It would seem that North Carolina’s economic woes are lessening. The statewide unemployment rate, which had reached nearly 7 percent earlier this year, has now fallen to a seasonally adjusted 6.1 percent in September.

As I have pointed out before, however, this generic number hides rather than exposes the real economic trend. Virtually all of the “progress” in reducing unemployment in North Carolina during the past few months has come from hiring thousands of new government workers. Private-sector job creation remains almost stagnant.

Let’s look at the numbers, from the U.S. Bureau of Labor Statistics. Since June 2002, the number of North Carolinians employed has grown by more than 34,000. But 29,000 of these new jobs were created in government agencies. Private-sector employment has grown by just slightly more than 5,000.

The longer-term trend is also depressing. In January 2001, there were about 3,947,500 North Carolinians employed in all sectors. As of September 2002, there are 3,897,1000 with jobs. But when you disaggregate the public and private sectors, you find that government has experienced a net gain of 17,200 jobs. Private businesses have experienced a net loss of 67,600 jobs.

I guess I shouldn’t have to explain this, but no economy can pull its way out of a recession simply by creating government jobs. Obviously, some state functions create economic value. Establishing law and order is a prerequisite for investment and growth. Building highways (since it is technologically impossible to meter or charge tolls on unlimited-access roads and streets) can be economically productive. But for the most part, government expansion translates into overall economic contraction. It is necessarily the substitution of political judgments, made “on behalf of the citizens” by politicians, for market judgments made by citizens themselves, in their capacities as producers, investors, or consumers. Because politicians can’t possibly know better what you need or want than you do, the result is the baking of a smaller economic pie for everyone to divvy up.

The available economic research supports my thesis. One study by an economist at the General Accounting Office found only three variables that correlated with the performance of a state economy: the starting size of the economy (smaller ones grow faster than bigger ones), the level of taxation (hint: the lower the better), and the proportion of total employment represented by lawyers, lobbyists, and government employees. This last measure is called the “index of rent-seeking” and is negatively correlated with growth.

North Carolina is going in precisely the wrong direction on the latter two measures. Gov. Mike Easley and the state legislature have raised taxes over the past two fiscal years by more than a billion dollars. Many cities and counties are following suit. And now, virtually the only employment growth going on in our state is occurring within the ranks of government.

Oh, and our law schools are ballooning. Another negative indicator for future economic growth.