About one-third of the money in the Obama Democrats' 2009 stimulus program went to state and local governments. The obvious aim was to maintain levels of public sector employment -- and public sector union membership. That aim was realized in the short run; as stimulus funds ran out, public sector employment and public sector union membership declined.
There was obviously a political motive at work here: to pump money into the public sector unions, which in turn pumps money into the Democratic party and Democratic candidates. But a policy argument was advanced as well: Maintaining public sector employment would tend to increase, or at least maintain, aggregate demand, and thus stimulate economic growth.
The tepid growth of the Obama first term tends to refute the policy argument. You can't get an economy to grow by maintaining public sector payrolls. Now from Britain comes evidence that you can get economic growth -- and increased private sector payrolls -- if you cut public sector payrolls, as the coalition government of Conservative Prime Minister David Cameron and Chancellor of the Exchequer George Osborne have done. Fraser Nelson of The Spectator hasan illuminating graph on what has happened in Britain. Public sector employment from 2008 to 2013 is down more than 300,000, while total employment is up by 300,000, thanks to a nearly 600,000 increase in private sector employment.
So much for the Labour party’s denunciation of the coalition’s “austerity” policies. Labour’s Gordon Brown, as Chancellor from 1997 to 2007 (when he had an unusual degree of control over domestic and macroeconomic policy) and as Prime Minister from 2007 to 2010, presided over a massive increase in public sector employment. Britain was blessed was an increasing army of administrators, facilitators and liaisons. One suspects that they spent much of the time emailing each other and setting up and attending meetings with no measurable impact on society. In any case, the coalition government took the axe to much of the public sector, and the administrators, facilitators and liaisons do not seem to be much missed.
The lesson seems to be, as Nelson’s piece puts it, “Smaller state means more jobs.” Not conclusive proof, to be sure, but an interesting development certainly, and maybe a good lesson for the United States.