EconoBytes - Wednesday, August 22, 2012

Today, economist Mike Konczal on how public sector job losses and forclosures are holding back economic and employment growth.

Economist Mike Konczal of the Roosevelt Institute cites two major factors impeding economic and employment growth that suggest policy directions neither political party has addressed. The first has been rejected by Republicans and avoided by fearful Democrats; the second, neither party’s leaders have addressed effectively if at all.

1) If the federal government spent money to shore up state budget shortfalls, the unemployment rate would be at least one percent lower, and contrary to current conventional political wisdom, a broad spectrum of the public would support doing so.

There are waves of public sector job losses hanging over the economy. The public would support spending to alleviate the problem. 

·       Government employment is down over 2.5 percent since President Obama took office. This is mainly driven by declines in state and local employment, which include teachers and police officers. If these losses were prevented, unemployment would be much closer to 7 percent. This is an unprecedented drop in public sector employment, coming at the worst time imaginable. (More information.)

·       According to Bryce Covert, "A CNN poll found that three-quarters of Americans supported sending federal money to state governments so they could hire teachers and first responders—including 72 percent of independents. A National Journal poll found that 70 percent thought sending such funds would be “very effective” or “somewhat effective” in creating jobs. Perhaps even more interesting, however, was that there was also support for the general idea of government workers. A New York Times/CBS poll found that over half of Americans, including over half of independents, think it’s smart to “provide money to state governments to avoid layoffs”—without specifying what jobs it might save." Full polling data here.

There's been a huge disinvestment in education at the state and local level.

·       From the report Teacher's Jobs at Risk, by the President’s Council of Economic Advisers, we see that spending on education at the state and local level has fallen significantly in this recession. This will involve sacrifices to the education of our young people, the people we expect to build the future of the economy. This is likely being felt by communities across the country.

2) If the federal government had an effective policy to keep people in their homes, state budgets would be less strapped and fewer police, firefighters and teachers would be laid off.

Foreclosures have a significant, negative impact on state budgets and well-being. There have been millions of foreclosures that have occurred since the end of the housing bubble, and these have significant impacts on local communities. A study by The Urban Institute found the price of a foreclosure to the municipal government(on average $20,000 per) as follows:

Special thanks to Mike Konczal of the Roosevelt Institute for today’s EconoBytes.

For questions or interviews, please contact Ira Arlook (202.258.5437) or Sharon Rose Goldtzvik (202.789.7753).

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