(WNY) Recent WNY-WJ content showed total government employment down in the Buffalo-Niagara Falls, NY area since the recession, suggesting evidence locally for the now-discredited policy of austerity – where government spending is slashed in the hope of improving economic performance through lower deficits. This new evidence is more direct. It is an index – where 100 is the level for 2007, for the inflation-adjusted level of government’s contribution to the area’s GDP (solid black line for the Buffalo area) from 2007 through 2011. For comparison, the index for all metro areas in the US is included (dashed black line), as well as an index for total government spending on consumption and fixed investment for the whole US (solid gray line, available through 2012).
While 2012 data for the Buffalo area and all metro areas combined is not yet available, it is probably safe to assume that when government spending for the whole US economy dropped in 2012, that it did as well here. Either way, there is a clear drop in in 2011 for the Buffalo area, which is exactly what the current policy debate about austerity concerns. Because the Buffalo metro area is not particularly large economically, austerity elsewhere in the US (the solid gray line from the chart) will tend to have greater influence over the economy on the ground here as well.
The year 2010 is significant, because it is the year when the now-discredited policy of austerity came to ascendancy in political debate. Previously, through mid-2009, most advanced economies were pursuing fiscal stimulus as policy. That changed when budget hawks began claiming that government debt-levels were “unsustainable”. The debate switched in the US from providing support to a fragile private-sector economy to an alleged budget crisis at the federal level – serving to reduce government support to the economy after 2010, while in much of Europe an active policy of austerity was implemented. Each day more released data prove the shift to austerity a mistake.
During a time of poor economic performance due to an inability of the private sector to optimally allocate resources (labor, capital, technology, and nature) – a time of market failure, government spending can serve to “bridge the gap”, allowing for a smoother path of both output and employment that is closer to the economy’s full potential. Instead, we see a weak argument bolstered by shoddy analysis was used to support a failed policy of austerity.
Labor and working families require good policy from its elected government, rather than back-room deals and a “pay to play” political culture that delivers policy supporting wealthy special interests. Let’s hope recent reporting of both austerity’s widespread failure and NYS political corruption serves as a warning to government officials that citizens are growing wise to their ways.