CHART: States That Cut The Most Spending Have Lost The Most Jobs

BY Adam Hersh

There’s a new cult of economic thought sweeping the nation — or at least many Republican (and even some Democratic) political circles. Its adherents cling to the erroneous belief that sharp government spending cuts will revitalize economic growth and create much needed new jobs

Speaker of the House John Boehner (R-OH) is an ardent follower of this Cut-Grow cult, as are a number of high profile governors. For instance, Gov. John Kasich (R-OH) declared, “We’re going to have to reduce spending…to create a platform for economic growth.” When Gov. Chris Christie (R-NJ) delivered his budget to the state Legislature he argued, “We must continue to cut government spending” to create jobs and prosperity for New Jersey families. Gov. Scott Walker (R-WI) vowed his budget “lays [the] foundation to create jobs.”

Now these Republicans want the American public to drink a giant glass of their Cut-Grow Kool-Aid. But the data actually show the opposite of their claims to be true: steep spending cuts are hampering economic recovery in some states, while other states that resisted cuts or increased spending are now seeing declining unemployment rates, faster private-sector job creation, and stronger economic growth.

From the start of the Great Recession in 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 analysis excludes Alabama due to data problems reported by the National Association of State Budget Offices). And the differences in these states’ economic performance could not be more self-evident. Relative to national economic trends, states that increased spending enjoyed on average:

• 0.2 percentage point decrease in the unemployment rate

• 1.4 percent increase in private employment

• 0.5 percent real economic growth since the start of the recession

In contrast, states that cut spending saw on average

• 1 percentage point increase in the unemployment rate

• 2.1 percent loss of private employment

• 2.9 percent real economic contraction relative to the national economic trend

Steep state spending cuts have gone hand-in-hand with rising unemployment rates, falling private-sector payroll employment, and lower growth in state’s gross domestic product, or GDP — the sum of all goods and services produced by labor and equipment in each state, less imports.

Take private sector jobs, for example. This graph shows that state spending is not just about jobs for public service workers, but also has far reaching consequences for private businesses and their workers. The downward sloping red line shows the relationship between cuts to state spending and changes in private sector employment relative to the national average since the start of the Great Recession. States that cut spending are seeing significantly more job losses in the private sector than states maintaining or increasing spending levels. For every 10 percent cut in state spending, state economies lost 1.6 percent of their private-sector jobs.

Certainly policymakers should seize every opportunity to eliminate waste and improve the efficiency of delivering government functions. But spending cuts achieved or championed by conservatives are aiming much deeper at public services and public investments critical to economic recovery now as well as the future of U.S. economic growth and competitiveness.