Cutting Your Way to a More Sluggish Recovery

Mark Price |

New data on consumption spending from the Bureau of Economic Analysis further illustrates that Pennsylvania has cut its way not to prosperity, but to a more sluggish recovery.

As illustrated in Figure 1 below, the growth of consumer spending (per capita personal consumption expenditures) was greater than the national average in Pennsylvania from 2009 to 2011.

This early strength consumer spending was, in part, due to a relatively less severe recession in Pennsylvania and an unemployment insurance (UI) system that covered more workers and replaced more lost income than was typical in other states. These advantages helped fuel consumer spending in Pennsylvania that was above the national average during those years.

The 2011-12 state budget included deep cuts in education spending that ultimately resulted in the loss of 20,000 jobs in the education sector, which is roughly the equivalent of closing 40 factories.  Such high job losses played a critical role in depressing consumer spending and that, in turn, substantially slowed further job growth in the Commonwealth.

It’s also important to note that substantial cuts in corporate taxes also were enacted over these years, and the data suggest that those cuts did not boost job growth or consumer spending. Also, the share of lost income replaced by the Pennsylvania UI system was reduced starting in 2013 by Act 60, which cut unemployment benefits and eligibility to the tune of $300 million a year. So we’re less well positioned to come out of the next recession strongly.