Government Cuts Hurt Ohio’s Economic Recovery

Over the weekend, The Columbus Dispatch ran a story asking if cutting government hurts the economy and job creation. Really, the only answer to that question is a resounding, “Duh.”

Aug 28, 2013 at 10:02 am

Over the weekend, The Columbus Dispatch ran a story asking if cutting government hurts the economy and job creation. Really, the only answer to that question is a resounding, “Duh.”

Although framed as revelatory, the article goes into an old subject. Over the past year, progressive think tanks have been criticizing all levels of government for hampering the economic recovery by making severe cuts. Policy Matters Ohio in particular has pointed to public cuts in every one of its job reports for the past year.

CityBeat covered the issue in a blog post back in September. Back then, a study came out that found the national unemployment rate for June 2012 would have been at 7.1 percent without government job cuts; in reality, the unemployment rate was estimated at 8.2 percent at the time.

For Ohio, the cuts at all levels of government have led to 47,900 fewer jobs — about a 6-percent drop — in the past four and a half years, according to The Dispatch. Most of those losses have happened at the local level, where 45,100 jobs — a 9-percent decline — have been cut from police forces, fire departments, road crews, schools and other services.

To put those numbers in perspective, Ohio has added 10,100 net jobs in that time span. That means Ohio could have created 58,000 jobs in the past four and a half years without the cuts. For the 415,000 Ohioans still declared unemployed, those potential opportunities probably sound quite appealing.

The Buckeye Institute, a conservative think tank, almost immediately snapped at The Dispatch’s story on Twitter. It pointed out that Ohio’s public sector employment grew by 31,000 since 1990.

But that’s an argument for another time. Even if Ohio’s governments really do employ too many people, making vast cuts isn’t something local and state officials should be considering until the private sector is providing a surplus of jobs to fill the void of reduced budgets. Otherwise, the state is just kicking people out into the street — a move, by the way, that can actually make state and local budgets worse by reducing how much tax revenue governments rake in from the employed.

Under normal economic circumstances, it’s absolutely true that government can “crowd out” private investment, meaning every dollar spent by the state government can potentially push out a much more efficient, productive dollar from the private sector. But Ohio and the rest of the country aren’t in normal economic circumstances. Despite some strides in the past few years, the nation is still in the middle of an economic downturn that has tightened credit and investment all around the world.

In response to the crisis, Ohioans should accept anything that provides much-needed stimulus in the job market. That means throwing everything at the economy, whether it’s increased government spending or new tools that allow the nation’s central bank to incentivize investment.

Of course, the big problem is state and local governments really can’t do that. When the economy takes a hit, so does tax revenue. Since Ohio and its cities are required by law to balance their budgets, that means state and local governments are almost always going to have to make cuts along with the rest of the economy, further exacerbating a downturn.

It doesn’t have to be this way. Governments, particularly the state, could put much more into rainy day funds once the economy is in better shape. That way, once the economy does tank again, Ohio and its cities will have some money to fall back on.

But the key is to do this saving once the economy is in better shape. Gov. John Kasich has dramatically boosted Ohio’s rainy day fund to a record $1.5 billion. But is it really the best time to do that? Since Kasich took office, the state has axed local government funding by — drumroll, please — $1.5 billion, according to Policy Matters.

That represents out-of-whack priorities. Ohio’s unemployment rate is still at 7.2 percent. Cities have been forced to cut jobs almost every month. Cincinnati in particular had $22.2 million less for its operating budget this year because of state cuts.

Kasich and other Ohio officials should rethink their priorities: Solve the state’s current economic calamity first. Then start thinking about the next crisis and whether government really is too big. If done correctly, local and state governments will be able to help solve the next problem instead of making it worse.

CONTACT GERMAN LOPEZ: [email protected] or @germanrlopez