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Two takes on the same message:
The New York Times: “Economists See Deficit Emphasis as Impeding Recovery”
National Journal: “Who Says Fiscal Policy Is Hurting the Economy? (Almost) Everyone.”
1. This is a tale of two economies. The “G” in the GDP formula (government spending + personal consumption + private domestic investment + net exports) has detracted from measured economic growth in 10 of the past 11 quarters. But private sector growth has been much stronger, growing 4.0% in the first quarter and averaging 3.0% over the past two quarters — about what it did from 1983-2007.
2. And while the private sector has added 6.8 million jobs since the employment recovery began in early 2010, the public sector has lost just over 600,000 jobs. The public sector is in recession, the private sector is modestly growing — though the latter isn’t anywhere near its pre-recession trajectory whether measured by jobs or GDP growth.
3. According to a Hamilton Project study, government employment since 1970 increased by an average of 1.7 million following a recession. So if the US had followed the typical path, more than 2 million more Americans would be working, although not in jobs producing “consumer-relevant value,” as Tyler Cowen puts it.
4. According to the McKinsey Global Institute, the decline in business creation cost the economy two million jobs between the start of the Great Recession and the end of 2010. The number is undoubtedly much larger today.
So where should policy focus going forward? On boosting government spending and permanent government jobs? Or boosting entrepreneurs and private-sector jobs? Or both? Given future fiscal constraints, I would prefer as big a private sector as possible and as small a public sector as reasonably possible.
The New York Times piece quotes President Obama saying we need to make sure “that we’re investing in things like rebuilding our airports and our roads and our bridges, and investing in early childhood education, basic research — all the things that are going to help us grow.” But what about a business creation agenda? Do higher taxes and the health care law help or hinder?
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