Gary Becker and Kevin Murphy, writing in an op-ed in the Wall Street Journal point out something I’ve been saying here for a long time—that for the most part the most worthwhile projects won’t employ people who aren’t already employed:
In a full-employment situation, increased government spending would largely replace private spending, so the net stimulus to GDP would likely be quite small. In the present environment, however, with growing unemployment of both labor and capital, the net stimulus would be larger since the additional government spending would put some unemployed resources to work.
For example, if the government spent money to build new homes with unemployed labor, the stimulus to GDP might be close to, even larger than, the amount spent. However, given the present housing glut, that hardly seems to be a wise policy, although it is a small part of both the House and Senate stimulus packages.
In fact, much of the proposed spending would be in sectors and on programs where the government would mainly have to draw resources away from other uses. This type of spending includes adding broadband to rural areas, spending more on health coverage, encouraging scientific innovations, developing renewable energy, as well as many other things.
This isn’t the 1930’s; you can’t change truck drivers in the city into broadband installers in the country overnight and you can’t change them into doctors of medicine or medical researchers at all because, even assuming that they have the abilities necessary, the programs to educate those people are already full, have waiting lists, and, in the case of medical schools, haven’t added a billet to their programs in a generation.
In my view while I don’t doubt that the multiplier will be non-zero I think that the competition and crowding out effects will be non-zero, too. Basically, I think the fiscal stimulus package is a very expensive demonstration of good faith.
Wouldn’t it be cheaper just to say “I feel your pain”?
I haven’t seen the editorial but it is no doubt a variant of the quantitative anti-stimulus argument he posted in mid January, and picked up by Matt Y and Joyner.
If anyone missed it, go here for the live version: (with the bonus benefit of two other Chicago profs views on the world today)
http://gsbmedia.chicagogsb.edu/GSBMediaSite/Viewer/?peid=439a24a984fa449a8833412955afac45
I sat in Kevin Murphy’s classes many moons ago. Still a great listen. No BS. Straight up. (I must say, though, he’s aged, sporting grey hair, and what’s with the cap. Ron Howard syndrome?? Have I aged too? Can’t be.)
Its an hour’s listen, but anyone really interested in some good points of view on the economic world today should make the investment.
Cheaper to be sure, but in politics it’s better (for the politician) to be able to claim they did something and then hope that serendipity throws them a bone.