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A Failed Analysis

November 23, 2012

Nicholas Kristof has an opinion piece, A Failed Experiment, up on the New York Times site.  Read it yourself… he tells an appealing story. Here’s the money quote:

That’s how things often work in America. Half-a-century of tax cuts focused on the wealthiest Americans leave us with third-rate public services, leading the wealthy to develop inefficient private workarounds.

The Gist of his argument is:

  1. Over the past few decades “tax cuts for the rich” have defunded governments at all levels.
  2. This defunding has forced governments to reduce investments in “public goods” like infrastructure.
  3. Underfunded public infrastructure was an important cause of the widespread power outages in the Northeast, following hurricane “Sandy”.
  4. “The rich” can protect themselves by installing emergency generators, everyone else has to suffer.

All that’s missing from his narrative are facts.  The evidence points to different conclusions.

1. Here’s a post WWII chart of total Federal, State & Local government revenues (as a share of national GDP).

1950-2012 totals: Federal, state, local government revenues as % of GDP

It shows a steady growth in revenues between 1950 and 2000 followed by sharp fluctuations during the “tech bubble” recession in 2000-1 and the housing bubble “great recession” in 2008-9. Governments have not been defunded.

2. During this period, governments at every level chose to shift much of their spending from paying for things to paying for (and to) people. Spending on pay and benefits for government employees and entitlement programs where governments pay for public pensions and health care costs are the drivers of this shift.

In 1950, total spending by federal, state and local governments was 23.9% of GDP. In 2010, total government spending was 41.0% of GDP (note: total $ spent grew from $70.3 to $5,943 billion; 8,400% increase in 60 years). The growth of government is not a right wing myth. 

The two charts show what we spent it on; pensions, health and welfare are the top growers.  Defense and “remainder” are losing share. The conclusion is any underinvestment in “Public Goods” was a political choice; where to spend public funds and not a lack of public funds.

3. Unlike roads and bridges, the vast majority of the US electrical grid is not publicly funded infrastructure. It is designed, built and maintained by regulated private utilities. Most states have a public utility commission which approves power plants or major changes to the grid and electrical supply. The cost of these improvements is paid by their customers in higher rates. Regulated utilities gain influence with local politicians and get a guaranteed profit on their investments from the rate payers so normally they push for increased construction and maintenance budgets. If there’s been a failure to modernize the US electrical grid as Kristof alleges, isn’t the most likely suspect the utility regulators?

More importantly, Kristof offers no evidence that the initial power outages and subsequent slow repairs have any connection with his claimed defunding of the grid? Isn’t a better explanation that when a major hurricane makes landfall in the most densly populated part of the US, there will be substantial damage to roads, bridges, tunnels and the power grid? Despite the heroic efforts of hundreds of crews from all over the US, damage at this scale won’t be repaired in days or weeks.

4. He’s right here. Rich people have more resources than poor people. When public or private failures occur, rich people will be better prepared and more able to respond and recover. In a real world, how would it be otherwise?

How can we intelligently deal with our very real problems if our leading newspapers run opinion pieces which mislead rather than inform their readers?

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