This morning’s Wall Street Journal presents two contrasting opinions. First, former Clinton Secretary of Labor Robert Reich articulates the dilemma in which the Obama Administration finds itself:
Whatever the outcome of the upcoming midterm elections, the activist phase of the Obama administration has likely come to a close. The president may have a fight on his hands even to hold on to what he’s already achieved because his legislative successes have been large enough to fuel strong opposition but not big enough to strengthen his support. The result could be disastrous for him and congressional Democrats.
Consider the stimulus package. Although it’s difficult to separate the consequences of fiscal and monetary policy, most knowledgeable observers conclude that the stimulus has had a positive effect. Real GDP is now increasing at an annual rate of 2.4%, and although the recovery is still fragile it’s unlikely we’ll fall back into a full-fledged recession.
Yet the official rate of unemployment remains above 9%, not including millions either too discouraged to look for work or working part-time when they’d rather have full-time jobs. Almost half of the jobless have been without work for more than six months, a level not seen since the Great Depression.
The central problem continues to be inadequate aggregate demand. The administration’s original sin was not spending enough and focusing the stimulus more directly on job creation.
He goes on to find similar patterns in TARP, the bailouts of GM and Chrysler, and healthcare reform.
There’s a lot to decompress from that statement. Let’s focus on the last paragraph. By “inadequate aggregate demand” presumably Mr. Reich means that individuals and companies aren’t spending enough to create economic growth and the federal government as the spender of last resort (or first resort, depending on your policy preferences) should step into the gap as Lord Keynes suggested and make up for the lack of private spending. The problem with this strategy is that it’s only the second move in the chess game. In response to economic uncertainty and activist government history certainly seems to suggest that individuals and companies hunker down and spend even less. That further reduces any multiplier effects that might have been reserved. Note that I’m not claiming either interest rate changes or crowding out. I’m only talking about rational responses to circumstances.
James Taranto sees things a bit differently than Mr. Reich. In reaction to a column by Harold Meyerson (who appears to see things rather along the same lines that Mr. Reich does) he writes:
There are two problems with Meyerson’s argument. First, the evidence is sorely lacking that the government is capable of or competent to create jobs in the way he urges. Last year’s $800-plus billion so-called stimulus was filled with targeted tax credits and public “investment,” and it came nowhere near producing the promised jobs.
Meanwhile, it’s curious that Meyerson cites General Motors as the “model” of the private sector’s failure to create jobs. True, GM used to be part of the private sector, but it’s Government Motors now, baby.
Second, while the government’s ability to create jobs is questionable, no one can deny its power to destroy jobs–by burdening the voluntary sector with taxes, regulatory mandates and prohibitions, and uncertainty, both political (will Congress repeal the Bush tax increase?) and regulatory (how will the government exercise its wide discretion under ObamaCare and the so-called financial reform bill?).
Big companies have an advantage over small ones in dealing with the destructive effects of government policies. They can move operations overseas, take advantage of economies of scale, and use their vast legal departments to navigate complicated regulations and tax laws. Small companies–which account for the vast majority of job growth–are much more likely simply to wither and die.
Meyersonomics, then, consists of beating up the private sector and leaving it for dead, then having the government ride to the rescue of the unemployed by giving them taxpayer-funded jobs.
My answer to both these opinions is that the federal government needs to stop trying to pick winners and losers and should concentrate capital spending efforts on projects that have substantial future residuals, either in use or in technology. Fewer roads and bridges, better railway roadbeds and more smart grids. Of course, nobody wants my advice. And it would certainly cut into the political payoffs that could be expected from the sort of gravy train that federal spending bills can provide.
I note in passing that after considerable research I have found that it still seems to be impossible for individuals to determine with any confidence how they’re actually using electricity in their homes. It’s easy and cheap to determine total household use or the use of a single appliance. However, systems for isolating usage by circuit appear to run into the thousands (installed), far beyond the budgets of most and also beyond reasonably expectable savings. You’d think that systems like this would be inexpensive and readily available. Apparently, electricity isn’t expensive enough or expected to get expensive enough for products of the sort that I’m thinking about to appear.
“Second, while the government’s ability to create jobs is questionable, no one can deny its power to destroy jobs”
Not nearly matched by the power of the finance industry to destroy jobs all around the world.
Steve