Math and Job Creation
Christina Romer has a PhD in economics from MIT and has been a professor at Princeton and then MIT before agreeing to serve as the head of Barack Obama’s Council of Economic Advisers. She’s one of the foremost authorities on the Great Depression. Lawrence Summers got tenure as an economics professor at Harvard when he was 28; he’s served as chief economist at the World Bank and as Secretary of Treausury and now he’ll be heading the National Economic Council. Paul Krugman just won a Nobel Prize in economics. These and other people approve of Obama’s plans for a deficit-financed job-creating stimulus package.
Under the circumstances, I really don’t understand how Bloomberg thinks it’s credible to run a Caroline Baum column titled “Obama’s Job-Creation Program Flunks Basic Math”. Brilliant and well-qualified people can be wrong about stuff, but surely Obama’s team knows “basic math.” They know advanced math! To claim otherwise is almost offensive to the reading public.
Meanwhile, her argument concludes with some paragraphs that might be plausible if you’ve been asleep for the past eight (or perhaps I should say 28) years:
It’s said, or used to be said, that government’s role is to create an environment that encourages private job creation. That used to mean a backdrop of low taxes and light regulation.
With the public clamoring for more stringent rules to prevent a recurrence of the current crisis, it doesn’t seem as if a business-friendly backdrop is even on the table.
Maybe that’s why the government has to do the private sector’s work.
Seriously? We’re in this current crisis because recent policy has been insufficiently business-friendly? Who thinks that?
47 Responses to “Math and Job Creation”
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December 24th, 2008 at 5:29 pm
“Who thinks that?”
Nobody. What Baum is doing is not “thinking.”
If this is the voice of the opposition, progressives are in for a long run in power.
December 24th, 2008 at 5:29 pm
But, but, but wages are a liability. People need to be replaced with machines or wage slaves from poorer countries. Obviously the business world has long created a climate in which the majority of Americans want to be “given jobs”. Entrepreneurs are the few, the proud, the special—like Enron guys. Can’t expect the average American to know how to run a business.
The fact that the financial elite have always gotten rich off the backs of labor is buried beneath the assumption that people are hopelessly lost without investors and CEOs.
Clearly, businesses haven’t been friendly to themselves. Screw labor. Screw the consumer. That’s not good business. They killed the goose.
December 24th, 2008 at 5:32 pm
Remarkable that there was no mention of Forclosure Phil Graham, former Senator from Texas, and his twin “Modernization” bills rammed through in the waning years of the Clinton administration.
The latter of the two bills, The Commodities Futures Modernization Act of 2000, passed in December of 2000 when nobody was looking (Florida Recount time) was like the Enron Loophole on steroids.
THAT’S WHAT REALLY CAUSED THE CRASH!
December 24th, 2008 at 5:36 pm
In this case the academic experts probably are right and the Bloomberg hack wrong, but it’s a mistake to defer to much to experts in public policy.
Experts, the Kennedy brain trust, got us into Vietnam thinking they were so smart they didn’t have to listen to others.
December 24th, 2008 at 5:52 pm
As much as I love snark, I love it more when it’s not misinterpreting something. That’s unfortunately what’s going on here in the first half of the post. Clearly, these people can do math. That doesn’t mean they can’t publish a report that flunks at math. Just because a person can do it doesn’t have anything to do with the quality of their work!
December 24th, 2008 at 6:03 pm
She’s one of the foremost authorities on the Great Depression.
I suppose. I can’t know for sure that she isn’t an authority on the NY Theatre Projects or Louisiana politics or Father Coughlin, but I rather doubt it.
Even more specifically I think she is an authority on banking, currency, and monetary policy during the Great Depression, and may not have the understanding of how full bellies and hope felt to those working on the Grand Coulee Dam. Maybe Studs Terkel would have be a better source.
Friedman and Rothbard also both knew a lot about the Great Depression.
Look, watch these people. They are, as far as I know, all from finance and monetary Keynesianism. I doubt any of them has internalized the meaning of the WPA.
December 24th, 2008 at 6:14 pm
“Experts, the Kennedy brain trust, got us into Vietnam thinking they were so smart they didn’t have to listen to others.”
Kennedy didn’t get us into Vietnam, we were already there. Our involvement started in 1946, although we did have advisers there during WWII. I have a friend in Vietnam who was born in 1951 and his father was an officer in the US Navy. His father started serving in Vietnam in 1949 and was killed in 1974. Twenty five years of straight combat duty and some random sniper shoots you in the head? Ouch. Granted, Kennedy made the situation much worse. But it was Eisenhower who really screwed things up. If he had just pressured the South into having reunification elections, the war would have been over in a jiffy, and three million lives would have been saved.
December 24th, 2008 at 6:17 pm
The devil will be in details.
I am afraid Obama’s technocrats just want to fix this glitch so we can party again like it was 2004. High finance keeps their jobs, bankers lend, consumers borrow, housing inflates again. Derivatives fly around the world. Real wages decline, jobs go overseas, profits go to the top 1%.
They may be smart enough to pull it off.
December 24th, 2008 at 6:27 pm
It’s notable that “The Quiet American” was published in 1955, and Greene allegedly first got the idea of writing it in 1951, a decade before JFK got into the Oval Office.
December 24th, 2008 at 6:27 pm
I hate to post three times, but Krugman & Robert Reich habe it right. Fiscal stimulus will have to be permanent. We need to have a Federal percent of GDP at least 5% higher…forever.
I am afraid Obama’s crew wants to provide just enough fiscal stimulus to reinvigorate the banking sector and get credit flowing again and when Libor looka pretty will get all deficit hawk at the expense of labor. I absolutely expect this.
December 24th, 2008 at 6:28 pm
The crux of her piece would seem to be that the government isn’t creating demand, it is merely transferring the demand from private to public. Which is fine and all, except consumer (private) demand is collapsing and shows no signs of rebounding. Which leads to more private hording. Someone or something needs to step in to fill that void. Additionally, it is not even replacing and therefore decreasing current private spending with public spending. This is all deficit spending, so it is replacing potential future private spending with public spending.
December 24th, 2008 at 6:28 pm
Okay, Carol Bloomberg or whatever, how about you give us just 25 years without your Wall Street douche friends screwing everything up. Then you come back and entertain us with your theories about Paul O’Neil’s math.
December 24th, 2008 at 8:16 pm
Christina Romer has a PhD in economics from MIT and has been a professor at Princeton and then MIT before agreeing to serve as the head of Barack Obama’s Council of Economic Advisers.
Pardon, but immediately preceding her appointment to the CEA, she was teaching at Berkeley. Climate change hasn’t flooded the West Coast yet, Mr. Eastern Elite.
December 24th, 2008 at 8:31 pm
Christina Romer has been on the Berkeley faculty since 1988. And never was on MITs faculty
Methinks this was just a slip by Matt.
http://emlab.berkeley.edu/econ/faculty/romer_c.shtml
December 24th, 2008 at 8:46 pm
To a suitably stupid audience, one can say ANYTHING, and it’s plausible.
December 24th, 2008 at 8:55 pm
I, for one, am surprised that the owner of a big business would publish an article saying the government should be friendlier to big business.
December 24th, 2008 at 10:03 pm
Matt, Matt, Matt. The market fundamentalist dogma is impossible to defeat. It is the one and only truth. No other is possible. It cannot be wrong. The failure of the system is not the failure of the theory, the ideology. There is no existing counterpoint that exists within twenty degrees of seperation of any political elite in the developed world.
It’s a one dimensional world.
Ilargi: The prevailing economic theory in the western world today remains a Chicago school type of Keynesianism, in which markets absolutely must be free unless the gambling encouraged by that freedom runs into debt, in which case the money of the poor, and their children, must be confiscated by their governments in order for the rich to be able to continue gambling. If that still fails, too bad, but it certainly doesn’t mean their theory is wrong.
It’s a one dimensional world. You would do just as much good howling at the moon.
http://theautomaticearth.blogspot.com/2008/12/debt-rattle-december-23-2008-theory-of.html
December 24th, 2008 at 10:28 pm
You can’t have a market without regulation, any more than you can have a football game without a referee. Rules and enforcement are what makes markets work. You’d think that would be blindingly obvious–after all, government-regulated markets predate recorded history–but to some people, not so.
December 24th, 2008 at 10:41 pm
The prevailing economic theory in the western world today remains a Chicago school type of Keynesianism, in which markets absolutely must be free unless the gambling encouraged by that freedom runs into debt, in which case the money of the poor, and their children, must be confiscated by their governments in order for the rich to be able to continue gambling. If that still fails, too bad, but it certainly doesn’t mean their theory is wrong.
This is not actually the prevailing economic theory in the western world today. Or even in America. It is a simplistic view of the world that is easily grasped and communicated. That doesn’t mean it has prevailed.
December 24th, 2008 at 10:57 pm
lfv, December 24th, 2008 at 6:28 pm
Not just her piece … there are several approaches to the study of economics that rely on models in which the economy automatically tend to a full employment equilibrium. Inside the model, government spending crowds out private spending.
The conclusions are normally convenient, so the fact that there is a wide range of government investment spending that is complementary to private investment, and the refusal of the real world economy to show signs of having an automatic tendency to approach full employment, are normally minor issues, easily brushed aside.
December 25th, 2008 at 12:14 am
Romer is a tenured professor at UC Berkeley, the home of Prof. B. DeLong who also approves of Obama’s plan. What’s with the Eastern snobbery. Martin Feldstein, Harvard, was a BushCo suck ass, so where does that get you. Appeal to authority/glamor/cachet is a logical fallacy, which I thought you were careful to avoid.
December 25th, 2008 at 12:50 am
I like Bloomberg as a news agency, but they don’t have such quality in their op-ed columns. Some of their columnists, like Caroline Baum, are simple ideologues. I have read her columns over years. She has always been the same, ignoring the inconvenient facts to make ideological points.
December 25th, 2008 at 1:18 am
“Then you will see the rise of the men of the double standard–the men who live by force, yet count on those who live by trade to create the value of their looted money–the men who are the hitchhikers of virtue. In a moral society, these are the criminals, and the statutes are written to protect you against them. But when a society establishes criminals-by-right and looters-by-law–men who use force to seize the wealth of disarmed victims–then money becomes its creators’ avenger. Such looters believe it safe to rob defenseless men, once they’ve passed a law to disarm them. But their loot becomes the magnet for other looters, who get it from them as they got it. Then the race goes, not to the ablest at production, but to those most ruthless at brutality. When force is the standard, the murderer wins over the pickpocket. And then that society vanishes, in a spread of ruins and slaughter.
“Do you wish to know whether that day is coming? Watch money. Money is the barometer of a society’s virtue. When you see that trading is done, not by consent, but by compulsion–when you see that in order to produce, you need to obtain permission from men who produce nothing–when you see that money is flowing to those who deal, not in goods, but in favors–when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you–when you see corruption being rewarded and honesty becoming a self-sacrifice–you may know that your society is doomed. Money is so noble a medium that is does not compete with guns and it does not make terms with brutality. It will not permit a country to survive as half-property, half-loot.
“Whenever destroyers appear among men, they start by destroying money, for money is men’s protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked, ‘Account overdrawn.’
“When you have made evil the means of survival, do not expect men to remain good. Do not expect them to stay moral and lose their lives for the purpose of becoming the fodder of the immoral. Do not expect them to produce, when production is punished and looting rewarded. Do not ask, ‘Who is destroying the world? You are.
“You stand in the midst of the greatest achievements of the greatest productive civilization and you wonder why it’s crumbling around you, while you’re damning its life-blood–money. You look upon money as the savages did before you, and you wonder why the jungle is creeping back to the edge of your cities. Throughout men’s history, money was always seized by looters of one brand or another, whose names changed, but whose method remained the same: to seize wealth by force and to keep the producers bound, demeaned, defamed, deprived of honor. That phrase about the evil of money, which you mouth with such righteous recklessness, comes from a time when wealth was produced by the labor of slaves–slaves who repeated the motions once discovered by somebody’s mind and left unimproved for centuries. So long as production was ruled by force, and wealth was obtained by conquest, there was little to conquer, Yet through all the centuries of stagnation and starvation, men exalted the looters, as aristocrats of the sword, as aristocrats of birth, as aristocrats of the bureau, and despised the producers, as slaves, as traders, as shopkeepers–as industrialists.
“To the glory of mankind, there was, for the first and only time in history, a country of money–and I have no higher, more reverent tribute to pay to America, for this means: a country of reason, justice, freedom, production, achievement. For the first time, man’s mind and money were set free, and there were no fortunes-by-conquest, but only fortunes-by-work, and instead of swordsmen and slaves, there appeared the real maker of wealth, the greatest worker, the highest type of human being–the self-made man–the American industrialist.
“If you ask me to name the proudest distinction of Americans, I would choose–because it contains all the others–the fact that they were the people who created the phrase ‘to make money.’ No other language or nation had ever used these words before; men had always thought of wealth as a static quantity–to be seized, begged, inherited, shared, looted or obtained as a favor. Americans were the first to understand that wealth has to be created. The words ‘to make money’ hold the essence of human morality.
“Yet these were the words for which Americans were denounced by the rotted cultures of the looters’ continents. Now the looters’ credo has brought you to regard your proudest achievements as a hallmark of shame, your prosperity as guilt, your greatest men, the industrialists, as blackguards, and your magnificent factories as the product and property of muscular labor, the labor of whip-driven slaves, like the pyramids of Egypt. The rotter who simpers that he sees no difference between the power of the dollar and the power of the whip, ought to learn the difference on his own hide– as, I think, he will.
“Until and unless you discover that money is the root of all good, you ask for your own destruction. When money ceases to be the tool by which men deal with one another, then men become the tools of men. Blood, whips and guns–or dollars. Take your choice–there is no other–and your time is running out.”
December 25th, 2008 at 7:10 am
Christina Romer is also, as well as being a very bright economist, the person who seems to think that fiscal stimulus by tax cuts will be more effective than fiscal stimulus by spending.
http://gregmankiw.blogspot.com/2008/12/spending-and-tax-multipliers.html
Interesting, no?
December 25th, 2008 at 8:05 am
24:Worstall, it is complicated and nuanced research, and I suggest you look at the original working paper available at her Berkeley Web site rather than trusting Mankiw’s interpretation. NBER charges for downloads.
Romer
There are apparently a couple versions.
December 25th, 2008 at 9:39 am
The problem is public spending to increase demand is that it creates special interest who support the public spending to become permanent. See tool roads as an example.
What the Obama Administrtion has not addressed in helping the private sector. Somehow I doubt card check, green regulations, energy mandates, and more central planning (the car tsar) will help increase private sector demand.
December 25th, 2008 at 9:52 am
Until you understand that budget surpluses cause Depressions and recessions, you cannot really call yourself an economist.
http://www.epicoalition.org/docs/thayer.htm
Taxes cause the initial demand for a currency. Deficits allow net savings to happen and forestall deflation.
I think payroll tax holiday for all of 2009 is warranted. Tax cuts are good in some sense – it allows people to spend money where they think is best.
A combination of govt spending to stimulate long term priorities and tax cuts to shore up individual balance sheets is warranted at this time.
My estimate is that we will need between $1T and T1.6T of stimulus.
December 25th, 2008 at 9:53 am
francisco@23 –
Here in the South, we had blood, whips and guns– and dollars, too. Chattel slavery was an economic institution, and was developed because of profit. As far as I know, no one ever took a slave from Africa, not one, because of government compulsion. I would suggest that you reconsider your screed after reflecting some on the baleful influence that chattel slavery has had, and continues to have, on American society.
December 25th, 2008 at 11:31 am
Who is this imposter at 23? Find a new name, pal.
December 25th, 2008 at 11:57 am
the least this person could do is explain to us how we had such shitty job creation during a period of low taxes and light regulation….
December 25th, 2008 at 12:44 pm
instead of swordsmen and slaves
Rand was an idiot.
December 25th, 2008 at 12:56 pm
I always get a kick out of gold worshipers and their faith that money only has value enforced by a gun while gold has some inherent value.
Umm, gold is not food/clothing/anything useful. It doesn’t really have any intrinsic value, other than being pretty and somewhat rare. It’s basically, well, money. And if society collapses and our dollars are no good, your gold will be no good either. Unless it only serves as a substitute for money. But it certainly won’t be because gold is somehow inherently valuable, like oil or coal or a steak.
December 25th, 2008 at 3:18 pm
Curiously missing from the Bloomberg piece is mention of any lasting benefit deriving from infrastructure improvements. Or is this irrelevant to the discussion at hand? My feeling is that if we need these improvements anyway and if now is the time when we need economic stimulus the most, why not do it now rather than delaying? That seems reasonable.
December 25th, 2008 at 3:30 pm
Oh, is post 23 quoting Ann Rand? Shudder.
Marshall, that’s just what I was thinking. The slave trade is STILL a moneymaker.
“Blood, whips and guns–or dollars.” Health insurance belongs in here somewhere.
December 25th, 2008 at 9:09 pm
We’re in this current crisis because recent policy has been insufficiently business-friendly? Who thinks that?
Larry Kudlow and Sean Hannity.
December 26th, 2008 at 1:12 pm
I love this “OMG each job will cost $250,000!!!!” babbling. These people do realize that the jobs will be in improving infrastructure. They just want to ignore things like bridges collapsing and water mains bursting. Cause you know, labor is the only cost involved in building infrastructure. Didn’t you know materials, research, and everything else is free?
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