Since Mr. Obama took office, 780,000 private sector jobs have been created, while the number of public sector jobs has fallen by about 600,000, mostly at the state and local level. A quick look might suggest that we need only to bolster the number of public sector jobs to have a healthier economy, but there is a deeper way to think about the problem.

State and local governments are controlled by politicians and, indirectly, by voters. And for better or worse, those voters have lost faith in the social returns of these jobs and our ability to afford them. The voters have responded by looking to cut expenses, and they’ve chosen state and local government employment as a target.

During the financial crisis, the prices of stocks, homes and other assets all fell, leaving the American public feeling less wealthy. In fact, the Federal Reserve reported last week that the crisis had erased almost two decades of accumulated prosperity for a typical family. . . . Feeding the fears today are the crisis in the euro zone, the slowdown in China and political polarization at home.

In short, there is a prevailing sense that we are simply not as safe, financially speaking, as we used to be. The productive capacity of the economy may appear largely intact, but the perceived risk is significantly higher.

Should state and local government jobs be such a low priority? There is considerable disagreement on this issue, but voters in most states have hardly been screaming to have those fiscal decisions overturned. Indeed, voters in San Diego and San Jose, Calif., chose earlier this month to sharply reduce pension benefits of city workers. Clearly, the decline in perceived wealth has brought a new, hard-to-manage shift away from government investment. . . . 

The American problem is a particularly strong spin on John Maynard Keynes’s concept of “animal spirits” — the human emotion that drives confidence. These days, however, it’s often the government that is spooking Americans. Too much debate is focusing on textbook remedies, and not enough on just how much trust has been broken. . . . 

Should government double-down on these risks by borrowing more money and pursuing more investment? After all, such a policy is supposed to be self-validating because of the accompanying economic stimulus. But will it be seen that way? Will government protect us from the risks of its potential mistakes?

That’s not an easy debate to settle here, but suffice it to say that without more trust, it won’t happen on a large scale.

The reason that we aren’t getting more expansionary macro policy is fundamental: a lack of trust. It’s not an easy problem to fix, but the place to start is by recognizing it."

Summing Up

In the next post, we'll use the "government knows best" way of doing things in our schools as an example of why We the People don't trust our elected officials to do the right thing with our MOM and their OPM.

Public education, both its cost and quality, is only one example of why politicians have lost the people's trust, but it's a good one.

Outside the U.S., the rest of the world's citizens are having similar problems. That said, there is a difference. Unlike many other areas of the world, We the People are free to solve ours if we have the will to do so.

In countries like Greece, Spain, Italy, Russia, China, Iran, North Korea, Cuba, Venezuela and elsewhere, that's simply not the case, and for a variety of reasons.  

Thanks. Bob.