes, pray to Zeus, do anything, anything but take practical steps to save jobs or make new ones!

[drogulus]

     By the way, Obama,  or a minion, announced that they will seek to reduce the corporate tax rate from 35% to 28% while closing loopholes. Excellent, cut the rates and make the deadbeats pay! For one, corporate taxes really are too high, and it calls the bluff of all those who said they couldn't repatriate their profits because of the rates. Obama is outflanking the evildoers from the right and left all at once! Yeah, baby!

     And.....I made $9,000 in one day. Happy days are here again......

     Now a word about G. W. Bush. Only a truly extraordinary leader could have created so few jobs while piling up massive deficits. Historians will ask how was it done, so big a giveaway for such a puny result. He didn't build anything, he didn't create jobs, he just pissed it away. Obama at least has a goal for what he does slightly more elevated than rewarding his contributors.

     And as unhappy as I am that the job was not done to my liking, he at least did it. Once again, the Republicans prove they can't be trusted to do anything but run the country down, and it takes a tax-and-spend liberal to put the economic house in order. You've seen the charts, and it's true, the country as a whole fares better under the Democrats. Pragmatism beats theory, again and again and again.