Thursday, August 7, 2014

New data proves Act 10 hurt Wisconsin's economy

Today's release of the Bureau of Economic Analysis' survey of personal consumption expenditures by state would generally be a mundane bit of data. But not this time, because this report offers strong proof that Act 10's reduction of take-home pay had a negative impact on Wisconsin's economy, by having the reductions in take-home pay for hundreds of thousands of public employees lead to fewer items being bought.

This report featured revisions and refined data for 1997-2011, and also included 2012 for the first time. This is key from Wisconsin's standpoint, as Act 10's reductions in take-home pay for state employees didn't start until late Summer 2011, and didn't hit many other public employees until their bargaining agreements expired at the end of 2011. So if Act 10 had an effect on consumption spending, we'd especially see it in 2012.

Well, let's go to the data.

Dead last in the Midwest, and not by a little. Wisconsin's 2.8% increase in 2012 was 0.5% below the next-lowest Midwestern state (Michigan at 3.3%) and nearly 1/3 lower than the U.S. increase in consumption of 4.1%. This put Wisconsin in the bottom 5 in the U.S. for slowest increase in consumption in the first year after Act 10.

Bottom 5, change in consumption spending U.S., 2012 vs 2011
46. S.C. +2.81%
47. Wis. +2.81%
48. Maine +2.80%
49. R.I. +2.5%
50. Miss. +2.5%

And it's not a function of the Midwest's slower-than-the-US's population growth either. Wisconsin's consumption increase per capita was only 2.5% (vs. 3.3% in the U.S.), which was also dead last in the Midwest and bottom 5 in the country.

And lest you think that Wisconsinites are just really good savers, the report mentions that the 1997-2012 average increase in consumption expenditures in Wisconsin was 4.5%, not far off of the U.S. average of 4.8%. And it's not just a Great Recession slowdown in consumption expenditures, as Wisconsin went from the 2nd-largest increase in the Midwest for consumption per capita in the 3 years before Scott Walker took office in 2011, down to the bottom after Scotty "dropped the bomb" with Act 10.

Change in per capita consumption expenditures 2007-2010
Iowa +5.23%
Wis. +3.86%
Ohio +3.31%
Ind. +2.72%
Ill. +2.63%
Mich +2.50%
U.S. +1.95%
Minn +1.40%

Change in per capita consumption expenditures 2010-2012
Iowa +8.84%
Ind. +8.69%
Ohio +8.49%
Minn +8.01%
Mich +7.97%
Ill. +7.72%
U.S. 7.69%
Wis. +6.74%

Beyond the reduced take-home pay for the hundreds of thousands of public employees (and choices that had to be made in addition to lower consumption), let's talk about the effect of this lower consumption in 2011 and 2012. A 1% increase in total consumption expenditures in 2012 Wisconsin would come to nearly $2 BILLION (not million, as I had earlier, I misread the BEA chart) , which is what shops and restaurants and other Wisconsin businesses would have been getting if the state had merely kept up with the lower-than-Midwest U.S. pace. And quite a bit of that $2 billion would likely have been reinvested into purchasing more goods and services, and possibly hiring more employees, making the cuts in consumption during the Walker years a whole lot more damaging than just $2 billion.

That cutting out of consumption did a whole lot than any increase that came from the $5-$10 a paycheck tax cut that the average Wisconsinite got from the GOP Legislature - from a one-time surplus that came in no small part from the "savings" of Act 10. That surplus is now gone, with up to $2 billion in deficits looming for the next budget, which makes another cycle of cuts in services and higher taxes more likely in future years, which would likely reduce consumption even more. So how can anyone look at the clear drop in economic activity caused by Act 10 in Wisconsin and still think that kind of austerity is a good plan for growing an economy?

Because growing the economy is not the plan for Walker and his Koch backers. Instead, it's about making the vast majority of us destitute and having to work for peanuts while the rich and connected few hoard the extra profits for themselves. Any increase in jobs and prosperity for us 99%-ers is merely a coincidence.


  1. Great post. Pretty sure an economist at UW predicted something like 20,000 jobs that could have been created would be lost due to the economic effects of Act 10. This new report only verifies that Walker's policies are hurting growth in our state. What growth we HAVE seen is likely despite, not due to, Gov. Walker's "reforms."

  2. Thanks Chris. It's absolutely in spite of Walker's policies that we've created jobs, as the 66,000 "Walker jobs gap" shows. And the lack of consumer spending and lower sales and income tax that results also goes a long way toward having our budget go into deficit.

    It was entirely predictable, and the idea that lower public spending gets offset by higher private sector activity seems to be mostly BS, especially in a time of less-than-full employment and low interest rates.