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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

November 19, 2010 at 10:05 AM

The recessionary feedback loop of sick state finances, weak start-ups

A continued drab “recovery” means less tax dollars means more cuts to state government means more of a drag on recovery. That’s one of the feedback loops holding back both Washington and America’s economy. It may get worse as federal stimulus, much of which went to covering state shortfalls, winds down with no prospect for Stim 2.

It could have been worse, according to a new Commerce Department report. Washington’s GDP fell 0.7 percent between 2008 and 2009, while the U.S. figure was a drop of 2.1 percent. Oregon: down 2.4 percent; Idaho, 3.1 percent. Sunbelt states without the oil riches of Texas performed poorly, with Arizona down 3.9 percent; North Carolina, 3.2 percent; South Carolina, 2.5 percent; Nevada a stunning 6.4 percent.

The performance had little to do with tax policy and government size than the composition of the economy and a world still hungry for commodities. Farm, mining and energy-rich states did better (helped by federal subsidies) in a crash centered in finance and real estate. Modest population size also seemed to help in some cases. Washington’s diversified economy helped it avoid a worse fall.

States have yet to see help from the supposed engine of job creation: Small business. The Labor Department says companies with fewer than 100 employees saw net job losses from last December to March of this year. (The same dynamic held for firms with 1,000 or more

employees). Ominously, the report indicates fewer companies are starting up compared with those closing. The Wall Street Journal has a deeper analysis here.

Today’s Econ Haiku:

Wall Street’s banner year

Rich new partners at Goldman

Tumbleweeds out here

Comments | More in Great Recession, Jobs/Unemployment, Outlook, State fiscal conditions

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