Expressing his Keynesian view of the economy, Federal Reserve Board Chairman Ben Bernanke said this yesterday:
While the weakness of the housing sector and continued financial volatility are two key reasons for the frustratingly slow pace of the recovery, other factors also may restrain growth in coming quarters. For example, state and local governments continue to tighten their belts by cutting spending and reducing payrolls in the face of ongoing budgetary pressures…
Mr. Bernanke made a boo-boo. Overall state and local government spending has not been “cut” any year in the last decade. In recent years, spending has been flat at about $2.2 trillion, but it has not been cut.
I think the Keynesian formulation that government spending equals economic growth is bizarre. But even if true, Bernanke’s concern that state and local governments aren’t profligate enough is strange because spending is up about 60 percent over the last decade, as shown in the chart below. The chart shows “total expenditures” for state and local governments from BEA Table 3.3. The figure for 2011 is the 2nd quarter value, which is up 3.1 percent over 2nd quarter 2010. So, despite Benanke’s claim, spending is (unfortunately) growing again.