Remember “austerity” and “expansionary contraction” stories? Well, if you don’t, then gird yourself for another round of claims (primarily by non-macroeconomists) about how state and local governments need to tighten up their finances, by cutting spending (and cutting taxes to necessitate further spending cuts). Perhaps, we should consider expanding federal transfers to the states and localities…From the fourth round survey of the IGM/Fivethirtyeight Covid-19 panel:
Fivethirtyeight discussion in this article. As the graphic highlights, austerity measures imposed upon states due to the collapse in revenue and the inability to borrow is a widely held concern.
CBPP documents the impending shortfalls in state budgets here.
We now project that the state budget shortfalls expected from COVID-19’s economic fallout will total a cumulative $555 billion over state fiscal years 2020-2022. This figure is for state shortfalls only and does not include the additional shortfalls that local and tribal governments and the U.S. territories face.
CBPP estimates here:
Already, state and local employment has declined precipitously. Many of the employment reductions will become permanent if no aid from the federal government is forthcoming in the next rescue package.
Figure 1: State and local government employment, in thousands, seasonally adjusted (blue). NBER defined recession dates shaded gray (latest recession dates not shown since NBER has not declared a trough). Source: BLS, NBER, and author’s calculations.
See the impact of fiscal drag in the 2009 recovery, here.
Everyone knows that Republican calls for austerity in states is total BS. There is one and only one reason they want to squeeze the states — to cripple and destroy public sector pension systems and cripple and destroy public sector unions. That’s the beginning and end of it.
Don’t even both arguing with Republicans about it. They are not making a good faith argument and lying about their motives.
Yeah, but the federal reserve system is going to loan to states this go around rather than boost asset prices in the long run. That’s a huge difference.
No, Rage, not going to happen. Fed has never loaned money to state or local govts and is not talking about doing so now.
A third of Obama’s 2009 fiscal stimulus was aid to them, but the recent stimulus has had only small amounts for them.
Also, the June employment numbers showed net hiring by local govts, but with this way more offset by states laying people off. The locals will be at it shortly too, if they are not already. Both face balanced current budget rules.
State and local employees down 9% from the peak, and 3% below 2014 levels doesn’t seem that significant compared to many other industries.
Source for your data Sammy? Kelly Anne Conway? Let’s see – we need more medical professionals so why not cut the payrolls? I would have never imagined that you would be for defunding the police!
But of course you miss the entire point of the post again. Herbert Hoover fiscal policy is Sammy’s lane.
Sorry pgl, here is my data source:
https://econbrowser.com/archives/2020/07/lessons-from-the-past-i-e-the-last-recession#comments
It’s the third chart down.
Did you see the first column of the 1st chart? Apparently not. OK good little boy – you read the 3rd chart but missed the real message:
“state and local employment has declined precipitously. Many of the employment reductions will become permanent if no aid from the federal government is forthcoming in the next rescue package.”
And of course no one beside Herbert Hoover would see fiscal austerity by the state and local governments as anything but hurting the private sector. Sammy when you go hiking do you miss the forest for the trees?
FRED provides the data:
Local government employees
https://fred.stlouisfed.org/series/CES9093000001
State government employees
https://fred.stlouisfed.org/series/CES9092000001
I had to check the data in light of Sammy’s bizarre writing:
“State and local employees down 9% from the peak, and 3% below 2014 levels doesn’t seem that significant compared to many other industries.”
Not only can Sammy be bothered to provide sources for his spin but he cannot be bothered to tell us when the “peak” occurred. And why 2014? Oh yea – a low point in the provision of state and local government services. Leave it to a Tea Bagger to make that the standard of comparison!
sammy State and local employment is down 7.5% since Feb 2020. That’s a pretty steep drop. It’s especially bad because demand for state and local government services are likely to spike during a pandemic; e.g., first responders, mental health services, coroner services, county health offices, etc. And when school returns there will be additional demands on school budgets due to enhanced cleaning, more frequent bus schedules, providing laptops, and substitute teacher pay as full-time teachers get sick. But you seem to be missing Menzie’s point. It’s not just state & local government employment that’s the issue; his post was about the macroeconomic effects of austerity. The government is not the household. Unlike households, who should tighten their belts during an economic downturn, governments should be loosening their belts. Don’t fall for Angela Merkel’s “Swabian housewife” fallacy. Macroeconomics is not household economics.
All excellent points but me thinks Sammy has no clue what state and local government employees even do. Here is a good discussion:
https://www.cbpp.org/research/some-basic-facts-on-state-and-local-government-workers
‘By far the largest share of state and local government workers are the nearly 7 million teachers, aides, and support staff working in the nation’s elementary, middle, and high schools. (See Figure 1). Other prominent categories of state and local employment are protective services (including police officers, fire fighters, and correctional officers), higher education, health care (including nurses and other workers at public hospitals and clinics), and transportation (including road maintenance workers and bus drivers).’
Education, law and order, health care, and transportation. Most of us would consider all of these activities critical services but knowing Sammy he thinks they are all Communist plots.
2slug,
Sorry, but state and local govts cannot “loosen their belts.” They face those strict currrent balanced budget ruless, most of them anyway. To borrow most need to have referenda with the borrowing for specific capital spending projects such as buidling schools. That is why they need federal aid, wiith the feds being able to loosen their belts, although at this point their belts are so loose their pants are starting to fall on the ground
Barkley Rosser We don’t disagree. As a practical matter only the federal government can run the kinds of deficits needed to keep the states afloat. One thing we saw in 2009 was that many of the GOP led states reduced state spending dollar-for-dollar with federal stimulus dollars, which completely defeated the intent of the stimulus.
The very first FRED blog post back in 2014:
https://fredblog.stlouisfed.org/2014/03/government-employment-in-the-us/
“This graph shows government employment as a share of the civilian labor force. The blue line is local government, the red line is state government, and the green line is federal government not including the postal service. (The latter two series use the right scale.) The regular upticks for federal employment correspond to temporary census workers. The recent evolution, however, looks uncharacteristic: local and state employment are currently on a slide that has not been seen since the late 1970s. On the other hand, federal employment follows abump up, likely as a result of the stimulus program.”
Let me repeat a key line just for SLOW Sammy:
“The recent evolution, however, looks uncharacteristic: local and state employment are currently on a slide that has not been seen since the late 1970s.”
And Sammy hold 2014 as the standard for state/local government employment? Yes he is THAT dumb!
I also had to take a look at FRED. I used the same series as PGL and totaled state & local. Total nonfarm is from graph PAYNSA, code CEU0000000001. I just got the numbers by using the slider tool (and no, I still can’t get links to work). In other words, this is a very basic, rough, attempt.
I used February as the base because it’s the peak of the expansion. All numbers are 000s of employees.
All employees, total nonfarm: Feb 151,076, Jun 138,513. Down 12,563; 8.3 pct.
All employees, state & local government: Feb 19,879, Jun 17,671. Down 2,208; 11.1 pct.
By those calculations, it looks to me that state & local governments are bearing more of the burden.
In addition, when you pull the S&L gov’t from the total nonfarm data, total nonfarm actually dropped 6.9 pct. Again, a larger decrease for S & L gov’t.
Third, note that they project next year’s budget shortfalls to be $180B (163 pct) LARGER than this year’s, so the pain has barely started. And yes, it will be painful, for all of us.
Thanks for the thorough and objective analysis. Maybe someday Sammy will decide that he should do this in the 1st place.
expansionary austerity was demolished by the IMF way back when.
Can I say a look at Ireland would show that.
It imposed austerity three times and the economy only improved once.
Why is that you ask.
Well back than their Central Bank cut interest rates, The punt depreciated quite a bit and their biggest country for experts was in the ‘Lawson’ boom.
If austerity actually worked then it would not be just once!
as Keynes said way back in 1936 austerity is great on good times. It then makes sense to cut back on the public sector to facilitate the expansion of the private sector.
It is madness to cut back on the public sector when the private sector is contracting as well.
When your a debt based ponzi, fiscal issues are simply part of the system. You can’t really generate “lessons” because none are to learned. When debt contracts, the system crumbles.
You may have guessed I’m watching both you and Prof Hamilton’s aggregated thoughts on 538 and the Nowcasts. I saw some IHS numbers in WSJ recently. I don’t see much change on the 2nd quarter forecast numbers, maybe slight adjustments upward of 2-3%, but really kinda stationary. I think now people are already starting to want to adjust 3rd quarter numbers down even before the early 2nd Quarter numbers come out. Obviously a lot of “slack” or “play room” left in the 3rd Quarter numbers, but you know, you have to tilt pretty negative right at this moment.
Some late night summer thunder here, with some weird (but mystically amusing) cloud formations earlier right before sundown. I actually find it relaxing or therapeutic somehow as long as it doesn’t F-up this computer. I got one of these “Thermo-Molded Country Plastic Chairs” for $19 for the backyard, light lime-colored, I can’t wait ’til the weather gets cold and I can take a crinkly newspaper and an adult beverage and oxygenate my brain more during drinking. Maybe it’ll keep me away from the keyboard when I am sauced. (which, no, I am not now). I read if you take a small amount of aspirin an hour before drinking it raises your blood alcohol level. Don’t try this at home kids, it probably wrecks your liver….. er something in the intestinal regions, I feel certain.
https://www.youtube.com/watch?v=w2CcW-OMT8Q
Off-topic
Still thought Menzie and some readers here might enjoy it:
https://www.propublica.org/article/he-built-a-privately-funded-border-wall-its-already-at-risk-of-falling-down-if-not-fixed
Seeing is believing. (click on the picture after the link jump to get the best view):
https://twitter.com/JinATX/status/1281692508209262595
Freelance photojournalist pictures by: https://twitter.com/veronicagcarde1
Still haven’t seen the check payment from Mexico on this….. strange…….
30 responses? Heck, the President was arguing for hydroxychloroquine use from a French clinical trial that had about 20 patients in it. We saw how that turned out. Does any one here trust data with so few responses? I’ve been reading lots of junk COVID-19 papers that suffer this same flaw.
That is more evidence than Bruce Hall would expect. All Bruce needs is the Glenn Beck seal of approval.
@ Mr. Goldhammer
Now, Menzie will laugh at my source (and maybe the info was bad, I was putting some faith in the reporter writing it). I did read it out of New York Post, which admittedly is questionable on some things~~~ but I can answer your question, and it is a very good question. I do trust data with so few responses, let’s say “15-20 responses”~~~but only under special circumstances. What would those special circumstances be?? Well, if you had 20 patients who in their condition would normally be said “near death” or “at very high risk of death”. Let’s say you had 15-20 patients, each over age 78, (some smokers, diabetes etc) were in the latter stages of COVID-19, and then got better. If the source of the data was trustable, I would be willing to put some faith in a 15-20 sample data. I posted this a couple months back, I thought it was interesting:
https://nypost.com/2020/04/04/long-island-doctor-tries-new-hydroxychloroquine-for-covid-19-patients/
Obviously there’s better treatments now and in the future. I’m just giving this as an example—that If you had a small sample size, but the severity and risk of death of ALL those in the sample was high, and then they had recovered, that is a trial or a small data set I might put some faith in.
I think if you are referring to the same French doctor I am thinking of, he was cherry-picking his sample to get his desired results. I think cherry-picking who is in the sample is a BIGGER danger than the sample size itself. That is why, if you had a sample size, almost “cherry-picked for failure”, then if that small sample “cherry-picked for failure” (picking only the worst cherries from the tree for the sample data)—then I would put more faith in s small data set with positive results.
“Heck, the President was arguing for hydroxychloroquine use from a French clinical trial that had about 20 patients in it. We saw how that turned out.”
Let’s be fair, the number of patients was not the real issue, picking different age groups and persons with different starting of treatment in the hydroxchloroquine group and control was, the flaws of the study were discussed very early by Prof. Christian Drosten.
Perhaps there is a need for a “macroeconomic literacy” program to help society understand economic concepts that a current majority of the economic profession agrees upon.
Such a program was developed by the California Society of CPAs for financial literacy. https://www.calcpa.org/public-resources/financial-literacy
Most of us have a basic understanding of physics concepts that we experience: gravity, velocity, and acceleration, although we sometimes try to deny centrifugal force when speeding around bends.
As often pointed-out by readers of this blog, many macroeconomic concepts are not “common sense”. The general population has no direct experience with some economic concepts as is the case with certain physics concepts. Society needs help to understand macro economic concepts.
It’s not that these things aren’t available. It’s self-inclination. And frankly, this will change any time soon. If those producing agricultural products aren’t interested in learning how tariffs and quotas and world trade effect them, but prefer blaming it on “Those damned furners and dirty liberals”, then just who exactly would be interested in educating themselves on it?? Ignorance is bliss and those with the MAGA dunce caps on love wallowing and splashing around in it.
*will not change any time soon. I’m done wrestling with this the spellcheck crap. Fixing this today. Takes five times more time wrestling with it so it can tell me what I want to type and then finding bad errors after.
OK, got that fixed, why the hell didn’t I do that about 6 months ago?? OK, don’t answer that.
AS The general population has no direct experience with some economic concepts
I think the problem is that the general population does have direct experience with household economics and they assume that macroeconomics is just a bigger household. One consequence of that household analogy is that people don’t think they need specialized training to understand macroeconomic policies. So you end up with folks like CoRev and Bruce Hall believing their views on macroeconomics are just as valid as some PhD’s view. A second problem is that people oftentimes confuse business & accounting with economics, so we end up with the wrongheaded notion that a businessman knows something about macroeconomics. A third problem is that we have a lot of right-wing “think tanks” peddling junk economics on media outlets with gullible viewers like CNBC and Fox Noise or Forbes. The idea that Stephen Moore or Grover Norquist or Larry Kudlow are actual economists is a joke, but people fall for it. Finally, I think the academy itself is not without blame. Like a lot of disciplines, academic economics has splintered into dozens of branches that don’t always talk to one another. So you end up with economists talking with apparent authority about policy issues that lie well outside of their expertise. Then a talkinghead show invites a rent-an-economist to argue for some point/counterpoint debate. The public gets confused and ends up tuning out whatever is said and treats it all as just so much math gobbledygook.
2sligs,
Sounds like you agree with me. Those in the know, need to do a better job explaining macro concepts so the general public can understand the concepts.
whoops 2slugs
AS: I think that the problem is that there are certain groups that have an incentive to propagate nonsense economics, and they have put a lot of money behind doing so. Hence, “doing a better job” is not incentive compatible for a large number of (in many cases) pseudo-economists (seriously, Larry Kudlow?).
Professor Chinn,
It doesn’t seem like capitulating is the way to save the economy or the country. There must be folks who have big money, like the tech folks who could assist with a program to educative the general public.
We need a leader for the effort and a plan of action.
@ AS
George Soros has done some of this, along with others. Soros’ “reward” has been anti-Semitic paranoia conspiracies. There are people who make efforts on this front. I still hold the main problem here, is people too lazy to read a newspaper etc, or people who are carrying the weight of two or three jobs on their shoulders, and it’s just not practical for them to keep up on issues which can be confusing even when you have the time to read them.
AS Like the natural sciences, macroeconomics advances funeral by funeral.
i think you are being a bit too hard on the natural sciences. they can run well controlled experiments-and they accept the results as valid.
I also had to take a look at FRED. I used the same series as PGL and totaled state & local. Total nonfarm is from graph PAYNSA, code CEU0000000001. I just got the numbers by using the slider tool (and no, I still can’t get links to work). In other words, this is a very basic, rough, attempt.
I used February as the base because it’s the peak of the expansion. All numbers are 000s of employees.
All employees, total nonfarm: Feb 151,076, Jun 138,513. Down 12,563; 8.3 pct.
All employees, state & local government: Feb 19,879, Jun 17,671. Down 2,208; 11.1 pct.
By those calculations, it looks to me that state & local governments are bearing more of the burden.
In addition, when you pull the S&L gov’t from the total nonfarm data, total nonfarm actually dropped 6.9 pct. Again, a larger decrease for S & L gov’t.
Third, note that they project next year’s budget shortfalls to be $180B (163 pct) LARGER than this year’s, so the pain has barely started. And yes, it will be painful, for all of us.
That projected budget shortfall is more important than the amount of ink being spilled over it so far. The massive loss on S&L jobs reflected in the chart above represents on factor in the overall disruption in employment and services. Another important factor is duration, which can be accounted for in some measure of labor years lost. The loss of labor years (and the services that labor provides) will only be known with time, but your mention of the budget shortfall is a key ingredient.
The Mitch and Donny clown show so far seem intent on preventing federal support for state budgets. Might help a Democrat, and hurting a Democrat is worth the price of enormous economic harm to Mitch, as we learned during the last recession. It’s new budget time for the states, and those budgets will have locked in the shortfall you mention, making any federal effort to help those budgets more problematic now, though still worth doing.
The longer term seems a bigger mystery now than at other time. We do know that most state revenue comes from taxes on wages, sales and property (https://taxfoundation.org/sources-state-and-local-tax-revenues). Much of the speculation about our economic future so far assumes a higher saving rate and so spending as a smaller share of income. Recession also suppresses wages. Slower wage growth and tepid sales could also reduce the taxable value of property. Taken together, these factors suggest weakened revenue for states and locals for years to come.
Just as an aside, evidence is piling up that throwing money at some problems, primary and secondary education in particular, does help (https://www.nber.org/papers/w25368). The social problems we want to address (I realize “we” in this context doesn’t apply to everyone, only to good people) are often left to state and local authorities, and they will need money. Education, housing, health care (still!), public transit… all need state money under our current system.
some states operate on a 2 year budget plan. states creating a 2 year plan today, will have to plan for a 2 year downturn rather than a 1 year downturn. this will probably keep economic weakness for another 2 years.
Sorry for the duplicate post. I guess my phone had a kludge moment.
In a well managed economy, one in which automatic fiscal stabilizers are large and well crafted, states would not be nearly as large a drag on growth during and immediately after recessions.
We have seen large businesses snap up assistance money intended for small ones, Catholic churches grab money to offset the settlement costs of priests raping children, politicians’ friends receiving large government contracts which they have no existing capacity to fulfill – the usual corruption. That’s all on the supply-side of the CARES plan, and the supply-side of the plan is looking like it will be extended.
But no more money for states. And the $600 monthly federal unemployment benefit supplement, which has not been plagued with scandal and which has done exactly what it is intended to do, looks for now unlikely to be extended. Rich richer, poor poorer – same old Washington.
There is an interesting metric in that old CBPP discussion regarding what state and local government employees do (something I bet Sammy still has not read but hey):
https://www.cbpp.org/research/some-basic-facts-on-state-and-local-government-workers
“Over the last 30 years, the number of state and local workers grew modestly relative to the overall population, from about 59 per 1,000 in 1980 to 65 per 1,000 in 2008 before declining to 61 per 1,000 in 2011. (See Figure 2).”
Figure 2 shows state and local government employment per capita which indeed is the right metric. Now this discussion is dated and missed how far this ratio declined through 2014 – something that Herbert Sammy Hoover applauds for some dumb reason. But note state and local government employment did rise through 2019 at least in absolute terms so it was back to the levels before the Great Recession in absolute terms. Of course that means it was still low in per capita terms before this COVID-19 crisis.
Of course I should stop as I realize I’m WAY over Sammy’s head by now.
Menzie Chinn: “I think that the problem is that there are certain groups that have an incentive to propagate nonsense economics, and they have put a lot of money behind doing so. Hence, “doing a better job” is not incentive compatible for a large number of (in many cases) pseudo-economists (seriously, Larry Kudlow?).”
I realize that it’s easy to take cheap potshots at the pseudo-economists like Kudlow and Moore, but what about the real economists like Hassett and Fama and Cochran and Holtz-Eakin and John Taylor and the 137 economists signing the letter saying that the 2017 tax cuts would pay for themselves in faster growth or the ones signing the open letter to Bernanke 2010 saying that quantitative easing would lead to rampant inflation.
Is there some sort of “professional courtesy” like for lawyers and sharks that says you can’t be mean to people in your own profession? How can the public have any respect for a profession that has some of its most distinguished and honored representatives be no better than astrologers, saying what certain powerful people want to hear.
If you want economics to be respected by the public, you have to police your own profession.
joseph: I think that there’s been ample criticism of those who signed the letter that said some sophisticated models predicted dynamic gains outweighing static losses. And criticism of the hyperinflation letter. I certainly made those criticisms. Now, the point is that people could’ve disagreed based on the economics — after all in the US, we’d never had QE/CE. And if you’re familiar with public finance models, you can understand why some people can honestly think dynamic effects are big. Now, there is a consensus on trade protection, and Navarro has gotten plenty of name-calling despite being a credentialed Harvard PhD.
i think joseph’s point is there seem to not be any ramifications for being wrong. to have a model or theory turn out to be incorrect is part of the process, i understand. but many of these folks are wrong absent any valid model or theory. their pronouncements are based on ideology and authority. problematic.
joseph I’ve always thought it curious that finance is the home discipline for so many in the austerity crowd.
2slugbaits: This is part of the reason: Summers on ketchup.
Thanks. Great minds think alike! 🙂
This quote from the paper gets to my earlier comment that subdisciplines within economics don’t seem to talk to one another: “Casual observation suggests that most researchers operating in one tradition are almost entirely ignorant of basic concepts in the rival tradition.”
You really think they are being honest? How many times can they be wrong before you assume that it is bad faith. The Reagan tax cuts, supply siders, the Laffer Curve, the anti-Clinton tax increase, the Bush tax cuts, social security privatization, the Great Recession austerity, the anti-Obamacare arguments, the inflation fears, the Trump tax cuts, the trade war, climate change.
How many times can they be totally, utterly wrong with never a single concession to their errors before you get a hint they just might not be making honest arguments.
I didn’t know what the hell thread to put this in, so I’m sticking it here. I noticed this blog seems to attract some riff-raff type commenters. Alan something or another…..
https://blogs.sciencemag.org/pipeline/archives/2020/07/15/new-data-on-t-cells-and-the-coronavirus