I’m at Duke University right now, taking a summer course on the history of economics in the 20th century, so posting may be light. Drop me a line if you have recommendations for things to do near Duke or want to say hello!
So, one of the stories of the current recession is that in spite of a massive federal stimulus, overall government spending was relatively flat. We did not engage in a massive austerity program, as some conservatives wanted (and some European countries actually tried), but we also didn’t see a massive uptick in total spending. Here’s Krugman’s take:
Overall, then, government’s role has not increased. The whole Obama/socialist thing never happened.
And here’s the thing: government’s role should have increased, at least for now. We still have a private sector in the throes of deleveraging, which means that this is a time for the government — which can borrow at negative real interest rates! — to be spending more. Instead, the entire brief increase in government’s role during 2009-2010 has now been unwound, with more cuts to come.
The reason that overall government spending is basically flat has to do with the counteracting forces of increased federal government spending (via the stimulus and automatic stabilizers, i.e. social welfare programs) and decreased state and local government spending (forced by balanced budget amendments, among other things). For example, local governments are actually cutting employees. Here’s a graph of federal vs. state and local current expenditures (not adjusted for inflation, but indexed to 2007 = 100).
Here’s a similar graph of real (adjusted for inflation) state and local expenditures and investment vs. all government.
State and Local government are decreasing as a proportion of government spending – and by this measure, actually decreasing in real terms.
At the same time, polling data consistently show that state and local government poll better than the federal government. For example, here’s a poll showing approval ratings for state, local, executive and judicial branches:
So, the consistently most popular parts of government are flat or shrinking, while the less popular parts are growing. Oops?