What is government's role in economy?

April 03, 2011|By ART CALLAHAM

There’s been a lot of talk about the economy lately. Couple that with the role of federal, state and local government, and you have a subject that will usually set anyone’s hair on fire. So, what is the role of government in the economy?

On one side, you have conservatives, who believe the government’s role in the economy must be “hands off.” The more conservative in nature, the more and more hands off. Some conservatives beat their chests and shout, “Don’t spend taxpayer money (often expressed as “my money”) on airport runways, new roads (unless it goes in front of my house), libraries, school construction, the arts, senior centers, etc. And, by the way, I don’t want any debt. You won’t have it if you don’t spend.”

On the other side are liberals, who believe government should have its hands in everything, including the economy. The more liberal in nature, the more and more hands on. Some liberals beat their chests and shout, “If you can’t buy it, afford it or have it, the government will provide it to you (maybe even for free). And, by the way, we support borrowing.”

In spite of the strategies of the far left and the far right, there is a key role for government to play in our economy. That role is creating jobs. And I don’t mean jobs “within the government.” I mean private-sector jobs.

Governments create jobs in the private sector by funding projects. Capital, infrastructure, building and bond projects are some government-funded projects. When one level of government funds a project, it often attracts funding from other levels of government, sometimes from private foundations, and sometimes from the private sector in terms of private capital fundraising.  

An example of this process is the Washington County Free Library renovation. The first funder in terms of responsibility was the county, which put up $7 million to renovate the central branch of the library. That money attracted $11.5 million in state funding, $1.5 million in city funding, $3 million in private citizen contributions through a capital campaign and $1 million from a foundation — a total of $24 million.

A similar situation occurred with Hagerstown Regional Airport’s runway extension, where $4 million in local government funding attracted another $57 million from other levels of government.

Critics probably are poised to dispute the necessity of renovating the library or extending the runway, and I’m not going to justify either project (although I fully support both). What I’m writing about is the economy, jobs, partnering between levels of government, borrowing money and how money attracts other money. Let’s start by looking at the government and its role in creating private-sector jobs.

Most large projects allocate 60 percent of the total project costs to labor. In my two examples, the total government dollar participation was $61 million for the runway and $20 million for the library. Using my formula, that’s $36 million at the airport and $12 million at the library — or $48 million total.

Let’s use $56,000 annually per job as an estimate of the average cost of wages plus benefits. That $48 million equates to about 850 job years. To keep the math simple, let’s say the average job on either of the projects lasted 2 years. In that scenario, over a two-year period, the government funding brought 425 jobs to this community.  

Now, here’s the kicker. Of the $48 million in government job funding, only about $7.5 million came from local governments. Or, in terms of jobs, about 15 percent of the total jobs — 64 of them — were created because of local government funding. The remaining 361 jobs essentially were funded by the state or federal government.  

You could argue that the local government, by not undertaking the projects, could have lowered your taxes or given that $7.5 million back to local taxpayers. That would have amounted to about $94 for each of the 80,000 taxpayers in our community.  

Not completing the projects also would mean the number of unemployed people locally would have increased by 425. In other words, an individual local taxpayer could have increased the number of unemployed in the community by more than 400 for a personal gain of less than $100.

I hope that if you are reading this, you are not one of the more than 10 percent of unemployed workers in our community. And regardless of your employment status, I hope you understand the role of government in our economy.

Art Callaham is a local community activist and president of the Washington County Free Library Board of Trustees.

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