In an era of government bailouts, economist J. Scott Moody says the nation is headed down a slippery slope.

With millions flooding in daily from the American Recovery and Reinvestment Act, he says money from the public sector is quickly comprising an alarmingly larger share of Oklahoma's overall economic pie. While some argue that any money is good money, the public policy consultant says there's an economic cliff somewhere in the not-too-distant future, off which Oklahoma could fall.

"At the end of the day, what happens is the public sector crowds out the private-sector activity," Moody says. "So basically, you have a situation that you kill the goose that lays the golden egg. Over time - over decades, not years - you will have a lower standard of living relative to states that have a larger private sector."

A research fellow for the Oklahoma Council of Public Affairs, Moody specializes in cross-state economic analysis.

Poring over research not only raised the eyebrows of Brandon Dutcher, OCPA's vice president for policy, but also his consciousness of a growing problem.

"It was a little surprising," Dutcher says. "I knew things were trending in the wrong direction. Having a hunch is one thing. Seeing the data is another thing altogether. It did confirm we have a problem and, in fact, it was a bigger problem than we expected."

Moody isn't arguing that stimulus dollars - or public-sector funding in the form of Medicare, Medicaid and welfare - are bad, per se. He simply cautions policymakers to keep them in check relative to their place in the economy.

"If you look at the data, there is a clear correlation between the size of the private sector and overall economic performance," Moody says.
Bottom line: If free enterprise isn't driving the economy, states become too dependent on whoever is in the driver's seat.

RANKINGS
Moody draws upon his research comparing New Hampshire and Maine, and the drastically different public-policy courses each embarked on decades ago.

"The two states are alike in so very many ways, except one, and that's the size of the private sector or corresponding size of their public sector," he says.

More than half a century ago, Maine favored the tax-and-spend approach, putting a larger individual tax burden on citizens to help pay for expanded public services. New Hampshire opted for levies and taxes on businesses - which keyed off private-sector growth - to pay its own way.

Today, Maine's share of local and state tax burden ranks it among the nation's top 10, while New Hampshire's rank near the bottom. Conversely, Moody says New Hampshire's economy is more robust than Maine's, and has largely avoided that state's economic valleys.

Where Oklahoma fits into that equation isn't appealing, he says.

Public-sector monies are defined as compensation from the government, termed as transfer receipts. Everything from Social Security to teacher pay falls into that category, and according to the latest numbers available, 20% of all income in Oklahoma comes from transfer receipts, Moody says.

To put that into comparison, he cites the national average as 17.5%; New Hampshire's is 14.6%.

"The stimulus has, for a lot of states, shot them over 20% because of the Medicaid numbers, where the federal government picked up more of the tab. This disproportionately affects Oklahoma because per-capita income is lower, and Medicaid is weighted on income scale," Moody says. "Academia generally considers that a red flag. When you look at the rankings, you see why: States over 20% aren't states you want to imitate, like West Virginia and Maine - states generally associated with lagging economies. It will be interesting to see, as we move forward, if Oklahoma will fall below or stay above that line."

He says another part of the equation is the amount of compensation for delivering public services. Government compensation to workers in Oklahoma represents 10% of all income, whereas the national average is 8.9%.

"It appears when you compare (Oklahoma) to other states, other states are more efficient in terms of their use of labor," he says. "That would be an obvious place to start finding savings, not only in terms of budget, but in overall metrics of private versus public funding."

photo Brandon Dutcher. Photo/Mark Hancock