Saving our way to prosperity?

June 28, 2011 6:10 AM

From December 2007 through the end of 2010, 24 states have cut government spending by an average of 7.5 percent after adjusting for inflation. Another 25 states have expanded government outlays by an average of 11 percent. The result? States that cut the most money have lost the most jobs.
posted by Benny Andajetz (36 comments total)

Something about correlation blah-blah causation ... I don't remember.
posted by ZenMasterThis at 6:12 AM on June 28, 2011 [7 favorites]

Well, surprise, surprise, surprise.
posted by saulgoodman at 6:22 AM on June 28, 2011

"From December 2007 through the end of 2010, 25 states have lost more jobs than the national average. Another 25 have lost fewer than the national average. The result? States that lost the more jobs and more revenue have cut spending more in response."
posted by Perplexity at 6:24 AM on June 28, 2011 [10 favorites]

I tend to believe that the cleverest politicians (Henry Kissinger-level clever and evil, but by no means all republicans) basically want this to happen so that they have a pliable and fearful constituency, with everyone desperate for work. It's also a justification for more restrictions on social spending - with so little to go 'round, of course it makes sense for the state to restrict WIC food even more, for example.
posted by Frowner at 6:25 AM on June 28, 2011 [1 favorite]

The beatings will continue until moral improves!
posted by diogenes at 6:27 AM on June 28, 2011 [3 favorites]

It's not a surprising result if true, but there's also practically no reason to think it's true. Perplexity's plaint is spot on.
posted by grobstein at 6:27 AM on June 28, 2011

The data is inconclusive as presented...but Dr. Keynes will see you now.
posted by jaduncan at 6:29 AM on June 28, 2011 [2 favorites]

So your saying that people with the least money spend less? Maybe if they spent more they'd be richer!
posted by blue_beetle at 6:41 AM on June 28, 2011

States that lost the more jobs and more revenue have cut spending more in response.

...and it hasn't helped.

I think Ockham's Razor may point to the original statement as being more likely. But more data are needed.
posted by DU at 6:49 AM on June 28, 2011

Reminds me of Georgia driving out the migrant farm workers, then going "Gawrsh, who's going to pick all these crops?!" Actions have...consequences?
posted by Ghostride The Whip at 7:20 AM on June 28, 2011

As with Every. Single. Statistical Study the Mefite causation/correlation brigade predictably chimes in.

However, what this study does seem to show is that spending does not impede growth and cutting does not spur it. That is an important conclusion. The next time a Republican argues that we need to cut taxes to spur economic activity we can point to a study like this that shows that their cure doesn't work. To argue by analogy: if 25 people with a particular disease are prescribed a treatment and that treatment does not alleviate symptoms in the vast majority of those patients, is it rational for a doctor to continue prescribing the same treatment? Of course not.

You could argue, dogmatically, that spending cuts do indeed keep things from being even worse. But where is the evidence for that? These sorts of counterfacual arguments are nearly impossible to prove. (Looking at the graph, the states that had no change in spending showed both losses and gains. But, generally speaking, the states that gained seem to be states which have higher taxes and the states that lost seem to be those with lower taxes.)
posted by oddman at 7:21 AM on June 28, 2011 [7 favorites]

That is an important conclusion.

Sigh. This is obvious. Macroeconomics 101

GDP=C+I+G+(X-M)

That is, GDP equals C (Consumption) + I (Investment) + G(Government spending) + (X (Exports) - M(Imports))

The government cuts spending. The people who that spending was being spent on lose that -- government employees lose jobs, government contractors lose business and lay people off. GDP drops.

It's why a government with sovereign lending powers has a unique power in recessions. Where other people *logically* cut spending (I'm laid off, I can't afford X, business is down, I'm laying off Y, etc.) a government can borrow and spend, thus breaking the vicious cycle.

Cutting spending now is the exact last thing we can afford to do. And, because the GOP is insane and the Democrats are cowards, that's exactly what we're going to do.

What we're going to do is replay 1937.
posted by eriko at 7:29 AM on June 28, 2011 [28 favorites]

States that cut the most money have lost the most jobs.

But have the states that lost the most jobs cut the most money?
posted by ZenMasterThis at 7:30 AM on June 28, 2011

However, what this study does seem to show is that spending does not impede growth and cutting does not spur it. That is an important conclusion. The next time a Republican argues that we need to cut taxes to spur economic activity we can point to a study like this that shows that their cure doesn't work.

Then add it to the heap. I think there are plenty of extent studies that already show this. That won't stop Heritage and AEI from cranking out counter-study after counter-study that use subtle methodological tricks too difficult to explain persuasively to a casual audience to yield results that seem to contradict these findings.

What "Movement Conservatives" don't want to admit because it threatens the stability of the core constructs under-girding their entire worldview is that, objectively, government spending functions as a productive economic activity no better or worse intrinsically than any other. Money circulating is money circulating. People with public sector jobs are in fact still real people with real jobs.

You could argue, dogmatically, that spending cuts do indeed keep things from being even worse.

Yeah, but in reality, public spending cuts accelerate the rate of economic decline. Think about it: what we're doing with these cuts is swapping out X number of people with good jobs to let some smaller number of rich people keep more of their own disproportionate share of money (due to their lowered tax burden). It all comes down to who you think contributes most to the economic prosperity of the nation: the ordinary working people that make up the vast majority of the public of the United States of America, or those who have excess capital they can rent out to others to put to productive uses.

If 1,000 people lose their jobs so that one millionaire can afford to make a commercial real-estate investment, we're robbing the proverbial Peter to pay Paul. We're depriving real people of immediate economic opportunities in order to invest in speculative ventures that might or might not yield some tangible economic benefits for the public in the distant future. And at the same time, we're making it less likely those promised economic benefits will ever actually be realized because future economic demand is being undermined in the process (if fewer people have jobs, where's the demand supposed to come from?). Supply side economic theory is dangerously lop-sided.
posted by saulgoodman at 7:47 AM on June 28, 2011 [13 favorites]

States that cut the most money have lost the most jobs.

No, it doesn't show that. It shows that there is a correlation between cuts and losing jobs. But even without going into all the debate about whether there was really causation, look at North Carolina, way out there on the right. It didn't lose as many jobs as five other states, two of which raised spending.

And that Montana-Nevada trend line shows that comparing states without taking regions into account may not be too useful either.
posted by Etrigan at 7:52 AM on June 28, 2011 [1 favorite]

As with Every. Single. Statistical Study the Mefite causation/correlation brigade predictably chimes in.

That's because there are perfectly reasonable explanations of the data besides the one that you ideologically presuppose to be true. Hanging your hat on data that can not possibly establish the causal inference you want to make is silly, and the Mefite Wishful-Thinking/Correlation brigade does itself a disservice by clinging to weak evidence.

if 25 people with a particular disease are prescribed a treatment and that treatment does not alleviate symptoms in the vast majority of those patients, is it rational for a doctor to continue prescribing the same treatment? Of course not.

Sure. A Whipple for some pancreatic cancers has about a 10% cure rate. In randomized studies where you can actually identify the effect, that's quite a bit better than the natural history (less than 5% 5 year survival). If you were to take a cross-section of all surgery patients, it looks like people getting the Whipple die at an astonishing 90% compared to all patients maybe 10% over ten years. The reason is that patients getting the Whipple were sicker.

The states getting the bigger cuts were sicker. Look at NV, MI, FL, and ND (an oil funded state) pulling that line down.
posted by a robot made out of meat at 7:53 AM on June 28, 2011 [3 favorites]

I think there's something being missed in all this talk about government spending stimulating the economy, or not stimulating the economy, government policies creating jobs, etc. And that is that it takes time to build an economy. Businesses have to be built. Connections have to be made. Skills have to be learned. Trust has to be earned. Debts have to be paid off. I could go on.

Anyone who wants to be able to move X amount of dollars into or out of column A and magically have a strong economy just a handful of years later is oversimplifying things to the point of absurdity. That kind of thing may help smooth out tiny bumps in the road, but when you have an economy that's been as wrecked as the States' has for as long as it has, it's just going to take time and hard work to fix. No way around it.

For the government's part, you can tell they're not serious about doing anything to fix the economy, because they leave every looming economic issue alone until it reaches absolute crisis point, at which point the media publishes some fear-mongering articles and tv segments. And then in the following few days of frenzy, they push through an enormous bill that no one has had time to read in its entirety nevermind consider the implications of, containing all sorts of things that will only worsen the very problem they claimed to be trying to fix. It happened with the stimulus package of a few years ago, it happened with the budget crisis of a few months ago, and I have no doubt it will happen again with the looming debt crisis. How many times does it have to happen before we realize it's not an accident, but the plan?
posted by mantecol at 7:56 AM on June 28, 2011 [3 favorites]

Yeah, but a plurality of the states that are suffering most now are also states that in the very recent past (last two decades) underwent large privatization pushes and state level tax cuts. My own state has undergone nearly two decades of downsizing under Republican leadership, the state budget situation and the state's overall economic situation has never been worse.
posted by saulgoodman at 7:59 AM on June 28, 2011 [1 favorite]

For the government's part, you can tell they're not serious about doing anything to fix the economy

Who is "they"? What do you think the government is some race of alien space overlords that all think in unison and execute their will with ruthless efficiency? The government is just whatever people happen to be occupying all the government offices at the time. "The Government" does not want things, or plan things, except to the extent the actual people occupying those various offices and positions do.
posted by saulgoodman at 8:01 AM on June 28, 2011 [2 favorites]

"A Whipple for some pancreatic cancers has about a 10% cure rate. In randomized studies where you can actually identify the effect, that's quite a bit better than the natural history"

Of course, with the Whipple treatment we have empirical evidence that it works better than no treatment. We don't have that for tax cuts, et al. That was, of course, my point.
posted by oddman at 8:07 AM on June 28, 2011 [1 favorite]

The states getting the bigger cuts were sicker. Look at NV, MI, FL, and ND (an oil funded state) pulling that line down.

ND is pulling the line up, and drastically so. As you mention, ND has seen a recent increase in employment because they're in the midst of an oil boom. Conversely, FL and AZ were hit hardest by the housing crisis. In both cases, state spending is not the key factor.

I'm all for Keynesian policies, but this graph doesn't support (or deny) the effectiveness thereof.
posted by dephlogisticated at 8:40 AM on June 28, 2011

Conversely, FL and AZ were hit hardest by the housing crisis. In both cases, state spending is not the key factor.

I completely disagree. Even before the housing crisis, Florida's economy had been sputtering for a long time--really, the bursting of the housing bubble just revealed what was already the basic economic status quo; the real estate boom, while it was in full swing, basically just masked the economic impact of a decaying economic base in the state. We had nothing left driving economic activity but real estate speculation by the time the housing crash came. The economy here was fundamentally weak already, or else it would have fared better. And I personally sat on the front lines during the previous eras of state privatization and tax cutting in Florida and have seen the ground-level impacts firsthand.

It's really stupid to be discussing this issue like it's purely a theoretical one when the realities are so obvious when you see them in action. Cutting a job is cutting a job. If we were truly interested in running government like a business, we'd be trying to maximize revenue. What sane CEO comes to work every morning thinking about how he can more effectively deprive his company of revenue? If government should be run like a business, Republicans must be the most incompetent business men in history.
posted by saulgoodman at 8:57 AM on June 28, 2011 [5 favorites]

Of course, with the Whipple treatment we have empirical evidence that it works better than no treatment. We don't have that for tax cuts, et al. That was, of course, my point.

"We don't have evidence that tax cuts work in this data" is very different from "we have evidence that tax cuts don't do anything in this data" which is what you said. The former is true because this data is meaningless.

ND is pulling the line up, and drastically so.

When you move ND (with a large negative X) up in Y, the line has to rotate clockwise (down, the same direction as FL suggests) to accommodate it.

In both cases, state spending is not the key factor.

Yes, that was my point. This plot does not suggest what the direction of effect of state fiscal policies is because the bias is potentially so large.
posted by a robot made out of meat at 9:14 AM on June 28, 2011

OK. I can't stay out completely.

I knew the correlation police would show up and, truthfully, it's a legitimate argument. But while it's easy to shit on the article, it's much harder to refute it. This doesn't show correlation? Show something that does correlate.

'Cause the truth is, both sides believe spending will solve the problems. They just disagree over who should do the spending. It's just that one side says, "Lower taxes. Put more money in the wealthy's pockets, and they will spend, spend, spend to hire people and kick-start this economy. Don't look to the government because their money isn't real and government jobs aren't real."

Where are any studies to show them to be correct, with or without correlation issues?

I'll go now, and try not to threadsit.
posted by Benny Andajetz at 9:32 AM on June 28, 2011 [1 favorite]

As with Every. Single. Statistical Study the Mefite causation/correlation brigade predictably chimes in.

posted by oddman at 3:21 PM on June 28

Yeah, and it's as tedious as the Godwin brigade. Sometimes Hitler and the Nazis do provide material for a powerfully apposite analogy. And sometimes correlation does imply causation. What you have to do is look for corroborating evidence to see whether that is indeed the case. The MMR/autism "link" is an example of a correlation/causation fallacy because, well, it's both inherently preposterous and unsupported by any reasonable evidence whatsoever. On the other hand, the notion that spending cuts might negatively affect employment rates is both plausible and supported by evidence.
posted by Decani at 9:37 AM on June 28, 2011 [2 favorites]

Hanging your hat on data that can not possibly establish the causal inference you want to make is silly...

Wait a second. I am assuming that the reason you think that you can't establish a causal inference has nothing to do with the the variables. Instead, it has to do with the fact that this data was accumulated without a theory or research question being proposed.

On the other hand, is politically hard (extremely hard) to actually coordinate and set up the type of research that would prove a causal link. Note, your example involves a medical treatment using RCT design.

Are you saying that, public policy research should be discounted unless it achieves the gold-standard of design? This seems extreme...am I missing something?
posted by Hypnotic Chick at 9:44 AM on June 28, 2011

saulgoodman, are you arguing that state privatization and tax cuts are the main factors responsible for Florida's economic collapse?
posted by dephlogisticated at 10:01 AM on June 28, 2011

Decani: "On the other hand, the notion that spending cuts might negatively affect employment rates is both plausible and supported by evidence"

But it's also entirely plausible that rising unemployment might lead to reduced spending.
posted by Perplexity at 10:10 AM on June 28, 2011

saulgoodman, are you arguing that state privatization and tax cuts are the main factors responsible for Florida's economic collapse?

Believe it or not, yes I am, more or less.

I believe that, in a Southern reconstruction state where state and federal governmental activity have been crucial economic drivers since at least the post-Civil War era, the government has long served as an indirect welfare system, offering good civil service jobs to displaced farmers and those living in generational poverty and promoting socioeconomic diversity and mobility more generally.

The massive privatization push initiated under the Democratic Chiles Administration but taken to its furthest logical extremes by the Bush administration in Florida, played a key role in dismantling the layers of state government that historically offered good civil service jobs on a widespread, relatively merit-driven basis. These reforms in many ways are cutting people in rural areas off from more economically vital areas of the state and from access to other economic opportunities, because civil servants often serve as a sort of cultural bridge across the class divide, providing financial resources and crucial information about public programs and job opportunities to their relatives still living in generational poverty (in my experience, this is frequently so anyway).
posted by saulgoodman at 10:11 AM on June 28, 2011 [2 favorites]

but taken to its furthest logical extremes by the Bush administration in Florida

That is, before being taken to even further, illogical extremes by Scott more recently.
posted by saulgoodman at 10:12 AM on June 28, 2011

I hate agreeing with Keynes but you really do need to run the debt tap wide open during recessions and give the populace work to do if nothing else.

I'd say bring back the WPA but I would expect it to be accompanied by a resurgence in right wing domestic terrorism.
posted by Talez at 10:20 AM on June 28, 2011 [1 favorite]

saulgoodman, unemployment in Florida was 1-2% lower than the national average between 2002-2008, when Florida was in the headiest parts of the housing bubble. After the bubble collapsed circa 2007-2008, Florida's unemployment level rose above the national average by the same 1-2% margin.

Similarly, Florida GDP as a percent of national GDP rose steadily between 2000 and 2006, wavered, then fell in 2008. Per capita state and local spending increased up until 2009 and still hasn't fallen below 2007 levels. As a percentage of GDP, state spending peaked in 2008 and still remains higher than it was in the twenty years previous.

I don't doubt that the erosion of state government over the past decade has made life harder for lower and middle class Floridians. I agree completely regarding the negative impacts privatization has on the rural and poor populations. But the state economy—both its rise and fall relative to national averages over the last decade—are pretty clearly tied to changes in the housing market.
posted by dephlogisticated at 6:41 PM on June 28, 2011

As a percentage of GDP, state spending peaked in 2008 and still remains higher than it was in the twenty years previous.

State spending may still be high, but state government is smaller than it's ever been. But Federal and state dollars are now often funneled directly to the private sector. For example, Federal labor related dollars. Florida's labor department was reorganized long ago into the Agency for Workforce Innovation, which is (or "was" since this agency is now being collapsed into Rick Scott's giant slush fund) made up of around 30 private-sector regional workforce boards. In the new structure, the whole agency was to be governed by a board comprised of representatives from the regional boards and the state agency side. But in practice, the private sector gets 30+ seats/votes on the governing board and the nominal public agency responsible for receiving and administering the use of Federal labor dollars only gets one vote on the board. In essence, the state agency's role is just to pass through Federal dollars to the private sector for private entities to spend however they deem fit. Here's an example of the sort of private sector innovation such an arrangement yields..
posted by saulgoodman at 5:55 AM on June 29, 2011

But the state economy—both its rise and fall relative to national averages over the last decade—are pretty clearly tied to changes in the housing market.

Oh of course--because real estate, by design, became the economic engine of the state. It's no secret here in Florida that our political leaders tend to be eager to jump in bed with the real estate development lobby.

My take is that Florida's over-dependence on real estate for its economic growth--as reflected in the tight interdependence between the health of the state's economy and the health of the housing market you noted--is the result of specific political and governmental failures, including the privatization and "shrinking" of state government. We need stronger public schools, public service programs and institutions; we need less economic dependence on real estate speculation and rent-seeking.

But Florida's always been a real-estate boom state. People have been speculating on the fantastic promise of magical land in Florida only to find themselves financially stuck (as Groucho Marx famously joked of Florida: "Oh boy how you can get stucco.") since Ponce De Leon first came marching through the Florida muck hellbent on finding the Fountain of Youth. Hell, elderly retirees still flock here in droves, I'm convinced, in thrall to some vague, half-remembered association of the place with the idea of the restoration of youth.

Even our tax base is designed to derive most of the state's revenue from land: In the first case, we have property taxes to gather revenue from the ownership of land; in the second, we have sales taxes designed to share the state tax burden with our many out-of-state visitors, a sort of service fee for the privilege of visiting Florida real estate.

Meanwhile, Florida's agricultural industry is struggling (the spread of Citrus Canker has killed the commercial export of Florida oranges), our seafood industry is foundering, and don't even make me snort the milk out my nose by mentioning Florida's manufacturing base. Our state economy needs structural reform. We need more, not less, state government, to make such a massive transition.

And Florida already has the smallest, least expensive state governmental work force in the nation:

The report puts Florida at the bottom of per-capita pay at $38 per resident, while the national average was $72 per citizen. Florida also ranked last in the nation with 117 full and part-time employees working in the state per 10,000 population, compared to 215 per 10,000 as a national average.

posted by saulgoodman at 6:34 AM on June 29, 2011

Are you saying that, public policy research should be discounted unless it achieves the gold-standard of design? This seems extreme...am I missing something?

People who take economics seriously (and epidemiology and other observational sciences) think hard about identifying causal effects using quasi-experiments and sophisticated analytic strategy. It's not all RCT or cross-sectional bivariate association.
posted by a robot made out of meat at 7:52 AM on June 29, 2011

Source for claims about size of Florida workforce before current cuts above.
posted by saulgoodman at 9:12 AM on June 29, 2011