Mayor Dickert and the Money Cycle

I went to the Racine Taxpayers Association meeting today to listen to Mayor Dickert. It was a nice speech that didn't really cover much new territory, except it shed some light on how Mayor Dickert thinks about economics. Mayor Dickert spent a fair amount of time discussing the money cycle. It was a term that he didn't define but did describe in some detail. Faced with rising costs and a decrease in state shared revenue, Dickert asked aloud whether he should let some city employees go to shrink the deficit. No was the answer because of the high unemployment and the money cycle. If the city employee keeps his job, he will spend the money in local businesses, eat at local restaurants etc... which in turn allows the local business the keep their employees on board who will then in turn spend money in local businesses etc... and so on and so on. If the city employee is laid off, he will not be spending in local businesses that will in turn have less revenue and will perhaps have to lay off an employee who will then not spend in local businesses etc... and so on and so on.

It is certainly true that money is spent again and again and that people who don't have jobs will probably spend less money as they have less to spend. The problem I have with Dickert's money cycle theory is the implied importance of government jobs. Without the government job, the laid off city worker starts a downward spiral that affects local businesses and individuals. But you can think of the same phenomenon in an entirely different way. It takes money to employ a city worker. That money is taken from the profits resulting from private sector economic activity. The taxes required to pay for the salary, insurance and pension of city employees results in less money circulating in the private sector. With less money, individuals and businesses will spend less, hire less, eat less at local restaurants etc... with the same downward spiral described by Mayor Dickert.

So which is better, public sector spending or private sector spending? Generally speaking, money is better spent in the sector that creates wealth rather than the one that takes wealth. That would be the private sector. Private sector activity creates additional wealth which in turn will cycle in much the same way that Mayor Dickert described. The public sector squeezes money out of the private sector, thereby posing a threat to private sector wealth creation.

Now this is not an argument for anarchy. There is a need for a very limited government. Unneccessary government spending slows the spending cycle and wealth creation. I hope Mayor Dickert reads this post.