With the market giving us daily reminders that Washington's budget deal is a mess, pointing out a telling detail from the July unemployment report is almost piling it on. But to understand how we ended up with only 117,000 new jobs last month is to see that fiscal policy has been killing jobs. And with the decision to slash $2.4 trillion in spending by 2021, it'll only get worse.

The detail is this
The private sector actually added 154,000 new jobs in July, while governments nationwide shed 37,000. Governments have shed half a million jobs in the past year -- twice as many as they gained while the Obama administration's stimulus an d 2010 Census hiring were in full force. It's no mystery why this is happening: Stimulus money ran out, and the teachers, police, and others whose jobs the stimulus preserved were out of luck. Local education employers alone have shed 200,000 jobs since mid-2009, according to the Bureau of Labor Statistics. My son's babysitter lost her teaching job.

This matters because the economy needs 127,000 new jobs monthly simply to keep up with population growth before unemployment can come down. By gaining 154,000 jobs a month -- and 2 million in the last 14 months on a base of 107 million -- the private sector is more or less doing its job. Not only is government not doing the same, it's going the other way, even though the Defense Department has added 58,000 jobs since Barack Obama became president.

Put another way: If government added 37,000 jobs last month, the total number would have been plus-191,000 and we'd be having a different conversation about the economy. If government employment had grown at the same clip as private jobs since May 2010, unemployment would be 8.5 percent and falling, not 9.1 percent and stagnant. (And the 2012 presidential election would be over already.) If government employment had only stayed flat, the jobs not lost would have cut 0.3 to 0.4 percent from the jobless rate.

Other stimulus beneficiaries
The stimulus was good for the private sector, too, including Fools. You can follow stimulus money directly into the job-creating business models of recent IPOs in clean energy, from Tesla Motors (NAS: TSLA) to upcoming deals like Silver Spring Networks. But venture capitalists say fear of cuts was freezing the market for new clean-tech deals as early as the first quarter. The stimulus-funded push for electronic medical records also helped make winners out of Fool favorite Quality Systems (NAS: QSII) , Athenahealth (NAS: ATHN) , among others.

Similarly, the cuts will be nasty, and not just for government workers. Marriott International (NYS: MAR) , for example, gets 6 percent of its revenue, and 13 percent of the performance fees that help it leverage profits, from hotels around Washington. Its reported second-quarter growth in revenue per available room (1%) was about one-eighth of the industry average, partly because government agencies slowed down bookings for meetings. Or look at Smart Technologies (NYS: SMT) , a maker of classroom smartboards, whose shares dropped 70% as stimulus money schools had been using to buy its products dried up. And that was before the debt-limit package: Figure out for yourself what $950 billion in new defense cuts would do to Marriott, let alone defense contractors such as Boeing (NYS: BA) or Lockheed Martin (NYS: LMT) .

We have roads to build, schools to renovate and teach in, and so on. We just don't care to do it. The House of Representatives would rather keep a 0% inheritance-tax rate and all $1.1 trillion of annual federal tax expenditures. As Lawrence Lindsey said to George W. Bush to get him to cut dividend taxes in half, taxes on entrepreneurs need to be low. But how many entrepreneurs do you know who live on dividends and inheritances?

At the time this article was published Fool contributor Tim Mullaney doesn't own any of the stocks mentioned in this piece.The Motley Fool owns shares of Lockheed Martin. Motley Fool newsletter services have recommended buying shares of Quality Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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