The Vision Thing

by Dave Schuler on February 18, 2013

Let’s consider one phrase in FDR’s first modern State of the Union message:

I shall continue to regard it as my duty to use whatever means may be necessary to supplement State, local and private agencies for the relief of suffering caused by unemployment. With respect to this question, I have recognized the dangers inherent in the direct giving of relief and have sought the means to provide not mere relief, but the opportunity for useful and remunerative work. We shall, in the process of recovery, seek to move as rapidly as possible from direct relief to publicly supported work and from that to the rapid restoration of private employment.

Note the hierachy of values in the statement. Benefits paid by the government (“relief”) are a necessary evil. Publicly supported work is an explicit, temporary transition to the ultimate goal, private employment.

Is there a comparable vision at work now? I don’t see it. The closest I see is the Keynesians’ insistence on boosting “aggregate demand” to realize “potential GDP”, a substantial step of abstraction away from FDR’s statement of objectives.

That the effectiveness of boosting aggregate demand is predicated on there being unused production does not seem to enter into the thinking. My view, as I have said for some time, is that there’s a lot less unrealized potential GDP than many people seem to assume. Remember, GDP is measured in dollars, not in widgets or hours worked. That means that, when the price of widgets goes down, the GDP represented by that decrease is just plain gone.

{ 17 comments… read them below or add one }

Icepick February 18, 2013 at 11:27 am

I’ll note too that FDR spoke in terms that relate to individuals (“relief of suffering caused by unemployment”, “useful and remunerative work”, “direct relief”, “publicly supported work” and “private employment”) versus abstractions (“aggregate demand” and “potential GDP”). People understand relief/charity, and they understand the idea of jobs. I don’t even think the economists comprehend what they’re talking about when they mention GDP and aggregate demand. Namely, for many economists it seems that GDP and aggregate demands are things in and of themselves, and not merely a convenient summation of millions and millions of individual economic interactions.

sam February 18, 2013 at 12:18 pm

“Namely, for many economists it seems that GDP and aggregate demands are things in and of themselves, and not merely a convenient summation of millions and millions of individual economic interactions.”

When you’ve become bewitched by mathematics, you tend to Platonism.

steve February 18, 2013 at 3:32 pm

The point of a stimulus has always been to try to get back to full employment. To create private sector jobs. You dont win elections with high levels of UE, unless your opponents suck.

Steve

Dave Schuler February 18, 2013 at 3:52 pm

The point of a stimulus has always been to try to get back to full employment.

But that’s not the point that FDR made which gets to the heart of the observation I was making. FDR’s remark was that private sector employment was the objective.

Now look at how the ARRA was divvied up. More was allocated to sustaining public sector employment than increasing private sector employment. Quite a chunk of what was supposed to increase private sector employment actually went to line the pockets of party contributors. I think that reflects a drastically different view of objectives.

When you factor in how public sector employment was sustained it becomes even more perverse. At least around here lane and step increments were preserved. Essentially, if teachers were fired, they were fired because revenues were inadequate to pay the contractually obligated raises.

jan February 18, 2013 at 4:27 pm

You dont win elections with high levels of UE, unless your opponents suck.

…or unless you are a messiah-type liberal, who can lie, exaggerate, ignore, obfuscate, operate under power to truth all day long, and get away with it — basically do anything one pleases — and the press will still regale him/her as the “best ever!”

Cal Thomas made a rueful comment yesterday, saying: “The media is so deeply in the tank for Obama, I’m surprised they don’t get the bends coming out.”

TastyBits February 18, 2013 at 5:16 pm

@steve

… You dont win elections with high levels of UE, unless your opponents suck.

This implies that the winner sucks less than his/her opponent, or the winner is slightly better than the loser. The Obama level of shittiness is a function of the Romney level of shittiness.

Drew February 18, 2013 at 5:34 pm

I hope Dave will humor me here. This link:

http://www.ft.com/intl/cms/s/0/b2bce37c-7644-11e2-8eb6-00144feabdc0.html#axzz2LIPGsAuy

is tangentially related to the essay above, but really closer to his min wage essay and an exchange I had withe steve.

I don’t want to put words in steve’s mouth, but I gather that his employee base would be unaffected, and he’s got a stack of studies, so the issue isn’t real. Look at the last sentence in the linked article. The Obama administration has its head in the sand, or is duplicitous, citing, ahem, “non-partisan” academic studies.

Meanwhile, back in the real world, real live businessmen making hiring, expansion and wage decisions are reacting in a predictable, and predicted, way. The real shame of it is these are the low skill earners who are either gathering skills (like showing up on time and how to deal with customers) or those second family members trying to fill out a family income.

How the min wage, or Obamacare, is good public policy and good for these people against this backdrop is beyond me. The subject of the essay directly above is government intrusion. Well, here you go.

PD Shaw February 18, 2013 at 6:07 pm

I would like to take this opportunity to recommend one of the best Lincoln books of the last twenty years or more: Richard Carwardine’s: “Lincoln: A Life of Purpose and Power.” In terms of hereditary and personal achievements, he lags behind almost all politicians taking the high office (except in the category of patents) , but he understood two things, power and purpose, and their relationship.

steve February 18, 2013 at 6:11 pm

Drew- Werent you an engineer? Even Einstein needed his Eddington. I understand the theoretical reasoning about why a minimum wage increase would be bad. However, there is no lack of theory which has fallen down when confronted with reality. The minimum wage is the norm throughout the OECD. There have been many raises of the wage. it should be pretty easy to prove that it causes disemployment. Instead, the literature is very divided. That generally means there is no difference, the difference is very small or we just dont know how to measure it. Mind you, this is not a case of using economic theory to try to predict an outcome. Economics sucks at that. This is just analyzing data derived from a past change.

My conclusion is that strong support for, or against, the minimum wage is just an act of faith or mood affiliation.

Steve

steve February 18, 2013 at 6:32 pm

Dave- I think you confuse results with methods. FDR put lots of people on the public dole. He was also lucky enough to start with low levels of public debt, not following years of conservative Republicans holding the office. We eventually got back to high levels of private employment, but actually well after FDR. Obama ‘s stimulus also involved a lot of money going to govt workers, but mostly keeping people rather than losing them, though we still have a loss of govt workers. Not sure I see a lot of difference, except that FDR phrases it differently.

Steve

Drew February 18, 2013 at 6:37 pm

steve

Yes, I was an engineer, which means, essentially I’m prone to look at outcomes, not desires. I could have all the theories I want about what might happen if I cool slowly a columbian carbonitrided steel in a lab and the resulting ductility and strength. But in a real live steel mill, I only know and care how it works in practice. As a physician I can only imagine you do the same with patient outcomes.

The point is that real live businesses are reacting. And they are reacting as one would predict. I don’t trust the vast majority of economic studies I see published. I know there is simply too much bias error, and the ability to isolate and measure variables is so difficult. You can only look at empirical results. Are people cutting workers back to 50 and under rosters or 30 hours……..or not? Are employers being false when they say they are doing it because of things like Obamacare or min wage? As a serial business owner I can tell you I certainly have never walked in one day and said “I’m going to cut workers back to 30 hours because, well, because its Wednesday.” No. Its a very important decision and the result of cold hard economic reality.

Its almost impossible to measure the jobs lost because of something like min wage or regulatory burden/employment cost burden. Valiant attempts and well intentioned studies could be done. I think they are worth about what toilet paper is worth. I know this all sounds anecdotal and at odds with certain worldviews, but unless all these employers are crazy, and think they are going to lobby in the media, what are they doing?? They are just stating their realities, and now reacting.

Last point. You could argue that in a full employment world the elasticity of wages and labor demand would have a different curve. We aren’t even close. This is reckless public policy in my view. And it becomes mean spirited when you know they actually realize what they are doing.

OK, really the last point. Drew’s machiavallian theory of politicians and academics: With real employment perhaps 10% – 12% that still leaves the vast majority employed. A large subset of these have ideological goals, or wages tied to the min wage. They outnumber those who who will get laid off. That means votes.

Game over.

steve February 18, 2013 at 9:25 pm

Drew- We are talking about outcomes here. I practice based upon current literature. I also know that sometimes the literature doesnt have the answer I need. But, I always monitor outcomes. We monitor outcomes for our department. If they are not good, we change. I am betting you did the same thing with your steel. Sure, you thought you had all of the right inputs. Still, you had to measure to make sure your outcome was good. Sometimes you had to go back and change if the outcome was disappointing. That is all I am asking here. Impossible to measure? I doubt it, unless it is a very small change or there is none.

Steve

Drew February 18, 2013 at 10:45 pm

steve

I knew you would answer in the affirmative that you look to patiant outcomes. Of course you do, as any well intentioned and competant practitioner would.

But you seem to be in denial, or attempting to minimize, the impact of policy decisions by people who are decidedly unlike you – crazed ideologues, especially in academia (witness a certain Paul Krugman) or politicians with an entirely different agenda.

I know that Obama has been given – you want to give – every excuse under the sun for dismal employment growth. But its just not chance. Its not just demand. Demand is out there. But investment is nowhere. Policy matters. Did you see the Wal-Mart sales numbers after the payroll tax increase? Do you observe what employers are doing with staffing and hours? Do you see what companies are doing with their health care plans? (higher deductibles and co-pays)

ice has been sucked into the downdraft, although I get the impression his wife is doing well. I also get the impression that everyone here from Dave to the commenters are doing just fine, thank you. We may be less well off than otherwise, but its really my oft cited Average Joe who is getting – and its only going to get worse – screwed by this guy. And its not just a few. He’s golfing. They are suffering.

He has a completely different agenda.

Icepick February 19, 2013 at 12:19 am

ice has been sucked into the downdraft, although I get the impression his wife is doing well.

She’s doing okay. But her new company is in the midst of cost cutting because, guess what?, the economy sucks and they’re “suddenly” getting caught in those downdrafts you mentioned. Scary as Hell that they’re cutting costs, because we all know that every corporate honcho loves nothing better than putting people out of work to make the bottom line look better so they can get a bigger bonus. (Don’t bother telling me they don’t, because every big company in America has done it. Try cutting the C-level bonuses for a change.) If she loses this job we’re homeless in about six months because there are NO reserves. Hell, I can’t even get my damned teeth fixed WITH insurance. How are we going to pay for anything with no income?

Drew February 19, 2013 at 12:36 am

ice

I don’t want to set you off, because you seem to share a similar trait with me: I can go off on rants on a moments notice. I call THAT caring, and not devolving into zombie-like intellectualism. And I live every day in this business world as a trenchman, not just a high minded theoretician.

As a practical matter, there is probably nothing I can do to help. That is just reality. But we do own 6 companies, and probably 8 before this fund is closed out. I get to Naples frequently. I understand Orlando is a few, probably 3-4 hours away. But perhaps.

And now, I bid you all goodnight from Los Angeles. I have to to go north and kill Reynolds…….

Just kidding…… Just kidding.

jan February 19, 2013 at 12:32 pm

Welcome to the land of endless traffic, Drew, especially the 405 freeway, which is undergoing massive construction and subject to all-day-long log jams of cars.

Getting in on this minimum wage discussion: we have always paid above minimum wages to the people working for us. Some will call it paying someone a ‘living’ wage, because that’s what it is. However, this is our choice, and it fits into our own business model. I, though, don’t want the government to get it’s bureaucratic hand into everyone’s business model and mandate a wage that might be the last straw for a given business.

What we need are more jobs — period. When that’s realized, there will be more competition for workers, and higher wages will become a part of the natural mix as a means to attract good employees. However, this artificial push from DC government entities is akin to a back seat driver — they just don’t have the on site vision and experience to know what is good and just for every business.

jan February 19, 2013 at 1:06 pm

PD

Thanks for the head’s up on Carwardine’s book on Lincoln!

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