The Truth About New Hampshire: It's the Government Spending, Stupid

Are GOP presidential candidates ready to tell the truth about the Granite State -- that nearly all of its income and job growth has come from government spending that they're promising to cut?

New Hampshire, scene of the upcoming GOP presidential primary, seems like the perfect illustration of the Republican low-tax philosophy. With no state income tax and one of the lightest tax burdens in the U.S., New Hampshire enjoys an 8.3% poverty rate, the lowest in the country, and an unemployment rate of only 5.2% as of November, far below the national rate.

But here's a surprise: The "Live Free or Die" State, having lost much of its manufacturing base, seems to be thriving mostly on a steady diet of government spending and public jobs. For one, government employment in New Hampshire is up 14% since 2000, compared to 6% for the country as a whole.

What's more, real personal income growth in New Hampshire over the past decade has been driven almost entirely by government spending. Here's how it breaks down: From 2000 to 2010, real personal income in the state rose by $4.6 billion, in 2005 dollars. Out of that, $3 billion, or 66%, came from the growth of government transfer payments such as Medicare, Medicaid, and Social Security. Another $1.4 trillion, or 31%, came from increased wages and benefits to government employees (numbers are rounded and in 2005 dollars).

In other words, 97% of real personal income growth in New Hampshire from 2000 to 2010 came from government transfer payments and government jobs. Part of the problem is that New Hampshire has historically been a manufacturing-intensive state. As late as 2000, 22% of employee compensation in New Hampshire was generated by manufacturing. That put it in nearly the same league as Michigan(26%) and Ohio (24%), and far above the national average of 16%.

As a result, the 35% decline in manufacturing employment since 2000 has competely transformed the economic landscape of New Hampshire. For example, the Batesville casket factory in Nashua (NH) -- once the largest maker of wooden caskets in the U.S -- closed its doors in 2006. The renovated casket factory now houses a 55-and-over adult community, with many of the (living) residents presumably receiving Social Security and Medicare payments from the federal government.

Or take Fisher Scientific, which was once a world-renowned Fortune 500 maker of scientific equipment. After being merged out of existence in 2006, the company's Hampton, NH headquarters were transformed into a beautiful conference center and office complex nestled deep in the woods. Meanwhile New Hampshire employment has declined over the past decade in such key industries as info-tech hardware, software, and scientific research and development--supposedly the new driving forces for the state economy.

There are some exceptions. Defense contractor BAE Systems is thriving in New Hampshire, making technologically sophisticated defense electronics and equipments such as the Advanced Precision Kill Weapon System. Meanwhile private equity firm Patriarch Partners, led by Lynn Tilton, has been investing in paper product manufacturing in northern New Hampshire. In a recent speech Tilton said, "We must bring back our industrial base which includes respect and appreciation for those who make things with their hands."

Despite the rosy unemployment statistics, New Hampshire's shift to a post-industrial economy has been heavily supported by government spending. That can't continue.