Reminder: The Private Sector is Not “Doing Fine”

Daniel Doherty

2/9/2013 10:30:00 AM - Daniel Doherty

Remember when President Obama was justifiably criticized for saying that the private sector was “doing fine” last summer when tens of millions of Americans were struggling to find work and the national unemployment rate languished above 8 percent? This was a stunning admission. And Republicans, for their part, did something right for a change by taking advantage of the president’s blunder. However, according to AEI’s Aparna Mathur and data compiled by the Bureau of Labor Statistics, the only workers who seem to be “doing fine” nowadays -- that is, enjoying a relative high level of employment and job security -- are those whom work in government (via Jim Pethokoukis):

Public sector workers, particularly those involved in education, have an important role to play in the economy. In most states, they account for about 14 percent of all jobs. But real economic growth has to start in the other 86 percent of the economy, where most workers earn their living. Indeed, private sector employment is important if even for the simple fact that state and local tax revenues fund public sector salaries.

As of January, the unemployment rate for those classified as government workers by the Bureau of Labor Statistics is only 4.2 percent, compared to 8.6 percent unemployment in the private sector. Clearly, if we care about economic recovery, we should focus our efforts at combating the specter of private sector unemployment. In a study of data from 1939 to 2008 the economist Valerie Ramey concluded that an increase in government spending typically causes private spending to fall significantly.

That should mean that the current recession-driven cuts in public expenditures may be exactly the stimulus needed to get the private sector on the road to recovery.

Stunning. Mathur notes, of course, that while government workers play an integral role in our society, it is the private sector that ultimately spurs economic growth and creates the vast majority of U.S. jobs. The government’s role, then, should be both limited and hands-off, allowing small businesses and job creators the freedom to take risks and expand. How? Well, for starters, by not wasting vast sums of borrowed money “stimulating” the economy. That same tired policy failed the last time it was implemented. Meanwhile, the president reportedly doesn’t even acknowledge that we have a spending problem, and yet according to one distinguished economist (see above), Washington’s unprecedented addiction to spending is precisely why the private sector unemployment rate remains so high.

Perhaps we should try a different approach, then -- one that, say, cuts rather than increases government spending and thus incentivizes business communities to do what they do best: invest in the economy and create jobs. Just a thought.