Thursday, July 26, 2012

In favor of saving taxpayer's money

In last Sunday's Crossroads section, Steve Walters wrote an article about decreases in state and local employment. I was struck by the following statement attributed to Laura Dresser, a labor economist with _ I'm sorry but its true - a left wing think tank embedded in the University of Wisconsin. (As always, I say this by way of description. Knowing that a speaker has a perspective doesn't meant that we ought to dismiss what they say.)

Asked about the impact of losing 18,800 government jobs in Wisconsin, Dresser said, "That's shrinking the economy."

Really?

What struck me is the use of the transitive verb, i.e., the notion that by reducing government employment we have "shrunk" the economy from some state that it would otherwise have occupied.

That could be true but  doesn't determining whether it is so require knowing a lot more than government employment levels?

Here's the problem. The state is not like the federal government. It can't borrow money from China to finance current operations. While politicians have gotten good at accounting tricks that balance the day of reckoning, it must balance the budget. Whatever level of employment it maintains must be paid for. Paying for government jobs requires - you guessed it - taking money out of other parts of the state economy - in this case, from taxpayers.

Now, that might be a good thing to do. It might even lead to economic growth. The efficient provision of needed roads, education, fire protection, etc. can be essential to a healthy economy. There are even people who might argue that, under certain circumstances (not all), public employees would spend more money than taxpayers and this will boost economic demand. (Count me as skeptical about the how often this is true and whether we can even know when it is true or have the state "manage" demand in this way.)

But to simply say that reducing government employment and allowing taxpayers to keep the money that would have gone to pay them 'shrinks" the economy strikes me as wrong. As I have written before, saving the taxpayers money is not a bad thing.

Cross posted at Purple Wisconsin.

8 comments:

Calypso Facto said...

Asked about the impact of losing 18,800 government jobs in Wisconsin, Dresser said, "That's shrinking the economy."

First, I agree with you that taking money from state taxpayers to fund state employment is most likely either a wash or an inefficient drag on the state's economy.

Secondly, note that state spending in the aggregate was not reduced during 2012, only repurposed from one type of expense (employees in this case) towards other expenses. So the gov't spending portion of the state's GDP formula did not decrease, but actually INCREASED slightly over this period and the economy has not been "shrunk" on account of reduced state spending, because no overall reduction took place.

Anonymous said...

Good post and good comment above. It seems highly unlikely that government coerced wealth and income transfers from the private sector to the government sector could create real wealth for our society that is to say wealth created by voluntary transactions rather than transactions involving one group of people voting to force other people to spend money on things the first group think are important whether the second group wants to or not. Also many government employees frankly work against the productive sector of the economy in enforcing regulations that are frequently unnecessary and forcing the private sector to spend money on compliance with the unnecessary regulations. Paying govt. employees to enforce these regulations hardly creates wealth.

Anonymous said...

I find your theory is a bit of an oversimplification on a number of levels.

First, the state can, and does, borrow money to finance its operations. As I'm sure you know, the state budget is balanced on a cash basis which does not account for the debt service that is due in future years. The last few administrations in particular have accumulated or restructured a significant amount of debt.

Second, the state economy is not a closed system where a sum certain amount of money exists to be divided between government and private industry. Different types of investment, public and private, can grow or shrink the economy by drawing money in or chasing it out.

Third, while I generally agree that income taxes paid by one person to pay another person are likely a wash or worse (administrative costs), not all taxes in Wisconsin are collected from Wisconsin citizens or businesses, and not all money saved by tax cuts is spent in Wisconsin or at all. Is every tax (excise, sales, income, etc.) equal? Is every type of government spending (wages, Medicaid, contractors, etc.) equal?

Finally, even if I accept your argument, you articulate no reason WHY less government spending is preferable. Maybe it isn't better to tax and spend more, but that doesn't mean it is worse than taxing and spending less.

Calypso Facto said...

Anonymous said...
I find your theory is a bit of an oversimplification on a number of levels.


Simplified, certainly, as it would have to be to fit into one blog post. And I think you have valid (undisputed?) points about borrowing being less immediately detrimental than direct taxation and the possibility of different economic effects of different kinds of spending. Yet Mr. Esenberg's response is obviously more complete than Ms. Dresser's unfounded assertion that a reduction in state public employment is "shrinking the economy". Mr. Esenberg simply and fairly responds: "That could be true but doesn't determining whether it is so require knowing a lot more than government employment levels?"

That essentially echos your, "Maybe it isn't better to tax and spend more, but that doesn't mean it is worse than taxing and spending less. Somewhere between the logical extremes of 100% taxation and government spending and 0% taxation with no government spending is an optimum economic level for each that is not solely determined by the number of people the state employs.

Anonymous said...

"I was struck by the following statement attributed to Laura Dresser, a labor economist with _ I'm sorry but its true - a left wing think tank embedded in the University of Wisconsin.

(As always, I say this by way of description. Knowing that a speaker has a perspective doesn't meant that we ought to dismiss what they say.)"

Professor, just how dumb do you think are some of your readers? No, sir, you appear to be objective with your Standard Contradictory Disclaimer, but the intention is clear...assail Dresser's credibility simply because of her association with a "liberal think tank. Had you NOT mentioned that link, then you would be impartial.

Interesting how you are leading people to dismiss her claims because she is employed by a think tank that runs counter to your ideology...even though you yourself have been employed by a think tank!
Oh, the irony.

"Mr. Esenberg simply and fairly responds: "That could be true but doesn't determining whether it is so require knowing a lot more than government employment levels?"

Perhaps these links could provide some insight...

www.thenation.com/article/167050/red-states-see-massive-public-sector-job-losses#

mediamatters.org/research/2012/06/10/think-government-job-losses-dont-hurt-us-think/186250

jimspice said...

You want oversimplification, how 'bout this? If 10% of the WI workforce is public employees, and each one took an average $5G hit, shouldn't that mean that we should all get a $500 state tax refund? At least if S&S' logic of "allowing taxpayers to keep the money" holds. But if so, WHERE'S MY $500?

Tom said...

Jim, because we entered the fiscal biennium at a deficit, if we didn't cut total payroll to public workers, taxpayers would've seen a tax increase. If we had started at a 0-basis, then we would've seen the tax cut you describe (if the money saved hadn't been spent elsewhere).

Simple.

jimspice said...

Well then. I shall look forward to my $500 return next spring.