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Robert J. Shiller, The New York Times Why have so many teachers, police officers, firefighters and other public workers been laid off since the financial crisis hit — and why are so few being offered new jobs now? From July 2008 to July 2012, the number of state and local employees nationwide fell by 715,000, according to the Bureau of Labor Statistics. The reality is actually worse than that figure suggests. The total ended up 1.31 million people below where it would have been had public sector employment simply kept pace with population growth. The situation did not improve as the financial crisis eased and the economy picked up. From March 2009 to March 2012, the nation’s total nonfarm employment increased 0.6 percent. State and local government employment, by contrast, fell 2.9 percent. It is not as if many Americans say they want this to happen. A CBS News-New York Times poll in July asked: “Looking at your local public schools, would you be willing or not willing to have shorter school days or more crowded classrooms if it meant you would pay significantly less in taxes?” Seventy-four percent of respondents replied that they were “not willing” (21 percent were willing and 5 percent were unsure). When similar questions were posed about firefighters or police officers, the percent “willing” was even lower (12 percent and 15 percent). Keeping the number of teachers, firefighters, police officers and other public employees in line with the local population seems sensible enough, even if it means higher taxes. Granted, no one likes paying higher taxes. But in this case, the result would be a more livable community and more local jobs. If state and local governments had not cut back so much, the broader economy would be stronger today. That would be true even if they had raised taxes to avoid incurring more debt. This would be a result of the balanced budget multiplier theory I have been discussing in this column, coupled with various studies of the impact of tax and expenditure changes on the zero-interest-rate economy. Why, then, did governments do what they did? One answer comes from the field of behavioral public finance, which applies psychology to the world of taxes. What actually happens with tax policy in the political marketplace may be entirely different from what we would choose if, as a community, we focused on salient questions. Bruce Ackerman of Yale and James S. Fishkin of Stanford have proposed a new national holiday, Deliberation Day. Before an election, everyone would get Deliberation Day off and be paid to attend community meetings. The idea would be to encourage communities to share information. Maybe one day. For now, however, many citizens simply are not engaged. And when that is the case, public decisions can become quixotic and arbitrary. In their 2006 book Behavioral Public Finance, Edward J. McCaffery of the University of Southern California and Joel B. Slemrod of the University of Michigan summed it up by saying that in real-world public finance, “form matters.” They were applying to public finance the psychological principle of “framing” — the notion that when people make decisions without enough deliberation, consultation and information, they are easily influenced by superficial forms and irrelevant details of presentation or wording. Read More
2012 Economic Growth Fellow
John Prestbo is retired as editor and executive director of Dow Jones Indexes. Previously he was markets editor at The Wall Street Journal. He has co-authored or edited several books over the past 30 years. The most recent is “The Market’s Measure: An Illustrated History of America Told Through the Dow Jones Industrial Average,” published in 1999 by Dow Jones Indexes. His column, Indexed Investor, appears on the highly regarded “MarketWatch” business and finance website. He received his bachelor's and master's degrees from Northwestern University.Full Bio
TARIFFIED: Trade Talk with Matthew Rooney
This week, trade relations between the U.S. and India are continuing to escalate. Earlier this month, the U.S. stopped granting India special trade privileges by taking away the Generalized System of Preferences (GSP) program, and India has responded by enforcing more tariffs of its own. The George W. Bush-SMU Economic Growth Initiative Director Matthew Rooney breaks down the trade conflict: For more information on trade groups and the global economy, visit www.bushcenter.org/scorecard.
How Trade Spreads Holiday Cheer
It is projected that the average American household will spend more than $1,000 during the holidays this year.
Deporting Salvadorans May Lead to Economic Decline
We should think carefully about a policy whose major impacts are likely to be reductions in employment and economic activity here at home, and increased instability and lawlessness along our borders.
Bush Institute's Laura Collins Talks Immigration on Good Morning Texas
Last week, Deputy Director of Economic Growth at the George. W. Bush Institute Laura Collins spoke with Good Morning Texas about immigration myths. During the interview, Collins had the opportunity to set the record straight and address common misconceptions about legal immigrants living in America today. The segment was inspired from facts released earlier this fall by the Bush Institute in the third edition of America's Advantage: A Handbook on Immigration and Economic Growth. Watch the full Good Morning Texas interview here.