This morning economist Alan Blinder has a an op-ed in the Wall Street Journal in which he outlines the economic tools that are available for reacting to the ongoing economic slowdown:
There are plenty of powerful weapons left in the fiscal-policy arsenal. But Congress is tied up in partisan knots that will probably get worse after the election. On the other hand, the Fed stands ready—indeed, seems eager—to act. But it has already deployed its most powerful weapons, leaving only weak ones. That’s the paradox.
How might fiscal policy speed up growth? As Elizabeth Barrett Browning once said, let me count the ways. Actually, let me not, because there are too many.
He proposes a new jobs tax credit, direct government hiring, and federal compensation to state and local governments for a reduction in sales taxes.
This op-ed is a good companion piece to Christine Romer’s op-ed of yesterday. Why is it that economists persistently assume that programs and policies can just be turned on and off when all of the evidence demonstrates the reverse? I.e. that long-obsolete policies develop lives of their own with constituencies that are convinced that their preservation is vital.
Consider the National Helium Reserve, for example. It was established back in 1925 when dirigibles were an important and, apparently, up-and-coming form of air transport. The Reserve was an effective subsidy to helium production and proved remarkably resilient—it was 80 years before it could be completely phased out.
Direct hiring to ease unemployment will undoubtedly cause the newly-hired workers to begin working under the same rules as govern other state and local government workers, complete with healthcare and pension plans that are already proving ruinous, cf. San Francisco where city pension spending has increased a stagger 66,733% in just 10 years and is expected to triple within five years.
A federal subsidy to hire state and local workers may well succeed; eliminating those jobs once created and after the crisis has passed will be harder to achieve. And what if the crisis is permanent?
This seems to me to be a critical difference between engineering and economics. However nice they are on paper a real bridge must remain standing and be able to bear traffic. Real circuits must produce the outputs for which they are designed. The processes devised by chemical engineers must produce the desired products at the target costs.
Politics is not a barrier to economic policy. It is the milieu in which economic policies operate. However beautiful a policy proposal might be on paper if it does not produce the intended results, its scope is so enormous that it causes the voters to balk, or if it cannot be made to operate within the real world constraints at hand the economists have failed. If a bridge is built to spec, you don’t blame the river, the bank, or the load for its collapse. You blame the civil engineers.
I agree with much of your piece, Dave, but I never like the whole Eyore “let’s not start because we might fail thing,” as in this:
Instead, we might think about how to design temp-jobs programs so that they remain that. It really is the weakest argument in the conservative quiver to say “let’s not do a good program, because I can imagine a bad one instead.” It really just cripples us, and perhaps leaves us with bad programs (health care?) not because better answers cannot be imagined, but because the imagination of worse halts movement.
All that said 😉
If we were going to start a national jobs program we’d have to be really, really, sure that the fiscal stimulus was necessary. That’s an opaque argument and one that (as Blinder says) is unlikely to sway the American people anyway, at this point.
Perhaps I’m handicapped by having been an approved vendor for city (Chicago), state (Illinois), and federal governments and having been involved in these discussions on a daily basis over the period of years. I’m not just speculating.
Public employees’ unions will fight any attempt to introduce non-union temps like poison. You’d need a “first kill all the lawyers” sort of solution. You’d either need to get rid of the unions or give them impossibly ambitious guarantees.
Well, you are all gangsters there, we know that.
You probably wear spats.
I haven’t worn spats more than a couple of hundred times in my entire life. And that was thirty or forty years ago.
I see, however, that they are readily available. I might take them up again. Back when I was in college I had a friend who wore celluloid collars. He imported them from England.
Seriously, the connection to your newer post is that if there is looting, we have to fight it all the time.
We certainly should be ripe for a change, as looting shockers come out now from cities large and small.
Blame the economists? Why aren’t you two guys reading Robert Higgs? He noted about 23 years ago the ratchet effect of government. That government programs do tend to become permanent, at least some of them, post crisis.
Hello?
Hello?
You guys awake?
Guess not.