Ezra Klein illustrates the effect of local and state government cutbacks with a chart and a label. He calls it the "anti-stimulus":
It doesn't need to be like this. The government can't make the private sector invest. They can't demand that Wal-Mart stop hiring. They can offer incentives, and tax breaks, and encouragement, but that's it. The same cannot be said when it comes to public sector jobs. The government can, if it's willing to run deficits, keep those workers employed. But Senate Republicans, alongside some conservative Democrats, have decided to make the government pro-cyclical: Rather than fighting the downturn in the business cycle, the government is now accelerating it.
And don't ignore the effect this has on private businesses. They're not going to hire new workers or invest in more capacity if jobs aren't coming back, because without jobs, there's no demand. But because the federal government has decided against backing up state and local governments, the bleeding continues, and that scares businesses away from investing in recovery. We create the stimulus that helped the economy survive 2008 and 2009, and we've created the anti-stimulus that's keeping it from recovering in 2010.