{"id":22836,"date":"2010-10-26T14:37:26","date_gmt":"2010-10-26T20:37:26","guid":{"rendered":"http:\/\/www.nmpolitics.net\/index\/?p=22836"},"modified":"2010-10-26T14:37:32","modified_gmt":"2010-10-26T20:37:32","slug":"nm%e2%80%99s-private-sector-is-crowded-out-by-the-public-sector","status":"publish","type":"post","link":"https:\/\/nmpolitics.net\/index\/2010\/10\/nm%e2%80%99s-private-sector-is-crowded-out-by-the-public-sector\/","title":{"rendered":"NM\u2019s private sector is crowded out by the public sector"},"content":{"rendered":"

\"\"<\/a>Recently, Mr. Carter Bundy, the political and legislative Director for the New Mexico chapter of the American Federation of State, County and Municipal Employees, made the unsubstantiated assertion<\/a> that New Mexico\u2019s bloated government workforce has no ill effects on New Mexico\u2019s economy. In fact, real-world economics shows that New Mexico pays a steep economic price in lower personal income for its inefficient government workforce.<\/p>\n

Fundamentally, personal income \u2013 as defined by the bean-counters at the U.S. Department of Commerce\u2019s Bureau of Economic Analysis (BEA) \u2013 comes from two sources: the private sector and the public sector. More specifically, the BEA defines public sector spending as personal current transfer receipts (Medicare, Medicaid, Social Security, etc.) and government employee compensation (federal, state and local). All else is considered to be in the private sector.<\/p>\n

The distinction between the two sectors is important because only the private sector creates new income. The public sector, in contrast, can only redistribute income through taxes and spending. The end result is that the public sector crowds out the private sector.<\/p>\n

Of course, this is not a new phenomena. The crowding out of the private sector has been going on for a very long time. Based on the BEA data, in 1929 (the first year of available data), New Mexico\u2019s private sector accounted for 87.2 percent of all personal income earned in the state. Eighty years later in 2009, the private sector share had fallen by nearly one-third to an all-time low of 58.9 percent of personal income \u2013 the 5th smallest private sector in the country.<\/p>\n

The private-sector share matters<\/h3>\n

<\/p>\n

In the long run, a state\u2019s private-sector share matters a great deal. States with larger private sectors grow faster over time than states with smaller private sectors. For example, let\u2019s compare two states that are virtually identical in every way except for the size of the private sector \u2013 New Hampshire and Maine.<\/p>\n

In 2009, New Hampshire had the largest private sector (75.7 percent) and the 14th highest per household personal income ($111,402) whereas Maine had only the 41st largest private sector (63.6 percent) and the 41st higher per household personal income ($88,261). As such, New Hampshire\u2019s per household personal income is 26 percent higher or $23,141 thanks to a more vigorous private sector.<\/p>\n

Like Maine, New Mexico has also paid an economic price for its small private sector. In 2009, New Mexico\u2019s average household income was $89,940, which is the 13th lowest in the country. In contrast, neighboring Texas has the 7th largest private sector (73 percent) and, correspondingly, the 12th highest per household income ($112,016).<\/p>\n

New Mexico\u2019s bloated government workforce plays a significant role in crowding out the private sector. In 2009, New Mexico\u2019s state and local governments spent $8.7 billion in payroll (wages and salaries and benefits), which amounts to 12.4 percent of all personal income earned in the state \u2013 the 2nd highest in the country. The national average was a much lower 8.9 percent.<\/p>\n

If New Mexico\u2019s payroll for the state and local government workforce was trimmed to the national average, it would save taxpayers a whopping $2.8 billion, dropping to $5.9 billion from $8.7 billion. Those savings from reducing the government workforce would amount to $3,731 for every household in New Mexico.<\/p>\n

More importantly, in 2009, New Mexico\u2019s private sector would be 7 percent higher, jumping up to 63 percent from 58.9 percent. Our research finds that, on average, a 1 percentage point increase in the size of the private sector yields an increase in household income of $2,617. That means, in the long-run, the average household in New Mexico would see their income climb by $10,857 ($2,617 times 4.1 percentage points). With this extra income, New Mexico\u2019s per-household personal income would have ranked as the 23rd highest, rather than as the 13th lowest.<\/p>\n

Clear evidence<\/h3>\n

Overall, despite Mr. Bundy\u2019s wishful thinking, New Mexico is poorer thanks to its bloated government workforce. Not only would the average household save $3,732 in taxes per year with a right-sized government payroll, but over the long-run they would also have another $10,857 in personal income to spend on goods and services such as homes, cars, education and health care.<\/p>\n

The economic evidence is clear; a larger private sector means more jobs and higher income for all of New Mexico\u2019s residents, not just those lucky enough to be employed in the public sector.<\/p>\n

J. Scott Moody and Wendy P. Warcholik, Ph.D. are adjunct scholars with New Mexico\u2019s Rio Grande Foundation<\/a>. The Rio Grande Foundation is an independent, non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

The economic evidence is clear; a larger private sector means more jobs and higher income for all of New Mexico\u2019s residents, not just those lucky enough to be employed in the public sector.<\/p>\n","protected":false},"author":1797,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1192,16],"tags":[118,107],"class_list":["post-22836","post","type-post","status-publish","format-standard","hentry","category-commentary","category-guest-columns","tag-economy","tag-roundhouse"],"_links":{"self":[{"href":"https:\/\/nmpolitics.net\/index\/wp-json\/wp\/v2\/posts\/22836","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/nmpolitics.net\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/nmpolitics.net\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/nmpolitics.net\/index\/wp-json\/wp\/v2\/users\/1797"}],"replies":[{"embeddable":true,"href":"https:\/\/nmpolitics.net\/index\/wp-json\/wp\/v2\/comments?post=22836"}],"version-history":[{"count":0,"href":"https:\/\/nmpolitics.net\/index\/wp-json\/wp\/v2\/posts\/22836\/revisions"}],"wp:attachment":[{"href":"https:\/\/nmpolitics.net\/index\/wp-json\/wp\/v2\/media?parent=22836"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/nmpolitics.net\/index\/wp-json\/wp\/v2\/categories?post=22836"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/nmpolitics.net\/index\/wp-json\/wp\/v2\/tags?post=22836"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}