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Secondary Sources: State Growth, India, Keynesian Reagan

A roundup of economic news from around the Web.

State Growth: Ryan Avent creates some nice charts showing changes in GDP over the past decade and in the wake of the recession. “One trend that shows up here but becomes clearer when you look at the full data is that the period from 2001-11 was very good for the Plains, the West, and the Mid-Atlantic and not very good for the Midwest, the South, and the Northeast. The view changes a bit if you adjust the numbers to look at real GDP per capita. It then becomes clear that population shifts have a lot to do with these trends. On a per capita basis, the West and the Northern Plains still look strong, but the performance in the Southern Plains and the Mid-Atlantic look less impressive. In per capita terms, the South and Midwest look really awful (which suggests, for the latter anyway, that the wealthier residents may be comparatively mobile and more likely to leave). The Northeast, on the other hand, had a solid decade on a per person basis.”

India: Raghuram Rajan asks why India is underperforming so much relative to its potential. “That election suggested a need to spread the benefits of growth to rural areas and the poor. There are two ways of going about that. The first, which is harder and takes time, is to increase income-generating capabilities in rural areas, and among the poor, by improving access to education, health care, finance, water, and power. The second is to increase voters’ spending power through populist subsidies and transfers, which typically tend to be directed toward the politically influential rather than the truly needy. In the years after the BJP’s loss, with a few notable exceptions, India’s political class decided that traditional populism was a surer route to re-election. This perception also accorded well with the median (typically poor) voter’s low expectation of government in India – seeing it as a source of sporadic handouts rather than of reliable public services.”

Keynesian Reagan: Paul Krugman compares spending under President Obama to President Reagan. “Why was government spending much stronger under Reagan than in the current slump? “Weaponized Keynesianism” — Reagan’s big military buildup — played some role. But the big difference was real per capita spending at the state and local level, which continued to rise under Reagan but has fallen significantly this time around. And this, in turn, reflects a changed political environment. For one thing, states and local governments used to benefit from revenue-sharing — automatic aid from the federal government, a program that Reagan eventually killed but only after the slump was past. More important, in the 1980s, anti-tax dogma hadn’t taken effect to the same extent it has today, so state and local governments were much more willing than they are now to cover temporary deficits with temporary tax increases, thereby avoiding sharp spending cuts. In short, if you want to see government responding to economic hard times with the “tax and spend” policies conservatives always denounce, you should look to the Reagan era — not the Obama years.”

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