Embracing Keynes on the military and Hayek on other spending
On Record is a regular feature which lets South Carolina’s policy-makers speak their mind about the issues most important to them. If you’re interested in guest-blogging for On Record, email PPR Editor Logan Smith. Today’s column is from John Ruoff of The Ruoff Group.
Recent articles in South Carolina papers point to the growing concern that military spending cuts evidenced by base closings and slow-downs in spending on F-35 fighters destined for South Carolina will have a negative impact on our state’s economy. James Rosen writes for McClatchy Newspapers
: “Those [SC] bases employ thousands with an economic impact on the state in the billions of dollars annually. Securing new airplanes for the bases … is vital to their continued operation. Otherwise, they could face closing, an economic disaster for a state with an unemployment rate above 9 percent.” A report on Saturday
tells us: “Communities already are mobilizing in South Carolina, which has an unemployment rate of 9.5 percent. The economic impact of military installations in the state is more than $13 billion, said Ike McLeese, president of the Columbia Chamber of Commerce in the state’s capital.” And Governor Haley “’is now focused on this issue, energized.’”
We have no doubt that losing these bases would have an effect on these communities. A 2011 Congressional Research Service study
concludes: “However, while base closures and realignments often create socioeconomic distress in communities initially, research has shown that they generally have not had the dire effects that many communities expected.”
However, the more significant policy issue is why state and local officials crank up the machinery to keep the economic benefit of federal military jobs while bragging about cutting state and local government jobs. From December 2007 through December 2010, South Carolina state government employment, according to the labor statisticians at the SC Department of Employment and Workforce, dropped by 4,100 employees while local government employment dropped by 8,100 employees. Would any state leader not stand on her head to bring in 12,200 new jobs? Why then blithely give up those jobs?
Economist Jared Bernstein of the Center on Budget & Policy Priorities in a pair of posts on his blog notes, first
, the steep decline in the contribution of state and local government to total GDP. “[States] haven’t done much on the tax side, so they’ve been laying off teachers, cops, maintenance workers; practically every month over the past few years we’ve been adding private sector jobs and shedding public sector jobs.” As he notes
, “ You squeeze [state] budgets, it shows up quickly and directly in growth and jobs.”
State tax and budget expert Nick Johnson of the Center observed on Friday: “State and local government spending on goods and services fell at a faster rate — and hence had a bigger negative impact on economic growth — in 2011 than in any year in the last six decades, Commerce Department data released [Friday, January 27, 2012] show.” It’s not just that you cut FTEs at state agencies, a point of pride with South Carolina leadership. You also “cancel contracts with vendors, eliminate or cut payments to businesses and nonprofits that provide services, and slash benefit payments to individuals.” In doing that you remove money from the non-governmental economy as well and reduce demand.
When looking at military base closings, our political and economic leadership clothes itself in Keynesian rhetoric about jobs. When faced with their responsibilities to fund adequately state government, they retreat into Hayekian rhetoric about free markets and counter-factual arguments about the drag that government places on our economy.
A foolish consistency may be the hobgoblin of small minds as Emerson told us. But a foolish inconsistency is not the sign of a great mind.