Hey, Small Spender
By PAUL KRUGMAN
Published: October 10, 2010
Hereís the narrative you hear everywhere: President Obama has presided over a huge expansion of government, but unemployment has remained high. And this proves that government spending canít create jobs.
Hereís what you need to know: The whole story is a myth. There never was a big expansion of government spending. In fact, that has been the key problem with economic policy in the Obama years: we never had the kind of fiscal expansion that might have created the millions of jobs we need.
Ask yourself: What major new federal programs have started up since Mr. Obama took office? Health care reform, for the most part, hasnít kicked in yet, so that canít be it. So are there giant infrastructure projects under way? No. Are there huge new benefits for low-income workers or the poor? No. Whereís all that spending we keep hearing about? It never happened.
To be fair, spending on safety-net programs, mainly unemployment insurance and Medicaid, has risen ó because, in case you havenít noticed, there has been a surge in the number of Americans without jobs and badly in need of help. And there were also substantial outlays to rescue troubled financial institutions, although it appears that the government will get most of its money back. But when people denounce big government, they usually have in mind the creation of big bureaucracies and major new programs. And that just hasnít taken place.
Consider, in particular, one fact that might surprise you: The total number of government workers in America has been falling, not rising, under Mr. Obama. A small increase in federal employment was swamped by sharp declines at the state and local level ó most notably, by layoffs of schoolteachers. Total government payrolls have fallen by more than 350,000 since January 2009.
Now, direct employment isnít a perfect measure of the governmentís size, since the government also employs workers indirectly when it buys goods and services from the private sector. And government purchases of goods and services have gone up. But adjusted for inflation, they rose only 3 percent over the last two years ó a pace slower than that of the previous two years, and slower than the economyís normal rate of growth.
So as I said, the big government expansion everyone talks about never happened. This fact, however, raises two questions. First, we know that Congress enacted a stimulus bill in early 2009; why didnít that translate into a big rise in government spending? Second, if the expansion never happened, why does everyone think it did?
Part of the answer to the first question is that the stimulus wasnít actually all that big compared with the size of the economy. Furthermore, it wasnít mainly focused on increasing government spending. Of the roughly $600 billion cost of the Recovery Act in 2009 and 2010, more than 40 percent came from tax cuts, while another large chunk consisted of aid to state and local governments. Only the remainder involved direct federal spending.
And federal aid to state and local governments wasnít enough to make up for plunging tax receipts in the face of the economic slump. So states and cities, which canít run large deficits, were forced into drastic spending cuts, more than offsetting the modest increase at the federal level.
The answer to the second question ó why thereís a widespread perception that government spending has surged, when it hasnít ó is that there has been a disinformation campaign from the right, based on the usual combination of fact-free assertions and cooked numbers. And this campaign has been effective in part because the Obama administration hasnít offered an effective reply.
Actually, the administration has had a messaging problem on economic policy ever since its first months in office, when it went for a stimulus plan that many of us warned from the beginning was inadequate given the size of the economyís troubles. You can argue that Mr. Obama got all he could ó that a larger plan wouldnít have made it through Congress (which is questionable), and that an inadequate stimulus was much better than none at all (which it was). But thatís not an argument the administration ever made. Instead, it has insisted throughout that its original plan was just right, a position that has become increasingly awkward as the recovery stalls.
And a side consequence of this awkward positioning is that officials canít easily offer the obvious rebuttal to claims that big spending failed to fix the economy ó namely, that thanks to the inadequate scale of the Recovery Act, big spending never happened in the first place.
But if they wonít say it, I will: if job-creating government spending has failed to bring down unemployment in the Obama era, itís not because it doesnít work; itís because it wasnít tried.
A version of this op-ed appeared in print on October 11, 2010, on page A23 of the New York edition.