Municipalities Set to Lay Off 500,000

Things like this are the real story of fiscal policy as a macroeconomic stabilizer in the contemporary United States: “Local governments are looking to eliminate 8.6% of their total full-time equivalent positions by 2012, according to a new survey released Tuesday by the National League of Cities, the National Association of Counties and United States Conference of Mayors.”

That’s 500,000 lost jobs. Conservatives have largely convinced themselves that public servants are such vile and overpaid monsters that anything that forces layoffs is a good thing and the moderates in Congress seem scared of their own shadows so nothing will be done. But economically speaking, the time for local governments to try to trim the fat is when unemployment is low and your laid-off librarian, ambulance driver, or guy who keeps the park clean can get a new job where his or her skills will plausibly be more optimally allocated. But guess what produces less social welfare than driving a bus? Sitting at home being unemployed. And so it goes down the line. Dumping people into a depressed labor market all-but-guarantees an increase in idleness along with a drop in revenue for local retailers that will lead to more idleness and waste.


I’m just a humble blogger, but it seems to me that there’s real need for some of the smart policy minds out there to start working on proposals for some kind of structural reform to reduce the pro-cyclicality of state & local budgeting. Clearly the “if things get really bad, Congress will deliver the money” theory of making automatic fiscal stabilizers work isn’t panning out.