Summers: Stimulus Targets Output, Not Employment
I noted some time ago that in designing the American Recovery and Reinvestment Act the Obama administration essentially chose to get as much bang-for-their-buck as possible in terms of GDP rather than trying to maximize employment. Alex MacGillis had a good piece over the weekend in the Washington Post that started with the idea of a WPA-style direct employment program and eventually gets into the larger philosophical dispute complete with Lawrence Summers explicitly endorsing the output-over-employment approach:
“I think we got the Recovery Act right,” Larry Summers, the president’s chief economic adviser, said in an interview. “The primary objective of our policy is having more work done, more product produced and more people earning more income. It may be desirable to have a given amount of work shared among more people. But that’s not as desirable as expanding the total amount of work.”
On reflections, I think there are tons of practical problems with anything other than a very limited effort to do something WPAish. But there are alternative ways of doing employment targeting. Ryan Avent points out that European governments, operating in a political context with more of a tradition of active labor market policies, have done more to directly support employment. The Economist did an interesting overview of this action and offers a chart to show it’s largely working:
The question is whether these kind of measures retard needed restructuring in a way that will ultimately create a drag on European economies as we move toward recovery. In a relatively brief or shallow recession, I think Summers would definitely be on the right side of this argument. In a longer recession, though, there’s a case to be made that the loss of job skills and labor market attachment that’s involved in a period of prolonged unemployment will create a bigger drag effect than anything that might be involved in delayed restructuring.
60 Responses to “Summers: Stimulus Targets Output, Not Employment”
Register
RSSLogin
Topic Cloud
ArchivesBlog RollAbout Matt YglesiasContact Me
Donate
November 9th, 2009 at 12:31 pm
Larry Summers is, philosophically, an enemy of working people. He should not be working for a government chartered to promote the general welfare. The concept simply doesn’t register for him.
November 9th, 2009 at 12:34 pm
Prolonged unemployment would have to be incorporated into Summer’s argument. More total work done means more total work done. Maybe you think Summer’s is making a technical mistake in this area, but if you disagree with Summer’s philosophy you need to use a different argument.
November 9th, 2009 at 12:37 pm
What about the simple argument that Summers is simply WRONG in that the important thing is to simply supply people with jobs to ease their pain over the given amount of work/growth available (never mind the fact that this is almost Bush like growth in the sense that nothing is coming down from the top onto the work force). Preferring GDP over unemployment is simply blindness and evil – is there a MORAL argument to be made here rather than just restructuring-over-a-long-recession technicalities??
November 9th, 2009 at 12:45 pm
I am always fascinated that so many people seem to think the goal of the economy is to produce work/jobs. I should think those things are pretty obviously a means to an end.
Yglesias makes an interesting argument that, in principle, it might be the case that trying to keep employment up will have the effect of increasing output. But it seems kind of odd to suppose that European countries & the US are starting from the same point on either growth or per capita employment.
Ortica, that would be a strong point if there were no unemployment benefits, or if they hadn’t been extended. But given the givens, it seems like you’re back to saying work is an end and not a means.
November 9th, 2009 at 12:48 pm
Note the title of The Economist’s figure. Another difference between the US and continental Europe is that there are strong penalties for and restrictions on layoffs in Europe. They work as automatic employment stabilizers quite aside from active labor market policies.
I wonder if Summers has ever even thought about possible adverse long lasting consequences of unemployment. One might appeal to physics and call such path dependence “Hysteresis”
November 9th, 2009 at 12:53 pm
I am always fascinated that so many people seem to think the goal of the economy is to produce work/jobs. I should think those things are pretty obviously a means to an end.
OK, ryan yin: what, specifically is the “goal of the economy?” Don’t forget to keep up the patronizing tone in your answer–all us commenters love to be talked down to.
November 9th, 2009 at 12:55 pm
I am always fascinated that so many people seem to think the goal of the economy is to produce work/jobs. I should think those things are pretty obviously a means to an end.
What they understand that you don’t grasp is that it’s not just the output that matters, but the distribution of the output. Jobs are a means to an end but output is a means to an end as well. Jobs and work exist not only to produce output but to ensure that workers get their fair share of this output. If all output is distributed equally to everyone then only output would matter*. Otherwise, jobs matter.
November 9th, 2009 at 12:55 pm
I’m sorry, I can’t take seriously even the notion that Larry Summers gives the slightest shit what happens to working Americans except that it should profit the uppermost classes the most. Of course he prefers the solutions that have maximal benefit to the most concentrated economic interests. I’m sure we’ll all be thankful for it in the long run.
November 9th, 2009 at 1:01 pm
Back in April Obama claimed Summers was the new Bob Reich and that the administration’s ‘touchstone for economic policy is, does it allow the average American to find good employment and see their incomes rise.’
I was under the mistaken impression the goal was to serve the financial elite.
November 9th, 2009 at 1:02 pm
We don’t need to do WPA style job creation in a knowledge economy (although I wouldn’t cry over resurrecting the creative arts subsidy).
But the government basically controls the student loan industry. And they have significant control over big chunks of housing and welfare subsidies. They could at least reduce COSTS on people, even if they’re not actually providing them jobs directly.
At the same time, would it kill Obama to include at least one employment-focused adviser in his top circle? This started out as a banking crisis but that’s not where we are anymore at all.
November 9th, 2009 at 1:07 pm
I am always fascinated that so many people seem to think the goal of the economy is to produce work/jobs. I should think those things are pretty obviously a means to an end.
Very true, and it’s not a new thing either. The 19th Cenutry French political economist Frederic Bastiat had a number of essays on the fallacy of thinking the purpose of the economy is to create jobs rather than satisfy consumer demand. See, e.g., “A Negative Railroad,” http://www.econlib.org/library/Bastiat/basSoph4.html (scroll down to “First Series, Chapter 17″).
November 9th, 2009 at 1:10 pm
GDP growth is more important than – or perhaps a better formulation is “no different than” – job growth in the long term, but the purpose of economic stimulus during a recession is to accomplish a short-term benefit.
November 9th, 2009 at 1:12 pm
It’s worth noting that US unemployment rate is only 0.1% higher than the EU average. It’s gone up by nearly 3% more, but the precrisis low was nearly 3% lower, and it’s always to be remembered that stronger job protection impedes job creation, and cuys employment long term, which is what that chart also shows.
But the lasting effects of mass unemployment on the young is certainly a big problem (well docemented over here (England)) but I realy think if the government wants to do something about that it should pump money into university / college / training places and leave most business to itself. Sadly our government is doing the opposite, turning applicants away from uni and even 16+ schooling (from a government supposedly commited to increasing the legal leaving age to 18), and I was reading about California Unis the other day and it seems you’re getting it badly wrong there too. Educational stimulus was always the way to go, but oh well.
November 9th, 2009 at 1:16 pm
A jobs program for no specified goal is not as good as a jobs program that has a real purpose.
The government should plan for recessions such that they have these programs queued up when needed. That would require planning for programs that meet a national interest, and stocking up for them during boom times.
The government is great at that as long as it’s defense. It’s time the government got better at planning education, energy, and infrastructure the same way.
November 9th, 2009 at 1:16 pm
The slippery part of this argument is the conflation of the dictionary definition and the economics definition of “demand.”
According to the dictionary, a hungry child with no money has a “demand” for food. According to the Econ textbooks, only a hungry child with money to spend represents a “demand.”
The purpose of an economy is to meet consumer “demand,” according to the dictionary definition. If it is only meeting the econ-textbook definition of “demand,” while there are a large number of people who have the hunger but not the money, the economy is not functioning well.
November 9th, 2009 at 1:27 pm
I am pretty sure that increasing output while not increasing jobs is a recipe for increasing inequality. The deliberate irreversible stratification of society into dependents and elite producers is a core tenet of neo-liberalism, in order to decrease the political power of the working classes.
Now we know that Obama is a hardcore neo-liberal for certain.
November 9th, 2009 at 1:39 pm
@11: The two best ways to ensure you satisfy consumer demand are 1) to reduce impediments to purchase and 2) to ensure those consumers have money in their pockets, since they theoretically are better at fulfilling their own demands than we would be in figuring out what their demands are. Jobs tend to be a really good way to do that.
Government propping up output isn’t meeting demand; it’s creating demand to meet supply. That is fine as far as it goes, but it doesn’t really meet Bastiat’s goals any better than working people’s goals. And that’s a good thing: back in the real world, a drop in demand was actually the proximate cause of the recession, so just allowing that demand to be met wasn’t fixing a damn thing.
In a general way, Bastiat’s point is correct. In this specific instance, though, where propping up demand and boosting employment simultaneously were both huge needs, simply getting out of the way is quite unhelpful. So the question is, when that is the problem, how do you address it? Do you create jobs and hope those people buy up the excess supply, or do create demand and hope the suppliers bring people back to work?
We’ve chosen the latter. It may be more efficient, but it also boosts job growth much more slowly. That choice can only be explained by preference for capital holders over workers. (Yes, that language is communist shorthand, but the point still stands.) It certainly can’t be explained on political terms: however inefficient, worker employment and income are always more popular than general knowledge that GDP is rising.
November 9th, 2009 at 1:39 pm
Lots of other commenters beat me to it.
There is no god-given purpose of an economy, or of government, or any other social institution or phenomenon. MattY seems to unreflectingly let pass the assumption that the purpose of an economy is to increase GDP in the long term, and that human beings having work is a means to this end.
You can approach this from MattY’s implicit position, or from, say, what I read to be joe from Lowell’s position, and you may very well end up at the same place in policy. But sometimes you don’t, and, in ortica @3’s words, preferring long-term GDP growth over long-term growth in human happiness and fulfillment (or other “primary goods”, in a Rawlsian sense) is simply blindness [or] evil.
November 9th, 2009 at 1:45 pm
ryan yin @4: It seems like you’re back to saying work is an end and not a means.
I share James Gary @6’s indignation toward your comment, but will reply anyway. Work is certainly more of an end than GDP growth is. You don’t have to be Hector to recognize the esteem, dignity, and confidence (let alone wealth) that comes from having work. Increased prosperity, especially among those worst off, is also an end, and it is an end that, along with work, is usually furthered by GDP growth. GDP growth, in and of itself, is entirely a means; it is in no part an end.
November 9th, 2009 at 1:53 pm
James Gary,
Although many commenters talk about how people who disagree with their priors must obviously be evil people who like inequality for inequality’s sake, my tone is the one you find objectionable? Huh.
If you want to talk about whether it makes sense to talk about having a single well-defined objective for the economy, fine, and I concede the point (but it’s a little weird to make that objection from the left, don’t you think?). But while it’s fine to say there’s no one right answer, it’s pretty clear that there are a whole lot of bad ones. For example, we obviously the objective shouldn’t actively pursue bads … like work.
It’s fine to say that work is associated with pay, except, again, unemployment benefits exist and have been extended, not to mention other sources of redistribution.
November 9th, 2009 at 2:02 pm
I don’t recall Summer’s distinction when selling the stimulus plan as a jobs creator.
Of course, the $25 billion tax break (for firms buying debt for pennies on the dollar) was part of “getting the Recovery Act right.” How many of Larry’s private equity friends cashed in on that provision?
http://peureport.blogspot.com/2009/05/carlyle-groups-frsglobal-to-help-hedge.html
November 9th, 2009 at 2:05 pm
Jason L,
What I said to James Gary seems more apropos to you. I’m the one deserving of indignation? Seriously? And you complain on the one hand that “no god-given purpose of an economy, or of government, or any other social institution or phenomenon” while on the other saying the government should absolutely focus on achieving your goals (through active policy, mind you), and to think otherwise is “blindness or evil”?
For the record, I don’t think that GDP growth is the end-all and be-all — I just meant that as a shorthand. And I think that human welfare is not best advanced by focusing simply on job-protection. For that matter (to repeat myself again), I don’t think job-protection is best achieved by job-protection: both labor force participation and employment rates have generally been much higher in the US than in Europe.
November 9th, 2009 at 2:10 pm
President Obama didn’t sell output in the Stimulus package, he sold jobs:
http://www.chicagotribune.com/news/nationworld/chi-obama-radiojan11,0,7963531.story
He’s still selling jobs:
http://cbs2chicago.com/business/white.house.jobs.2.1281042.html
November 9th, 2009 at 2:32 pm
The primary objective of our policy is having more work done, more product produced and more people earning more income. It may be desirable to have a given amount of work shared among more people. But that’s not as desirable as expanding the total amount of work.
A rising tide lifts all the boats. We have to make the pie bigger, then even peasants will get a bigger share.
Is that Reagan talking, or Obama’s main advisor?
November 9th, 2009 at 2:42 pm
The problem with focusing on job creation is that practically speaking the bulk of creation must be done by the guv’ment.
This means either short term “make work” projects which do nothing in the mid to long term to solve our economic problems or a major permanent expansion of the guv’ment work force which will prove disastrous to our long term prospects.
We are awash in the undereducated and incompetent for whom the public sector can’t and won’t provide “suitable” employment and for whom the employed are unwilling and increasingly unable to provide wages. In this sense the “progressive” program amounts to little more than an attempt to undo the welfare reforms of the 90’s and return to the “dole” pathologies of the 70’s and 80’s.
But we always knew that.
November 9th, 2009 at 2:50 pm
Ryan, when you wrote “I am always fascinated that so many people seem to think the goal of the economy is to produce work/jobs. I should think those things are pretty obviously a means to an end”, it came across to me and James as patronizing, like a European anthropologist being “fascinated” by the silly irrational practices of savages. I may just be in a prickly mood and perhaps should have read what you wrote more charitably, but I don’t think indignation toward your tone is an unreasonable response.
I think that when policy-makers and those who would influence policy-makers assume that the purpose of an economy is GDP growth, they are being blind. Usually not evil, but some of them are to some extent willfully, if passively, ignoring human well-being or freedom or security or satisfaction or whatever values you think are the most important in favor of the abstract statistic that is GDP.
And note that I wrote earlier about the importance of primary goods in a Rawlsian sense, as well as my current list of “well-being or freedom or security or satisfaction or whatever…”, relative to GDP. I never said, as you claim, that I think that people who do not think that government should pursue my personally preferred goals are evil. I think that suborning indifference to the condition of other persons is evil, which is what elevating GDP above dignity-giving work, or happiness, or freedom, etc. does.
Still, I agree with you that directly focusing on job-protection in the short term is not the best way to achieve job-protection in the long term. Governments and societies generally have limited resources and sacrifices today may be necessary for a better human condition tomorrow. Teach a man to fish, and all that.
November 9th, 2009 at 3:00 pm
Choo Choo:
Jumping ahead a few months (or a couple of years) in the business cycle so that recovery starts sooner does improve our long-term economic situation. No, it doesn’t solve the structural problems our economy faces. Nor does it give tired hardwood floors a like-new sheen; nonetheless, it ain’t peanuts, either.
It always amuses me how the “salt-of-the-earth, ordinary, non-elitist” low-income Americans magically transform into “the undereducated and incompetent” when the conservatives’ shift from talking about cultural issues to talking about economic ones.
November 9th, 2009 at 3:12 pm
Jason L,
Fair enough. Though I don’t think it’s necessarily the “teach a man to fish” sort of stuff that reduces jobs in the future. It can be as straightforward as the simple fact that making it difficult to fire a worker is equivalent to making it difficult to hire one. Or that a large welfare state can eliminate both the incentive to hire and the incentive to want a job.
November 9th, 2009 at 3:16 pm
I can only tell you what my wife tells me ( a working class woman, she relates to working class people as she goes about her daily chores). Although not enamored of the Republicans, they see Obama as having betrayed most working people by dropping a huge largesse on the banks (the bailout and the stimulus are confused in most people’s minds) and that they have been stuck with nothing but words and 10 percent unemployment as far as the eye can see. And frankly, everytime Geithner and Summers open their mouths, it seems to confirm the hypothesis that they think things are great if things are great at Goldman Sachs, J.P. Morgan, and Citibank.
November 9th, 2009 at 3:16 pm
Summers’ claim is hilarious, since it’s not what he and his colleagues were saying when the porkulus bill was being created. THEN the story was “OMG! Unemployment will hit 9% if the stimulus isn’t passed, but only 8% if it IS passed!”
It’s understandable for Summers’ to avoid this issue, since unemployment is now 10.2% (and will go higher as Obama and friends continually propose new regulations, taxes and bureaucracies to scare away investors).
November 9th, 2009 at 3:29 pm
Ryan Yin,
Yay, we’re reconciled! And the “teach a man to fish” bit was my attempt at a pithy concluding sentence.
November 9th, 2009 at 3:35 pm
The fact that you either don’t know, can’t understand, or pretend to be ignorant that the initial unemployment rate Obama inherited from Bush was much higher than everyone assumed certainly makes me want to take you seriously when you hold forth on economic matters.
November 9th, 2009 at 3:37 pm
Jason L,
See, there’s your problem — I’m totally incapable of pith, so I miss it when I see it.
November 9th, 2009 at 3:45 pm
Wow. “It may be desirable to have a given amount of work shared among more people. But that’s not as desirable as expanding the total amount of work.” That’s about the perfect expression as to why Larry Summers is evil. I don’t mean that ironically, or comedically. Explicitly saying that mass unemployment and poverty is preferable to a (potentially) lower GDP growth rate without any thought for the human consequences of such actions is evil, in my book.
To respond to some points:
1. I’m with Ortica. Summers and by extension Yglesias is wrong. And the key thing here is “needed restructuring.” We’re not actually doing “needed restructuring” here – to begin with, this takes as given a Schumpeterian or Austrian analysis of economic recessions as opposed to a Keynesian. Secondly, it’s not at all clear that we’re doing the restructuring – finance has not shrunk as a sector, the crazy bonus behavior is back, sketchy derivatives are being flogged once more, and there isn’t any huge transition going on where former construction workers are retraining as nursing aides.
2. NS – here’s where you’re wrong. First of all, we’re not living in a “knowledge economy,” that was basically a hyped late 90’s meme. Even if we were, you’d still need a WPA-style jobs program, because unemployed people still need to eat whatever they do.
Harry Hopkins dealt with this seventy-five years ago, when people opposed to the WPA criticized him for creating the Arts, Music, Theater, and Writing projects that gave jobs to educated “knowledge workers.” As Hopkins put it, “artists gotta eat, just like everyone else.” Human need doesn’t change with profession, and the creative arts industry (not every sector, but many) is incredibly vulnerable to changes in consumption patterns – people who live off of other people’s disposable income are going to be in trouble when the disposable income goes away.
3. Regarding the purpose of an economy, I think we’re getting into the purposes of a moral economy, or the moral purposes of an economy. And the issue is how an economic order morally justifies its existence.
The reason why people are objecting to ryan yin’s comment is that the purpose of an economy is to meet people’s material needs. In our capitalist society, the way that goods are distributed is based on the ability to spend money, and the way that income is acquired (for the majority of people) is through employment. As long as we distribute goods on the basis of wage income, then jobs are absolutely a huge moral purpose of an economy, because they are determining how many people’s needs are going to be met, and how many people’s needs aren’t.
And this gets us to justification – in an economy where there is full employment, and wages are generally good, then one of the justifications of that economy is that it is actually serving the needs of all of its members. In an economy where there is mass unemployment, and people still are required to earn wage income to get the goods they need, the economy can’t be justified on those terms. It can be justified on other terms, but that argument needs to be made, not just assumed.
Now, it is true that the distribution of goods is really the ends, but the means are essentially the foundation of our socioeconomic order – capitalism means that the means are market transactions and wage labor. In a different socioeconomic order, where goods are distributed in a way that employment status is not the determinant of whether you get enough goods, then they wouldn’t be as important as they are in ours. But in our current system, GDP is all well and good, but we know that it’s going to be distributed to people mostly in the form of wages (some people do live off of capital returns, but they are a very small minority). Focusing on GDP over jobs is ignoring the question of distribution, whereas focusing on jobs over GDP is prioritizing that question.
Unemployment insurance has been mentioned. All I’ll say about this is that average unemployment benefits work out to about 15.6k a year, which is well below the poverty line for a family of four, that only 46% of the American workforce is eligible for such benefits, and that those benefits are for a limited time. We cannot simply assume that unemployed people are going to be taken care of.
4. ChooChoo – I’m afraid history says otherwise. The Civil Works Administration and the Works Progress Administration were both make-work programs who predominantly employed unskilled workers, but they created vast amounts of valuable public goods and services.
Secondly, you need to actually make an argument why the expansion of the public sector would be “disastrous to our long term prospects.”
November 9th, 2009 at 3:49 pm
Easy there, Mr. Atwell.
Let’s not forget, Summers has a history of phrasing things poorly.
I don’t agree with his argument, but “Focusing on GDP growth will get us back to a healthy economy with more people employed than focusing on job growth,” is a perfectly respectable, non-evil position to take.
Why do people constantly do this? Yglesias disagrees with Summers’ position. He’s disagreed with the GDP-over-jobs focus in past posts, and he explicitly does so in this post.
November 9th, 2009 at 3:55 pm
Regarding Matt’s link to the Drum piece:
1. It is historically false to say that the WPA was a vast bureaucracy. It was actually rather small and decentralized, relying mostly on existing government agencies to carry out many of its functions – the Army Corps of Engineers did the engineering work, the U.S Treasury did the payroll, the U.S Employment Service did the application process, and a lot of the planning was done by state and local governments applying for funding.
2. It is historically false to say that you need a lot of time to put together a WPA-like administration. The Civil Works Administration was announced in November of 1933. By January of 1934, 4.27 million people had been put to work. This was back when the most sophisticated administrative technology available was the carbon copy and the rotary phone.
3. Given the advance in administrative technology and organization, there is no reason why it should take longer now than it did in 1933. We have a massive network of unemployment offices who can take applications, there’s a massive shelf of infrastructure projects (to the tune of $2.2 trillion) assembled by the various engineers and mayors associations because we haven’t been doing basic maintenance for over thirty years, and by establishing a system of model projects, you can easily speed up the permit process.
November 9th, 2009 at 4:05 pm
Joe:
It’s true that Summers speaks without thinking, but not usually about economics, which is his area of expertise, as opposed to gender and the sciences.
But let’s pick apart his statement: “The primary objective of our policy is having more work done, more product produced and more people earning more income. It may be desirable to have a given amount of work shared among more people. But that’s not as desirable as expanding the total amount of work.”
Now, “more people earn more income” doesn’t actually mean less unemployment. What it means is higher wages for people who are employed.
The part that I think is evil is the valuing of the work and the product over the unemployed worker and the broke consumer.
Regarding Yglesias, the part that I think he’s wrong about (and I was wrong to suggest that he’s in line with Summers) is this “The question is whether these kind of measures retard needed restructuring in a way that will ultimately create a drag on European economies as we move toward recovery.” I dispute Matt’s implied argument that recessions are caused by some suboptimal arrangement of resources, and thus create the space for a beneficial restructuring ala Schumpeter. For one thing, I dislike the idea that keeping people from losing their jobs is a bad thing because of some higher-order value of efficiency.
Maybe I’m reading too much into his sentence there.
November 9th, 2009 at 4:11 pm
Better GDP growth needed to add more jobs
- Sept. 2006, Jared Bernstein, WH Token Progessive Economist
“Policy makers need to understand that, if we are going to get the jobs machine back into high gear, we need stronger real GDP growth to absorb the higher productivity growth we have been enjoying over this recovery.”
http://www.epi.org/economic_snapshots/entry/webfeatures_snapshots_20060913/
Is the real enemy to jobs … productivity? Of course not. Neither is growth economics.
November 9th, 2009 at 4:14 pm
Steven Attwell,
It’s fine to say that you care about the distribution of final goods as well as the amount. But as you also say, it doesn’t therefore follow that the optimal thing to do is focus solely on the number of jobs. Just because you care about distribution doesn’t mean you shouldn’t also want to go about achieving that goal in the most efficient way possible, and jobs programs very rarely meet this criterion for that goal.
I also don’t believe it’s the case that only Austrians believe restructuring is ever needed (so do many new Keynesians, and many who are neither). Nor do I think that the only possible moral justification of the market economy is that it achieves some particular objective function. I would argue that the default goes the other way — the burden of proof (or argument) is on those who want to rearrange the economy (or redistribute, or exercise large amounts of government power) to show that they will improve welfare sufficiently to justify their plans. You alluded to this possibility, of course.
November 9th, 2009 at 4:14 pm
Why do people constantly do this? Yglesias disagrees with Summers’ position. He’s disagreed with the GDP-over-jobs focus in past posts, and he explicitly does so in this post.
Seriously. If people want to disagree with a supposedly smart, smug, young contrarian whippersnapper who’s wrong a whole lot more often than he’s right and who’s on the payroll of an organization devoted to undermining the American working and middle classes, Will Wilkinson has a blog that takes comments.
November 9th, 2009 at 4:15 pm
We will not stoop and grovel and try something WPA-ish, not in this country. This is the United States of America. We don’t plan, we sit back, and wait for the magic.
And the magic is about to happen. Green shoots are EVERYWHERE. Those green shoots are as prevalent and as pesky as ivy crawling up the ivory towers of our eastern universities.
The proactive panickers (you know who you are) are men and women of such little faith. These types believe we need a plan. A national plan. How silly.
For instance, we all agree that we are going to need a National Smart Grid in order to compete -and survive- in the 21st century. Now this might seem like a monumental project for lesser nations, and lesser mortals, but for us, MEN OF FAITH, we need only to remain patient, say our montra and settle in; and then observe as private enterprise snaps to the challenge and builds that national grid for us.
What has been proven in Chicago, mathematically, time and time again: those that plan too much, try too hard, always fail. No, the true lesson learned from the experience of the last 30 years -we need only to hand out a tax break or two, throw a wink wink and some cash out our back window, gaily sprinkle some subsidies on the whole enchilada and then kick back, relax, and WATCH THE MAGIC UNFOLD.
November 9th, 2009 at 4:18 pm
Mr. Yin, at #4 seems to be missing something important. Economies exists within societies and to serve the ends of that society. Societies do not exist to serve an economic system. Jobs are vital, economic output less so. Summers vaunted “output” is simply the shuffling of financial assets among the major players. Our economy is consumer driven. Consumers need to have jobs that allow them to consume, not to simply survive. And without consumers, without the Main Street economy, the Wall Street economy will wither, no matter how fast they shuffle those assets.
Summers attitude is that of an economist, one who does not really believe that people, consumers, matter. Summers wants output for outputs sake, believing the benefits will trickle down to Main Street. Output for what, whose going to buy that output? Unemployed people, people whose credit has maxed out and people who realize that they don’t know if they’ll have a job tomorrow don’t spend a lot on extras. In the end, the economy needs people with cash in pocket. Summers should try paying his credit card bill with “output”.
sherparick at 29, excellent points.
November 9th, 2009 at 4:27 pm
Mr. Atwell,
Actually, it can mean either, or both.
That would be evil, but I don’t think that was actually Summers’ point. Keep in mind, Summers isn’t talking about the moral purpose of an economy in that statement, but about a strategy for a stimulus program. A stimulus program has as its goal the shortening of a recession and the return of a healthy economy. Summers is talking about the best way to design a stimulus program in order to achieve that.
November 9th, 2009 at 4:30 pm
If you believe that a stimulus plan should focus on making the ugly part of the business shorter so that more people can get back to work sooner, rather than on providing benefits to help people get through the ugly period, then it is entirely possible to take a GDP-centric approach, instead of a jobs-centric approach, while still having the best interests of the laid-off worker at heart.
November 9th, 2009 at 4:43 pm
it is entirely possible to take a GDP-centric approach, instead of a jobs-centric approach, while still having the best interests of the laid-off worker at heart.
But a GDP-centric approach does not capture significant “intangables” required for growth, productivity and good jobs. By overlooking cuts in research and development, product design, and worker training, GDP is greatly overstating the economy’s strength. Growth-centric policies require a longer-term and typically much different focus than either job-centric or GDP-centric policies.
http://www.businessweek.com/magazine/content/09_45/b4154034724383.htm
November 9th, 2009 at 4:53 pm
zak822,
You’re entirely misunderstanding me.
November 9th, 2009 at 5:57 pm
SustMfg,
I agree with your argument at #45. It also ignores the damage done to “human capital” by prolonged unemployment.
What I’m saying is, Summers’ argument makes him wrong, but not evil.
November 9th, 2009 at 6:23 pm
Ryan Yin:
1. I don’t recall arguing for focusing on jobs to the exclusion of all else, simply more than they are focused on today.
2. I do not hold efficiency as a value to be held above all others. There are other values that are more or as important – and in this context, effectiveness is one of them. Jobs programs (as Krugman has noted) are much more efficient than they are given credit for, especially in comparison to other forms of stimulus that rely solely on the multiplier effect for job creation. However, they are undeniably effective – they can create millions of jobs quite quickly, and reduce the unemployment rate dramatically.
3. I didn’t say that it’s just Austrians. There are many different schools of thought that subscribe to the “recession-as-salutary-rearrangement” approach to recessions, but I don’t agree with any of them in regards to this issue.
4. Regarding moral purpose, what I was getting at is something close to Zak’s point. Economies are created to serve human purposes, and are justified in terms of how well they serve those purposes. Now, I’m not arguing that full employment or its equivalent (full consumption?) is the only moral purpose of an economy, but it is a major one. And I would throw it back to say that, in the face of manifest incapacity to actually satisfy the needs of society, the burden is on the status quo to justify its continued existence, the same as any experiment.
Joe:
1. Fair enough, but I dislike the ambiguity when we’re talking about policy priorities – because Summers does have his own priorities.
2. Right, but that’s part of the problem – what qualifies as shortening a recession, how we define what makes an economy healthy, that involves making moral decisions about which priorities come in which order. Summers is fairly clearly putting GDP growth over job growth, and that’s a moral judgment in my eyes.
November 9th, 2009 at 6:31 pm
In regards to the short-term, long-term issue:
This is why I hate, hate, hate the “teach a man to fish” cliche. In the short term, the hungry man starves to death while learning to fish. Which throws doubt whether Summers actually has workers’ best interests at heart, especially given the increasing trend of employers’ adversity to adding jobs both in recovery and growth over the last twenty or so years.
These days, there’s no guarantee that growth will lead to more jobs.
On a different note:
I would also point out that unemployment is a drag on GDP growth, in that you are losing the production that could have been created by unemployed workers had they been working. And given a situation where we’re talking about 10% unemployment (20% if you take U6), that’s an enormous amount of GDP we’re losing.
And it also emphasizes the fact that jobs programs create GDP growth as well. It’s not a simple tradeoff between growth and jobs.
November 9th, 2009 at 7:49 pm
Wage subsidies for low-paying jobs are the best approach.
They interfere the least with the economy’s reallocation of capital from dead zones to industries and companies with sustainable growth potential. They also connect people to the culture of work and put money in their pockets. It’s basically the same as an employer-side FICA tax cut.
A cut in the minimum wage would have similar effects, but would put less money in worker pockets – and cost less in piled-up deficits.
November 9th, 2009 at 8:08 pm
Steven Attwell,
I must disagree that employment or work is a big goal, unless we’re talking about the intangible benefit people get from the joy of work (which I think is underestimated in a lot of contexts, but I don’t think it is in this conversation and in any event I don’t think that’s what you’re talking about — you’re talking about the wages people get from work). I agree that distribution of benefit matters, but there are more efficient (or “more effective” to use your language — I’m confused about the distinction you’re drawing) ways of achieving that goal than focusing on job creation per se. In other words, if you want to get $X to someone, it’s more efficient to give them $X through tax & redistribution than by trying to make sure a $X job is given to him (this is just me rephrasing the Stiglitz & Dixit “no production distortions” result). I unfortunately used a phrase that implied something I wasn’t intending — obviously the economy is there for the person, not the other way around. But that wasn’t my point. My point was that the main issue with unemployment isn’t that someone doesn’t have a job — it’s that they don’t have the income that’s associated with that job.
I would again reiterate that focus on jobs programs has not in fact been manifestly helpful to either improving people’s incomes or employment status. And this isn’t just a “long run” thing.
November 9th, 2009 at 10:07 pm
The debate over the proper function of the economy, to produce the maximum amount of goods and services or produce the widest possible labor force participation has been interesting, and I think that there is merit to both sides of the argument. An economy that produces a lot, but with few people working, is, I think, one that is highly undesirable, even if some other re- distributive method were used in order to ensure wide participation in the economy at the consumer level. I think, actually in line with many conservative critics of welfare, that such an economy breeds a sort of alienation that is harmful to people at a personal level. At the other extreme, an economy with multitudes of people digging ditches and refilling them, is also undesirable, and probably a waste of human labor. A possible way out of this dilemma is to consider re-legitimizing other areas of human activity that have been neglected in recent years such as raising families, participating in community organizations, and possibly having hobbies. Another possible measure to combat secular unemployment is to, once again, constrict the ages at which individuals are expected to fully participate in the labor force, possibly through national service projects such as AmeriCorps, which would be completed during an individual’s emerging adulthood. Such a constriction would function in much the same way that child labor laws functioned in the early 20th century to reduce the amount of people in the labor force.
I never really bought the idea that somehow fighting unemployment during a recession causes more unemployment at the other end due to the inability to eliminate “obsolete” jobs and transfer labor to more productive areas. At least I don’t think that is true of this recession, and probably has not been true of any recession since 1980. People point to supposedly reduced labor market participation in Europe to argue against those policies, but I wonder, could not the greater labor market participation in the U.S. be the result of the fact that our economy spans an entire continent where everybody pretty much speaks the same language and people and willing to re-locate to find jobs. Could not another reason lie in the fact that, for a long time, the U.S. dollar was the reserve currency of choice, which allowed our central bank to be much more aggressive in facilitating the expansion of credit, and thus increasing employment, than other countries? Finally, a reason also not lie in the fact that Americans simply have a different attitude towards work than Europeans, that we will seek it out, at any wage, because it in some ways defines us?
I’ll end my post on somewhat of a down note by expressing a concern that this recent admission by Summers raises within me. Basically, it indicates to me that the Obama administration is not being candid with its supporters, or the American people. The stimulus was sold as a way to alleviate unemployment. If that was not, in fact, its primary purpose, and if its design was aimed towards another end, then the Obama administration has, if not lied, at least not been completely forthright. I do not know whether or not Pres. Obama is fully aware of Mr. Summer’s statements, or his intentions in crafting the statement, but for my part, to put it mildly, my concerns of the appointment of Mr. Summers hardly have been allayed.
November 10th, 2009 at 1:11 am
Ryan Yin:
What I’m getting at is that capitalism requires people to earn wages in order to get enough money to live. While it’s true that you could theoretically do a Guaranteed Minimum Income, it’s basically incompatible with the political culture of capitalism, which says that you’re supposed to work for a living. The U.S public has NEVER supported a GMI and is quite hostile to the idea whereas the idea of direct job creation is quite politically popular, and they are extremely rare in the capitalist world.
And that’s part of the efficient vs. effective point. On paper, a GMI is more efficient, but if it is routinely rejected by the public, it won’t be enacted and that’s not an effective strategy.
What I was really getting at, however, is that you can have a program that costs little and generates only a few jobs (a tax credit for employers creating new jobs, for example) being – on paper – more efficient versus a program that spends quite a bit of money and creates lots of jobs (the WPA, for example) being more effective.
Finally, I would point out that considerations of efficiency of a jobs program versus unemployment benefits need to take into account the opportunity cost of the labor power that gets wasted with unemployment insurance and saved with jobs programs. Given that the average output per worker in the U.S is about $105k a year, even if we assume that a jobs program worker is only half as productive as the average American worker, you’re still going to create $17.5k in goods and services in excess of cost per worker.
A jobs program that puts 5 million people to work (bringing the unemployment rate down to 6.9%) would cost about $175 billion to run for a year. But in that same year, even going by our conservative estimate on productivity, the same program would create $262.5 billion in goods and services – a net addition of $87.5 billion or .6% of GDP that you would not get if you simply took $175 billion and gave it out as unemployment benefit.
November 10th, 2009 at 4:05 am
@53 StephanAttwell: “A jobs program that puts 5 million people to work (bringing the unemployment rate down to 6.9%) would cost about $175 billion to run for a year.”
Now take back the $2 trillion in cash that Fed just handed out the screen door and, instead, put that money in a Green Investment Bank, hire Americans to build a Smart Grid where we get 90%* of our energy needs from Wind Power (by 2020!); and badabing, full employment, instant national security, no more trade deficit (oil!), GDP jitterbuggin crazy UP and revenues pouring into government coffers so fast as to potentially tip the old government over. That, government haters, is a positive feed back loop if ever there was one.
But noooooo. We are not allowed to do this because the Constitution clearly spells out in Article 12, “in Order to prevent a more perfect Solution, Congress shall pass no Laws, nor shall the President sign such Laws, as would allow electricity, to a well-regulated Militia.
* Don’t tell me it can’t be done. Spain managed to receive (for a brief period, to be sure) 41% of their peak energy needs last week from Wind Power. 41% in 2009!! Are we saying that crappy old backward Spain, suffering from 19% unemployment, is 41 times greater than the United States, which managed to get just 1% of its energy needs from Wind Power last week? Do we suck that bad -as a Nation?
November 10th, 2009 at 6:43 am
Re: The U.S public has NEVER supported a GMI
The Earned Income Tax Credit is a form of GMI, and not a particularly unpopular one.
November 10th, 2009 at 6:45 am
“Wage subsidies for low-paying jobs are the best approach.”
Wage subsidies for low payed jobs are dangerous. They destroy the social status of people that do hard work with huge benefith for society. Most low paid jobs have to be done either way. The low saleries are mainly a function of huge supply for those low qualified jobs, not some high price elasticity on the consumer side. With such subsidies, you just get a new equilibirium with lower wages which mainly profits the rich, but still enables them to slash out some stupid “we pay your welfare you do nothing productive, y all your fault you are poor you shoudl have learned more at school to get into med or law school” rethoric economics to those 99% of the population that dont quite understand enough of the underlying mechanism. In a society where social status is solely based on paycheck, that would get very ugly.
November 10th, 2009 at 9:47 am
Summers is exactly right, of course. The goal should be to create as much output as possible with as FEW workers as possible. If you have employment as the end goal, rather than as a means to higher output, you’re just making the economy less efficient.
November 10th, 2009 at 12:19 pm
Max -
Quite. And coincidentally, the next piece in my jobs series is about using the Fed to leverage Job Insurance finances. There’s no reason why you couldn’t have taken some of that $2 trillion and fixed unemployment – after all, reducing U6 to 0% would cost only $1 trillion, so a more moderate policy, of say, reducing U3 to 3% would have only taken 17% of that $2 trillion.
JonF-
No it isn’t. EITC is a GMI for workers only, and really only for poor workers with children. A full GMI that Ryan Yin envisions would require a substantial GMI for the unemployed, which is what Americans don’t like. There’s public polling on this going back 30 years: Americans hate the idea of subsidizing someone else to not work, but like the idea of creating jobs for the unemployed.
Urgs –
Quite. “Wage insurance” as promoted by various neoliberal groups as a solution is a massive temptation to Speenhamland in the lower end of the job market. Creating jobs is better.
TH –
That’s a good goal for capitalists, but it’s not a good goal for workers, as long as the major way to gain access to output is wage income.
November 10th, 2009 at 1:47 pm
Well, in a way, it is true that a prosperous country like America shouldn’t worry so much about jobs. If we did the right thing – say provided a 20,000 dollar minimum amount per year to every American – those, like me, who would prefer not to work very hard could give the work to those who want it.
I’m glad to see that conservatives are working on this project. It is a winner.
November 11th, 2009 at 12:59 am
Hence the pandora charms is still telecasted in different private channels.