Confusion at Billy Blog

Here we have another try at proving multipliers greater than one. Billy discovers that the cuts to government spending have been dominated by state and local goverments.

 US government sector is keeping unemployment high

The results tell us that while the investment ratio for the Federal government has declined in this period (all because of a decline in the defense investment ratio), the overwhelming fall in investment spending as a proportion of GDP have been at the State/Local level.

Confirmation bias means the author has to connect state and local spending cuts to Republican maniacs in Congress.

So the Bloomberg article’s conclusion that the culprits are local governments is accurate. This does not, however, mean that the FT conclusion that the Republican maniacs in the US Congress are to blame for slow growth in the US.

Confirmation bias in action. How to solve?

But that doesn’t really let the federal sphere off the hook. While there are significant Federal to State/Local fiscal transfers operating in the US, as there should be in a Federal system, there was a crying need in 2008-09 for increased federal spending to allow the State/Local governments to avoid the significant retrenchment of public service delivery.

Simple, just ignore the states? The entire argument is weak. Most of the cuts were started in California which nearly went bankrupt. Part of California's correction was to stop discretionary spending because California loses 25 cents on every dollar it send to DC. Discretionary spending is disruptive for California which needs every bit of government it has to cover the nearly 2 trillion in loss making operations in the government sector plus the new loss making Obamacae coming down stream. In other words. too much government programs do not work when there is this huge wart of a California economy some, three thousand miles from DC with hardly a Senate vote.