Poor Growth in Wyoming Exposes Problem with Big Government

by Wyoming Liberty Group Staff

On May 1 the Bureau of Economic Analysis released the final GDP numbers for the states for 2018. It is not a very pleasant read for us here in the Cowboy State. Year to year, our economy ended up in 49^th place among the states; we only beat Alaska. All other states did better than us.*

Utah and Idaho are running away with our lunch: both states exceeded four percent growth, with Colorado a close third. Montana, Nebraska and South Dakota reached into the 1-1.5 percent bracket, while we did not even grow at 0.3 percent.

But what is even worse is that over the long term, our economy is lagging behind the entire country. From 2008 to 2018, adjusted for inflation,

• The U.S. economy in total grew by 19 percent;
• The Utah economy was 27 percent bigger and Colorado 26 percent;
• Nebraska's GDP expanded by 20 percent and Idaho gained 17 percent;
• South Dakota and Montana ended up in the teens, with 16 and 12 percent, respectively.

Wyoming ranked last in the country, as one of four states in the league of shrinking economies: Louisiana -2 percent from 2008 to 2018; Mississippi -3 percent; Connecticut -7 percent; and… yes… Wyoming -10 percent.

In other words, in 2018 we ended up only second worst, while the ten-year record puts us dead last.

The deplorable performance of the Wyoming economy is due in part, of course, to the minerals industry. In 2018 their production contracted by 2.5 percent in real terms. Since they account for almost 28 percent of inflation-adjusted GDP, a decline of that size will of course be felt in the economy overall.

At the same time, we have a surprising addition to the GDP contraction in the form of reduced government spending. From 2017 to 2018, total government in Wyoming – federal, state and local – reduced its consumption and investment spending by 2.74 percent. We do not yet have reliable, disaggregated data to see exactly where that contraction took place, which means that we cannot yet determine if this is a permanent change or the result of a temporary dip. In the past four years, though, there has been a small decline in state and local government spending (not counting entitlement payments), suggesting that the 2018 numbers may originate there.

The government numbers actually illustrate a major problem in our state's economy. At almost 14 percent of GDP, government is our second-largest industry. When we reduce spending in government, it therefore has a visible impact on GDP. The deeper our state government digs itself into the deficit hole in its budget, the more it is going to pull the economy down with it.

Does this mean we cannot reduce the size of government? No, that is not the conclusion to draw. We can indeed shrink government – and we must. The problem lies instead in how government spending is reduced: we maintain all functions of government intact, just try to economize them a little bit to fit inside a narrower tax base.

It's a little bit like putting Cinderella's step sisters in charge of our government finances.

The more government cuts spending but maintains that it can still do everything it has promised us, the more government is going to pull our economy down with it. Reductions in government spending do not open up alternatives for the private sector.

For example, if we did a school-choice reform that actually opened up a private market for K-12 education – one where kids from all socio-economic backgrounds could benefit – we could see the creation of new economic activity worth up to $400 million per year (in current prices). While the cost of government schools would decline, private schools would fill the gap.

That does not happen today, because when government spending declines, it does not give up any space in the economy for the private sector to step in. If, on the other hand, reductions in government spending came with reforms to replace government functions with private solutions in, e.g., education and health care, our economy would do much better than is currently the case.

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*) Preliminary calculations based on non-revised 2017 numbers put Wyoming last. Revised 2017 numbers made marginal changes to those numbers, to our state's advantage.