The phrase "private profit ... public squalor" has been used in writings about economics over the years and continues to be a matter deserving attention.
The boom of the Internet bubble and the boom of the sub-prime housing bubble produced a lot of private profit. The booms produced record tax revenues even while tax rates were being reduced ... and those with the power of the purse were not shy about spending the available revenues, and making related long term commitments.
How well public moneys have been spent is an open question ... with most of the public of the view that government is inefficient and rarely gets good value for its money. This converts rapidly into a crisis when the economy declines and tax revenues decline. There is not enough money available in many many jurisdictions to pay for essential services ... to pay to build and maintain needed infrastructure and so forth.
Advocates for a market oriented solution to fiscal problems ... less government ... less taxes are faced with a dilemma. Many of the expenditures of government are difficult to cut without considerable disruption. The timing of cut-backs in government spending have to come at a time in the economic cycle when it would be detrimental to economic recovery.
But it is really worse than this ... because of sloppiness in financial decision making over a long time, there are many important things that need investment, and government needs to be able to do this investment exactly at the time when it is being constrained from spending. There is a terrible disconnect between what is the right thing to do from the economic standpoint ... and what is going to be allowed based on law in some cases and the ideology of the IMF and similar bodies in other cases.
I do not know the details of the models that are used by the rating agencies for national debt and for the debt of other government entities ... but my intuition is that they underplay the role of unemployment and underemployment in the calculation of creditworthiness ... and do not differentiate sufficiently the value of investment in infrastructure and the recurrent expenditures of the entity. It can be argued that the metrics available about national economic performance are not particularly good!
All of this ends up with the private sector doing OK ... and the public sector getting into more and more financial difficulty ... and eventually more and more disruption in the services of government and the infrastructure needed by the society.
My bad case scenario about the public financing situation ... Greece, California, New York State, et al ... is that the outcome will be severe cut-backs in public expenditure exactly at the wrong time, and the vicious cycle of increased unemployment, reduced demand, lower profits, lower confidence, lower capital markets ... and so on. While I know government needs to do a better job in terms of its efficiency ... this needs to be addressed when the economy is healthy and not when it needs intensive care and life support!
I wish more people understood the importance of value accounting ... and could use it to help make important decisions.