Why Public Spending Matters

David Abromowitz

David Abromowitz is a senior fellow at the Center for American Progress.

Updated October 25, 2011, 3:11 PM

Jobs and housing prices are strongly connected. The Washington-Arlington-Alexandria, D.C.-Va.-Md.-W.Va metropolitan area has a 5.4 percent unemployment rate, second lowest in the country for any area over 1 million in population. Conversely, foreclosures in most parts of America are now driven by job loss, or work cutbacks.

Government employment in the D.C. region has risen steadily since 2001, even during several recessions. There's a lesson here.

Where concentrated foreclosures occur, they pull down housing prices for everyone. Not surprisingly, the D.C. region also has a relatively low foreclosure rate.

So what has sustained the D.C. area economy the past few years? Government jobs are a big factor, with all government employment in the Washington metro area rising over the past year. In fact, government employment in the D.C. region has risen steadily since 2001, even during several recessions.

A steady paycheck enables families to buy homes, or pay rent, regardless of whether the paycheck is earned working for a government or a private employer.

Home buyers tend to spend on renovations, furnishings and the like, and home buying therefore stimulates economic recovery. But a stalled housing market creates a major drag on economic recovery. Which is why cutbacks in employment at state and local governments around the country, though seeming prudent in the short term, are instead helping to prolong the economic pain. Such employment cutbacks also probably contribute to the drop in housing prices in many markets.

Nor will vacant homes piling up in high unemployment areas like Las Vegas and Detroit likely to be filled by the those seeking a home or apartments around the country. Job seekers move to where there are jobs, and then look for housing. People don't move without a job to a jobless area, just because there are vacant housing.

So if Washington house prices suggest anything, it is this: In the short run public spending that creates or maintains jobs remains good for the economy, and cutting too much too quickly accelerates chances of a double dip economic downturn.

Topics: Economy, housing

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