The decline in public investment at the state and local levels

Matt Yglesias has the scoop, and here is his chart:


You can think of that as another way of viewing the lost economic decade of the oughties.


Maybe I'm missing something, but it doesn't look like a decline and it is in constant dollars.

Do you realize how much the economy has grown since 2000? Having a flat level of investment over that time frame IS a decline.

It is a decline, but 2000 is a year of horribly 'exaggerated' GDP. We could still be above the optimal trend line in investment. An 8% decline is huge but it's also small compared to YOY declines in spending in programs within multibillion dollar revenue companies. You can understand how this implies that government spending is sticky in the same way wages are.

So we are pretty much going to be Somalia then?

No, more like France.

I agree. Here's the state and local line as a percent of GDP:

This chart does not agree with the headline (even leaving aside the fact that expenditure and investment are commingled). If his point was that investment had declined, he should have provided some support for that. It baffles me that Tyler (a very sharp fellow) sees MY and EK posts as having some value.

I think Tyler is being clever with the headline

That was my take too. At first I was thinking there was no decline, but then I realized that was the point.

I didn't think of that. So Tyler is goofing on Mr. Church?

The oughties gave it away.

"Consumption expenditures AND Gross investment" sounds like taking a minus and adding it to a plus.

It's interesting that the inflection points begin after the recessions.

Ha! I was going to make some joke about Federal investment being zero by definition. Then I noticed it IS zero.

MY makes the excellent point that state and local governments are a bigger driver of investment than the federal government. Unfortunately the series in his graph are apples and oranges. SLCEC96 includes both consumption expenditure and investment. NDGIC96 is investment only. This is plainly stated in the titles for the series. You can look up details here:

Thanks, good points.

This is what happens when you let philosophers write about economy.

Asking economists to write about philosophy is marginally more dangerous.

Here it is using a more apples-to-apples comparison with real gross investment for both:

It seems to me that mere local politicians are seriously out of their depth when dealing with these faceless international "bankocrats". Politicians come from all walks of life and would be unlikely to pass a job interview for most jobs. How many of them are qualified as economists or international lawyers or sociolologists? (In countries which have constitutions, very few of them have actually read it. And most of them spend more time in the make-up department of the television studio than anywhere else!) Yet we happily hand over the reins to them to take big decisions in these fields every day. It's becoming clear that politicians and administrators should look elsewhere to make up for the competencies they lack. They should turn to professional economic crisis specialists, as already happens in the US. For example, the Orlando Bisegna Index, specialists in the economic crisis, apart from measuring the intensity of the econonomic crisis in many countries, have helped various counties with debt problems, business failures and unemployment, thus improving the economic condition of many families...

I suspect most politicians are qualified to be sociologists.

This is here nor there, but just want to point out that that exact same comment appears on 3 other blogs posts elsewhere on the web. Keith Humphrey recently made a point about "spray-paint" comments over at and for some reason I decided to google the above comment, and there you go.

Government employees have captured the local governments. Many small towns have seen their workforce unionize. Many, many local governments, particularly in blue states, have absolutely unsustainable finances. If they were a company you would be looking for the moment to buy puts and short them. Labor has grown to consume the investment portion of the budget. I speak from first hand experience having served in a financial capacity for local government. Every year the pension, healthcare and salary costs chew up more of the budget, and there is less and less money to fix potholes and do basic building maintenance and capital investment. Major capital projects were delayed all through the 2000s, with major costs building up and potentially hitting crisis levels if something ever breaks.

One way to reconcile what you're saying to what's seen in the blue line above is to say that the amount of money being spent is roughly the same as 10 years ago. Of course, during that decade many things cost more (in real terms), especially things like healthcare. So, if the overall amount of funds isn't increasing, but something like health care costs are definitely increasing, then something has to get pushed out of the budget. That, or you'll have to spend more.

Not to be grumpy, but this post and the original one exemplify the reason why economic writers are so frustrating ... slap some lines downs (one of the more fugly FRED charts I have seen on a blog in a while) and then start making big statements. I agree with Yglesia's point that the spending and investment of state and local government is given too little attention. Maybe site some of the thoughtful research on how S&L are different in their revenue streams (there's a reason not a huge pick up in spending in the 2000s)? Or how about the research showing the effects of the S&L is some of the most promising in this cycle. Don't put up some apples and oranges lines with no real discussion.

Two substantive points: 1) these two line are not completely independent (national politics have spillovers), so I doubt we want to shift too much focus off the federal line...the federal changes might tell us something about S&L changes that are in train. 2) small sectors in levels can still be very important for trends/cycles: motor vehicles is less than 5 percent of personal consumption expenditures but it is about a quarter of variation in PCE growth. some of that is noisy in timing, but it also shows turning points more noticeably and quickly than other spending sectors.

To recap: I agree, think more about S&L. I agree the 2000s need more study ... please, please make a better graph next time.

please, please make a better graph next time.

Why don't you give it a shot and post one? Not trying to be gratuitously sarcastic but frankly I'm confused as to what's wrong with the current graph?


It should be mandatory for economic journalists to read Andrew Gelman's blog to learn about making better graphs and figures.

The FRED data is free, so you can download it and make your own, better graph.

The other issue: ''Collapse''? I think Yglesias needs to go back to a dictionary.

Tyler is a hobbyist, not a journalist. He's doing you a favor by providing the information he does. You want better charts, pay for them.

It's just very easy to create and link to a graph from FRED. For a blog post that'll likely be all but forgotten in a few days, I can't blame people for using FRED. Making a prettier graph isn't hard, but it'll take way more than the 60 seconds it takes to do it with FRED.

Well, obviously it is falling because states and localities have been savagely cutting tax rates everywhere.

And another drag on growth in the next decade.

Can we please stop using the word "investment"? Spending is what is down.

And, can we stop pretending that spending is the same thing as achieving benefits? Show me numbers that test scores are declining, or crime is up, or communicable diseases from inadequate water supplies and sanitation is up, and I'll pay attention.

I'm in the private sector, and if our business is reducing how much it is spending, frequently that is a good thing.

Investment would be my preferred word for spending on infrastructure. And when we're all stuck in congestion because investment is down, that's a bad thing.

If we are talking about declining state and local investment spending, then why is the chart investment and consumption?

If we looked at state and local gross investement we would see that it is about 10% of private investment.

Hi there just wanted to give you a quick heads up and let you know a few of the pictures aren't loading correctly. I'm not sure why but I think its a linking issue.

I've tried it in two different internet browsers and both show the same outcome.

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Much of the discussion above assumes the chart is in nominal dollars. Yglesias says it is inflation adjusted in his post.

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