Harry Moroz

The Private Sector’s Interest In The Public Sector

The National League of Cities is out with a new survey estimating local government job cuts in the current and coming fiscal years at almost 500,000. The report emphasizes that these cuts negatively impact the public and private sector:

The Economic Policy Institute estimates that for every 100 public sector layoffs there are 30 private sector layoffs [because of loss of income and less consumer demand]. Local government investment in transportation, water, sewer and communications infrastructure also leverages significant private sector growth by reducing private sector costs and creating opportunities for additional investment. Local governments are also significant sources of employment. Local and state governments comprise one of the nation’s largest employment industries, larger than the manufacturing and construction industries combined.

The economy-wide impact of state and local government cuts is evident in a snippet that Paul Krugman highlighted last week. He quoted a Goldman economist noting the firm’s percentage-point downward revision of growth between the end of 2010 and the end of 2011 because of the unlikelihood of further state fiscal aid from the federal government.

In the face of such evidence, one wonders where the private sector is during debates about the need for additional stimulus. Sure, the wealthy elite might have an interest in fiscal retrenchment that solidifies their relative economic advantage, but the evidence suggests that both households disadvantaged by the economic downturn and businesses struggling because of it would benefit from ensuring that state and local governments don’t continue to cut employees and services. This point cannot be made enough.

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Posted at 10:24 AM, Jul 28, 2010 in
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