As I’ve suggested would be the case according to the Bureau of Labor Statistics the unemployment rate is stubbornly remaining at 10%:
Nonfarm payroll employment edged down (-85,000) in December, and the unemployment rate was unchanged at 10.0 percent, the U.S. Bureau of Labor Statistics reported today. Employment fell in construction, manufacturing, and wholesale trade, while temporary help services and health care added jobs.
The sluggish retail results for the holiday season, while better than their awful performance of a year ago, are unlikely to improve things. And I remain skeptical that a meaningful recovery can be based on growth in a sector two-thirds of whose revenue is derived from the government, the healthcare sector.
Productivity, i.e. outputs per input, remains high and demand is low. I have little doubt that this report will provoke calls for another fiscal stimulus via spending increases from the neo-Keynesians in the conviction that this time it’s certain to work, much to the dismay of fiscal conservatives and our creditors.
May we see some empirical evidence, please?
Can we replay the tape, please. Wasn’t Krugman about a year ago aggressively promoting a stimulus, while conceding that the biggest problem is that there won’t be enough to spend upon? Doesn’t that remain the easier answer? To stimulate an economy this size is beyond our capacity.
Very nearly since the stimulus package was enacted he’s been saying that it wasn’t large enough.
My position was 1) I’m skeptical of the actual size of the Keynesian multiplier; 2) I know enough about how federal projects work to realize that “shovel-ready” was, at the least, an exaggeration; and 3) the projects worth doing i.e. that would have truly beneficial residuals weren’t glamorous enough and wouldn’t employ enough people to make them politically popular.
I might add that I don’t see any particular reason to believe that the n+1st dollar of stimulus spending has as much effect as the nth dollar did and we’ve been employing Keynesian stimulus aggressively over the period of the last 50 years. It may just have lost its mojo.
Or, as you suggest, the size of the stimulus that would have been required after all these years was simply impossible.
Dave, I’ve long developed a suspicion of multipliers based upon their use in economic assessments of state legislative spending proposals. (If you finance the building of this hotel, it will create 3,000 jobs in the community) If all of these predictions were true, you and I would both have the legislature to thank for all ten of the jobs we currently possess.
Smart people with letters after their names put those assessments together, so someday I want to know what the game is. My theories:
1. The projections assume existing unmet demand. The hotel will operate at 75% to 90% capacity, when in reality it doesn’t and therefore not as many people are hired. Additionally, if demand for the service is low, it’s likely that the new hotel will only create jobs at the expense of an older hotel.
2. Many of the jobs created were not local: the steel came from China, some of the jobs were created there, in transport, and in other areas of the country with larger and specialized labor.
3. The projection assumes supporting businesses in the area are operating at full jobs capacity. Thus, the additional need for 1/10th of a waitress can only be met by hiring a new waitress.
4. Various other forms of crowding out, particularly in labor. The desire to work at a new hotel (that may even provide higher wages due to government support), increases labor costs in the community, forcing some businesses to shut down.
5. Faulty reinvestment assumptions. To the extent it is assumed that profits are reinvested into the enterprise, this assumes that the “entrepreneur” that needed government assistance believes the enterprise is worthy of additional investment without additional government assistance.
I don’t know the relationship between these multipliers, but I think some of the issues appear similar, particularly whether increased economic activity stimulates foreign economies. But I wonder what legislators think of them, do they think they are scientific, or are they a form of funny money that has comparative value? Have they seen the hotel in the corn fields and wondered?