Sunday, June 17, 2012

PK thinks San Jose should hire more public employees...bankruptcy be damned

 


I don't want to write about the idiocy that  is Paul Krugman anymore as it is so pointless. I try  to avoid reading his Op-Eds, really I do, as he continues to write the same column every day in a slightly different way, but I am hypnotically, perversely and masochistically drawn to them.

In todays’ New York Times PK argues we should be hiring more public employees (shocker).  Had Government continued to grow at the same rate as under George Bush there would be 1.4M more jobs and the unemployment rate would be closer to 7.3% not the current 8.2% blah blah blah.  O.K.  Standard Krugger's Keynesian dogma to which one could respond if this is such a good idea lets double the rate of growth and drive unemployment down to below 5%, but why bother.

As usual Krugman asserts that Conservatives/Republicans want to fire teachers, firefighters and police officers (as well as drown kittens and steal ice cream from small children) and Liberals/Democrats don't.  Aka the battle between Good and Evil.   As with most of PKs writings this is pretty much straight out of the "re-elect Obama playbook", but it has managed to arouse me from my Krugman induced torpor and make the completely futile effort of pointing out that once again his ideological leanings have blinded him to the reality of basic math and economics.

I would like to see evidence that any police officers, for example, in the United States have been fired or not hired in recent years because local politicians, regardless of their persuasion, determined there was no need for them.  No, the only reason is because of budget constraints and one of the primary reasons local budgets are constrained is that the growth in public spending has over 5 decades far outstripped growth in the private sector, which it relies on through taxes for funding.

 In the chart below, Mercatus Center senior research fellow Matthew Mitchell uses inflation-adjusted data from the Bureau of Economic Analysis to illustrate the unsustainable growth of state and local governments

 http://mercatus.org/sites/default/files/State-and-Local-Spending-vs-Private-GDP-original.jpg

 The graph shows that, after 60 years, the private economy is 5 times its 1950 size. But state and local governments are spending almost 13 times as much as they did in 1950. “This is like a household whose income has grown five-fold over a period of time,” Mitchell reports. “That's great news. But, unfortunately, their spending habits have grown 13-fold. This divergence is unsustainable.”

This growth in public spending is a function of a number of things but a primary driver is the rapid increase in compensation for public employees. A case study in this basic economic reality (which seems to escape Krugman entirely) is San Jose.  Over the last decade it has shed over 28% of its' workforce as tax revenues have increased 20% versus an 85% growth in wages and benefits for public employees. (Bloomberg)
 
Had the average cost of a public employee in San Jose not ballooned to $142k its residents would have a lot more reasonably compensated public employees instead of far fewer very well paid ones.  This, of course, would not address Krugmans' desire to pump more money into the economy (and push local and state governments closer to bankruptcy), but it would mean that the already highly tax burdened citizens of San Jose would have over 8 public employees per thousand residents they enjoyed a decade ago as opposed to the 5.6 they have today.







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