Monday, July 13, 2009

Does MN government spending buck the trend? 

At Division of Labor, Frank Stephenson points to a graph from the Economist, which tries to make the point that state governments are not spending enough. Scott Beaulier adds that "The scale on the Y-axis is suspect and implicitly makes positive state budget spending [growth] look like the desirable, normal outcome!" Well, one will claim, particularly if one is a DFL legislator, that you haven't fixed this for inflation. So I thought I would, just for Minnesota. (Source data.)
This is not just for state level spending but for ALL levels of government spending except federal. So if there's a shift between state and local, the effect is a wash. Had The Economist graph been adjusted to inflation, I think the pictures would be similar.

As a share of state GDP, sub-national government spending has stayed between 18-21% since 1992, and the DFL-passed spending bills are estimated to put that number a bit above 20% in the next biennium. Worth noting is that the unallotment planned by Governor Pawlenty represents only a half of a percent decline in that number. The graph below assumes no compensating changes by local governments or school districts in driving up taxes to replace lost revenue from state government. State real GDP is forecast to rise by 2.4% in 2010 and 3.8% in 2011.

It is normal for that number to rise during a recession, as government spending doesn't tend to fall as much as GDP when recessions happen. But to argue, as many do, that we're somehow starving government in Minnesota is not borne out by the data. Real spending still rises even with unallotment, though more in line with the restricted spending in the first years of the Pawlenty Administration than the 3.5-4% per year wishes of the DFL. I don't recall seeing people dying in our hospitals or our kids getting stupid then.

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