Krugman and the retrenchment of local government

What he ignores in particular is that state and local governments have been on a hiring spree since the Reagan years and that employee head count and expenditures, especially for items like pensions and health benefits, have soared relative to the growth of the population that government serves. One result is that local government in America was headed for an inevitable retrenchment and that federal stimulus, like the $200 billion that Washington sent states' way in 2009, only put off the day of reckoning.

Krugman says that if local government were growing at the rate of the Reagan recovery we'd have some 1.3 million more "schoolteachers, firefighters, police officers, etc." To Krugman it seems inconsequential whether we need those additional 1.3 million government workers.

In education, for instance, our public schools have been hiring robustly for years, and we've doubled education spending in real terms since the Reagan recovery. In 1980, our schools employed 1 teacher per 18.7 students, and today they employ 1 per 15.5 students. Schools have hired non-instructional support personnel at an even faster rate, going from 1 worker per 15 students in 1980 to 1 per 10 today.

School budgets have soared as a result, placing an increasing burden on taxpayers. In 1980 we spent $6024 per pupil (in current dollars) on public education; today we are spending $10,667, a substantial gain in real spending.

Cops are another area were localities have bulked up. Starting in the late 1980s and early 1990s police departments accelerated hiring in response to rising crime. From 1992 through 2008, according to the Department of Justice's Census of State and Local Law Enforcement Agencies, law-enforcement hiring soared by one-third, to more than 1.1 million. That  outpaced the country's population increase in the period so that the ratio of law-enforcement personnel relative to the general population increased by 12%.

Many of those gains were never meant to be permanent. New York City increased its police force during the 1990s by perhaps 15 percent as it battled crime. But as crime declined to historically low levels, the city then began after 2001 slowly shrinking its police force. Today, it's back down to about early 1990 levels.

In addition to the additional hiring, states and cities enriched pension plans and invested heavily in health care benefits, so that those costs have eaten away at budgets, crowding out other spending and gobbling up increases in tax revenues. In New York City, for instance, pension costs alone have grown from 3 percent of the budget in 2000 to about 15 percent of the budget today. The city of Stockton, California, facing bankruptcy, has seen its pension costs grow to more than a fifth of its budget, while health benefits alone consume nearly another 20 percent.

In a report in 2010 the National Governor's Association said that states and cities faced a new fiscal reality thanks to the severity of this downturn. "Unfortunately, this downturn does not resemble a normal business-cycle recession," the group noted. Indeed, four years after the financial meltdown, state and local tax collections in some places still have not recovered to their pre-recesssion levels. Meanwhile, costs, including employee costs, have continued rising.  The retrenchment many governments are now undertaking is in response to that new fiscal reality. Washington, buried in its own fiscal problems, could only do so much to help.