Why a shrinking government is bad news
Many Americans want a smaller public sector, but one of the biggest weaknesses in the economy is the ongoing loss of government jobs.
Americans generally want smaller government, and the lower taxes that go with it. They're starting to get their wish—but it spells trouble for the broader economy.
The latest jobs data shows that the private sector added 130,000 jobs in April, while the government sector lost 15,000, for a net gain of 115,000 jobs. The longer-term trend is more stark. Since the start of 2011, the private sector has added 2.8 million jobs, while government has shed 280,000 jobs.
On the whole, this may be a fitting realignment for an economy that got too dependent on public spending. But the economy is also beginning to suffer withdrawal symptoms from shrinking government that are causing collateral damage elsewhere. The loss of government jobs in April contributed to a discouraging jobs report, which could have a lasting effect on the economy. The weak report "has increased concerns that growth in the U.S. economy is slowing down," writes Dick Green of Briefing Research. "The associated anxiety may create a cautious undertone to market sentiment that could take months to dispel."
A bigger issue that economists are starting to worry about is that much sharper public-sector cutbacks are coming toward the end of this year, and especially in 2013. Most of the government jobs lost so far have been at the state and local level, as states and cities have cut spending on teachers, public safety, and other types of services to cope with falling tax revenue. The federal stimulus money appropriated in 2009—which plugged a lot of holes at the state and local levels--has mostly run out as well, with tax revenues not rebounding strongly enough yet to make up the shortfall.
State and local cutbacks, however, are mild compared to what's supposed to happen at the federal level. The Bush-era tax cuts, for one thing, expire at the end of the year, and if they're not extended, most Americans will endure sudden, punishing tax hikes.
Most analysts expect a last-minute extension, but that might require offsetting cuts in other types of government spending in order to keep the national debt from growing even more than it already is. Such spending cuts would come on top of nearly $1 trillion worth of cuts already scheduled to kick in starting in 2013.
Those spending cuts are just what Tea Party activists and small-government advocates want. But shrinking government, while the economy is weak, can be like delicate surgery, with a lot of damage possible if the scalpel slips. If all of the measures on the table were to go into effect, for example, economist say it could cut three to six percentage points off of GDP growth—which would instantly induce a recession. This is the "fiscal cliff" that Federal Reserve Chairman Ben Bernanke and others have warned about. "I'm very worried," said Citigroup chief economist Willem Buiter at the recent Milken Institute conference in Los Angeles. "I see complete paralysis."
Republican presidential front-runner Mitt Romney has suggested that he'd take an ax to the federal bureaucracy, killing some agencies and shrinking others. But the problem with the federal government isn't really the size of the workforce. Over the last 10 years, for example, the federal workforce has grown by only 2.3 percent, which is a bit more than the private sector has grown, but far less than the nation's population growth. The real problem is the explosive growth of entitlement spending, especially on Medicare and Social Security, which for the most part doesn't require any extra workers.
But Medicare and Social Security are popular programs that will be very hard to cut back. So for now, politicians are targeting cutbacks in the federal workforce, which is an easier sell to voters. As long as they don't look too far into the future.
More from US News
Generally government is the most inefficient organization going. Any where there is government spending there is waste and fraud. Government does not have any resources to employ other than taking resources from the private sector which is the engine to economic growth. Government growth equals less private sector growth and less private sector growth equals less economic growth in the long run.
Federal Bureau of Labor Statistics found that the average state/local government worker earns $40.10 an hour in salary and benefits. Average!!!
guess what federal employees make??
much more....and guess who gave them a pay raise 2 years during recession ????
Obuma....don't say u didn't cause U signed it......
Rick Newman writes the federal workforce has only grown by 2.3% over the last 10 years. I think
the part that is missing is the average wage and entitlements of government workers. Twenty years
ago the average government worker made 70 cents on the dollar of the same job in the private sector. Now the government worker makes a little more on average, plus the benifits, health insurance, life insurance, 13 sick days a year, 20 days of vacation after a few years, and the retirement plans . Not to mention parties in Vegas! That is where all the growth in employee costs come from. Scale that back to what we get in the private sector and you can keep your job. I am paying for a government employee to have a better retirement plan than mine... just ain't right.
Our forefathers are rolling over in their graves because goverment is so big.
They faught and died to prevent big goverment and TAXES!
One small part they forget. After afghanistan ends and the troops come home, the govt will not need all the beans and bullets it provides now borrowing money to do so. the defense spending will be cut drastically due to one major factor. An infantry soldier fires hundreds of rounds in combat. At fort bragg they fire about 200 a year for qualification. add in all the other things the govt has to buy and they will end.
now the dems are smart and have not stopped the war as the spending is keeping the wolf from the door but the door will open same as it did after viet nam, (1975-1980 recession for the same reason a stop in the govt spending). except we are already in a recession. so it is going to be worse.
Defense stocks underperformed the market 30%-40%. If you dont believe me look it up its history.
the same mess is coming around again. probably about 1 year after afghanistan ends.
If washington does not contain the spending, and doing so is going to hurt defense contractors, govt contractors, and also there will be a loss of gs fed jobs. same as before.
Wheres the money gone? Each person that owns a car has lost $2700 a year out of their paychecks paying for $3.60 a gallon gas. A depot near me is already laying off 1,000 contractors with more to come. a tank track company in town has already closed one location and layed off 240 workers. Its starting and unfortunately nobody seems to see it.
So before it hits pull your money, stocks will be dirt cheap in 2016.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
Breaking up big banks is an untested solution to the too big to fail problem that attempts to isolate and dismantle large, troubled institutions while protecting the rest of the economy.
VIDEO ON MSN MONEY
[BRIEFING.COM] The stock market ended the holiday-shortened week on a mixed note as the Dow Jones Industrial Average shed 0.1%, while the S&P 500 added 0.1% with seven sectors posting gains.
Equity indices faced an uphill climb from the opening bell after disappointing quarterly results from Google (GOOG 536.10, -20.44) and IBM (IBM 190.04, -6.36) weighed on the early sentiment. Google reported earnings $0.15 below the Capital IQ consensus estimate on revenue of $15.42 ... More
More Market News
|There’s a problem getting this information right now. Please try again later.|
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'