Budget & Tax
| October 27, 2009
'Stimulus' spending crowding out private sector
On October 16 the U.S. Department of Commerce's Bureau of Economic Analysis released its latest data on personal income. In the 2nd quarter of 2009, Oklahoma's private share of personal income plummeted to 62.9 percent-down from 64.6 percent in the 1st quarter of 2009 (see Chart 1). For more information on how the "private sector" is calculated, see this OCPA article.
It's not just Oklahoma's private sector that has been shrinking, but the whole country's. Of course, that points to the culprit-the Bush and Obama federal "stimulus" packages. In particular, the Obama stimulus can be seen in its effect on personal current transfer receipts, which has grown tremendously in recent quarters-$23,351 billion in the 4th quarter of 2008 to $24,443 billion in the 1st quarter of 2009 and to $26,308 billion in the 2nd quarter of 2009.
Whatever the merits of the stimulus package, they must be counter-balanced by the severe crowding out of the private sector which will reduce long-term economic growth. Hopefully, this crowding out is temporary, but that hinges on whether or not states decide to pick up where the stimulus leaves off, especially in regards to the Medicaid expansion. This data strongly suggests that the best course of action is to let the stimulus lapse and let the private sector rebound.