Does State Government Spending Contribute to Economic Growth?

President Obama, who once told us that his stimulus programs would ensure that unemployment did not rise above eight percent, now tells that we can expect unemployment rates to be in the nine to ten percent range for the foreseeable future. Worse than that, Obama tells us that we should be happy that it isn’t worse. Pressed to state categorically how many jobs his nearly billion dollar stimulus package has created, Obama responds by picking a number out of the air about the number of jobs that would have been otherwise lost. Most of those jobs “saved” are public employee jobs at the federal, state and local levels.

Similarly, Gov. Kulongoski has presided over a slide in unemployment from about five and one-half percent to between ten and one-half percent and eleven percent. His Department of Employment – a particularly inept named agency – has stated that there is nothing that the Kulongoski administration can do to turn those figures around and that Oregonians will just have to wait for things to turn nationally. Worse than that, while over 160,000 Oregonians have lost their private sector jobs in this recession, Kulongoski has increased the number of state public employees by about 7,000.

In neither instance do the unemployment numbers tell the full story of the economic calamity facing American private sector workers. National economists and pollsters have placed the figure of unemployed (including those who have given up searching and/or run out of benefits) and underemployed at nearly double the actual rate. That means on a national level, the total rate of those out of full time work exceeds nineteen percent and in Oregon exceeds twenty-one percent. (Both estimates are on the low end of the range of experts.)

One in five Americans cannot find full employment. Nearly one in four Oregonians cannot find full employment. And President Obama’s and Gov. Kulongoski’s response is – “get use to it; it could have been worse.” And in both instances, saving and creating government jobs appears to be a priority.

For the economically and mathematically challenged in the Democrat party, let’s make sure we understand that creating government jobs does not contribute to an economic recovery. In fact, most economists – at least those not dependent on government largesse to make a living – will agree that prolonged, excessive government spending will actually inhibit an economic recovery. The prime example being the programs instituted by President Franklin Roosevelt in the aftermath of the Great Depression.

A pretty simple example can be made from the average Oregon public employee. The average state public employee makes about $50,000 per year. Using an assumption of an employee as married with one child, a mortgage at $1200 per month (eighty percent of which is interest), $1000 per year in property taxes (slightly less than government reports), federal income tax payments of $5000 and charitable and other tax deductible contributions of one percent per year ($500), that public employee would pay state income taxes of about $3600.

However, it actually costs about $80,000 per year for the average Oregon public employee when you include the cost of PERS, healthcare, and federal payroll taxes. That’s $80,000 in tax dollars to produce $3600 in tax dollars. Unless that $76,400 net cost is producing wealth, it is a drag on the economy.

For an economy to grow there must be a creation of wealth – a product that sells for more than the underlying costs. With the exception of educators (who provide tools for more skilled jobs) and law enforcement (who safeguard the economic engines that create wealth) it is difficult to see what product that government creates that sells for more than its underlying costs.

In fact, government, through taxes, withdraws money from an economy that could otherwise be used for capital investment to create, grow or retain jobs that produce wealth. As an example, the Democrat controlled state legislature last year removed $577 Million annually under Measures 66 and 67. It removed additional amounts in the form of other taxes and fees bringing the total to somewhere over $1 Billion dollars annually. That is $1 Billion that could otherwise be used to create, grow or retain businesses that create private sector – productive – jobs. Jobs that make a net contribution towards economic growth and expansion.

And while excessive state government spending retards economic recovery and growth, it does contribute substantially to growth in another area. In my February 3, 2006, column, I reported that for 2005, Oregon state government withheld and remitted $29 Million each biennium to Oregon’s public employee unions. That $29 Million did not include sums similarly withheld and remitted to the public employee unions by the cities, counties, school districts and other units of local government. I estimated that to be an equal amount of $29 Million each biennium, thus giving Oregon’s public employee unions a political war chest of approximately $58 Million each biennium. I grew that figure conservatively over the next several years to $60 Million each biennium – a figure that I use routinely in my columns.

Foolish me. New figures from the Department of Administration put the amount withheld and forward by the state for 2009 at $19 Million or $38 Million for the biennium. A recent publication by Teachers Unions Exposed noted that in 2003, the amount for the Oregon Education Association was $18.85 or $37.7 Million for the biennium. That is a grand total of $75.7 Million each biennium and that does not include the American Federation of Teachers or the payments made by local governments to the unions.

Oregon’s public employee unions are easily amassing $80 Million each biennium to be used principally for campaign purposes – to elect Democrat politicians and support and oppose ballot issues – primarily those that will ensure continued growth of government.

While the number of Oregon private sector jobs has shrunk by 160,000, while another 40,000 Oregonians have entered the work force with no prospect of finding a job, while Oregon companies fail and withdraw and while the average income of Oregonians decline, Oregon’s public employee unions continue to grow in numbers and revenue.

Welcome to Obamanomics and Kulongoski land. Only you can make a change.