When ‘Government’ Cuts Actually Cut the Private Sector

One of the conservative propaganda successes has been to convince many people that government spending employs people for the government. You know, the DMV clerk who makes your life hell, or some other functionary. But the reality is that the majority of state and local cuts actually affect private businesses:

…according to research I conducted a few years back (research that’s unfortunately still extremely relevant), over 60 percent of the job impact of state and local budget relief would fall in the private sector. There are four primary ways in which state and local budgets in particular support private-sector jobs:

1) Transfer payments: A significant portion of state budgets goes toward transfer payments, such as Medicaid or unemployment benefits. These programs have some overhead costs, but the vast majority of these funds go straight into consumers’ pockets, who then spend the money in the private sector.

2) Private contracting: More and more work is being done on the local level not by government workers, but by private workers on public contracts. See those construction workers repairing that bridge on your way to work? They’re likely employed by a private contractor, but if the government cuts highway spending, poof! Their job is gone.

3) Equipment suppliers: While many services are subsidized or contracted out by the public sector—and thus actually provided by the private sector—others are provided in-house. Public safety and education come to mind. But the funds aren’t all spent on public employee salary and benefits—much of it is spent on equipment and materials as well. Firefighters need hoses and trucks, and teachers need books, computers, and chalk. Everyone needs office supplies. And all those goods are produced by private-sector workers.

4) Re-spending: The first three items in this list show how budget cuts can cause private-sector job loss. True, there will be public-sector job loss as well. But as all these workers lose their jobs—both private and public—they cut back on their spending on food, clothing, durables, and other consumer goods. And who provides consumer goods? Private-sector workers.

Because this is the reality conservatives are desperately trying to ignore:

Viewing state and local budget relief as only affecting the public sector underestimates just how intertwined the public and private sectors really are.

Or as the Krugman put it (boldface mine):

Ah, so now we have a new principle of economics: government spending can’t create jobs, but cuts in government spending can destroy jobs — as long as the jobs are in the defense sector

One thought here is that a Keynesian is an Austrian whose campaign contributors are about to lose a lucrative contract.

Keep in mind that a fair amount of science and public health infrastructure is funded by states and local governments, not the feds.

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