I’d like to draw your attention to something from Alan Blinder’s testimony before the Senate Budget Committee the other day:
You all know that we are on an unsustainable long-run path that will require, for its correction, both more revenue and less spending down the road. But the deficit does not pose a short-run problem. The Treasury is now borrowing huge sums of money at extremely low interest rates. It can borrow more. Today, the jobs deficit is more urgent than the budget deficit.
That said, the days of what I call the “Field of Dreams†strategy–build a bigger GDP, and the jobs will come—should be over. It’s a sensible strategy in many contexts, but it has two serious drawbacks in the present situation. First, it is working very slowly because firms are so reluctant to hire. Second, it is expensive—in the neighborhood of $100,000 of government spending or tax cut for each new job saved or created. America needs more jobs now, and because of the large budget deficit, we need them cheaper.
You may recall that Dr. Blinder and Mark Zandi of Moody’s published a spirited defense of the effectiveness of the ARRA (stimulus package) a few weeks back which I and any number of other people dissected at some length.
Dr. Blinder proposes two alternatives to previous policy. The first is a substantially broadened temporary tax credit for new jobs and the second is a direct public employment program for low wage workers, something he reckons can be accomplished for $30,000-$40,000 per job. I’d certainly be interested in how Dr. Blinder would disaggregate the amounts actually paid to the workers from the amounts paid to supervisors and administrators.
Let’s do a little back-of-the-envelope calculation. According to the Bureau of Labor Statistics the total number of unemployed people is 14.9 million, the total number of employed is something like 154.4 million, and the unemployment rate is 9.6%. That means that to reduce the unemployment rate to 6% (by getting people back to work rather than by reducing the size of the labor force), we’d need to create jobs for roughly 5 million people. 5 million X $100,000 per job = $500 billion.
I’m skeptical. I think that the cost of previous policy was far, far higher per job created (or saved!)—something closer to $400,000 per job and a vanishingly small proportion of those jobs actually produced anything with permanent residual benefit.
I agree with John Taylor’s prescription: whatever policy is adopted should be “predictable, permanent and pervasive”. Policy to date has been unpredictable, temporary, and targeted at specific sectors or even specific businesses.
Dave,
Also, your $500 billion is only for one year. We’d likely have to spend somewhere close to that for several years, assuming the $500 billion is even correct which, as you note, isn’t likely.
I’ve got to admit that the figure is bugging me. It feels like Blinder may have started off by deciding what number might have been acceptable and then backing the supporting numbers out of it.
Correct, and that $30,000-40,000 does that include health care or not? And then there is the building to house the bureaucrats that oversee it and so forth. If the $30,000-$40,000 does not include these things adding them back on could easily put is well within spitting range of that $100,000. And as you note, that number is highly dubious to begin with. For only $100,000/year we’d get a bargain.
I certainly agree w/ John Taylor. I don’t think any of these temporary tax cuts or credits for employment will do anything but give free money to companies that were going to hire anyway and give political credit to politicians for something akin to gravity.
The time to cut payroll taxes was when the companies were laying off.
There is an incredibly cheap way to create jobs. Legalize previously illegal activity. Legalize home distilling as we’ve legalized home brewing. A number of people will suddenly be interested in purchasing stills. Legalize jitney service and a number of people will start services in under-served areas.
What does it cost the treasury to legalize fish pedicures? Nothing, yet people are actually fighting such a benign procedure with legal red tape and scare tactics.
Any politician could run through their legislative code and find things that had been regulated to death or outright illegalized and reverse course, creating jobs. They would increase employment, increase taxation, and the needs and desires of the people would be better satisfied.
But you don’t hear much about this approach. It’s very sad.
TMLutas,
Rent seeking is a bad thing. You are right, but politically it is infeasible…don’t you just love that phrase.