Gene Epstein muses over why the recovery from the late recession has proceeded so slowly:
ONE KEY SOURCE OF DISAGREEMENT about the subpar recovery lies in the role played by government policy. Has government been part of the solution, and therefore might it do even more to help solve our economic problems? Or has government mainly been part of the problem itself?
While I suspect the latter, I withhold judgment for the time being, awaiting the 2010 update of the Vancouver, British Columbia-based Fraser Institute’s Economic Freedom Index. Originally developed with the help of free-market economist Milton Friedman, the EFI tracks 42 separate measures equally weighted under five different categories, including “Size of Government,” “Access to Sound Money” and “Regulation of Credit, Labor, and Business.” In light of the bipartisan bickering that is likely to get even more heated as Republican hopefuls square off against President Obama on the economy’s ills, it’s worth noting that over the long-term, the EFI tells a relatively nonpartisan story.
For example, Economic Freedom moved higher in the administration of Jimmy Carter, a Democrat, and even edged up under Bill Clinton, another Dem, to a 30-year high by 2000. The index then began to fall under the administration of Republican George W. Bush. Since research shows that fluctuations in the EFI, up or down, correlate with economic growth, that may be one reason why growth under Bush was noticeably slower than growth under Clinton.
Also noteworthy: The one-year fall in the EFI from 2008 to ’09, the most recent year for which data are available, was the largest on record.
I think that government policy, inevitably attempting to straddle the nominal goal of boosting economic growth with the more urgently felt goal of re-election and, consequently, currying favor with powerful constituencies, probably hasn’t helped as much as it might (or as much as its proponents might have wished) but I’m skeptical of the underlying assumption, namely that there must be some near term change in policy that explains the difference between the Great Recession and other post-war recessions.
I think that policy decisions of Republican and Democratic presidents, Republican and Democratic Congresses, and all combinations thereof have been creating the situation we’re in over the course of many, many years and only substantial, structural changes in the economy will wring the distortion that have been built in by decades worth of bad decisions. Home building, which has lead the way out of most post-war recessions, isn’t likely to recover for the foreseeable future and there really are no other, obvious candidates waiting in the wings.
The economic realignment that we need has scarcely begun, at least in part because we’re so eager to re-inflate the bubbles.
Greedy Wall Street executives almost destroy the world’s economy.
Fringe right “economist” tries to blame the poor/the gumint.
*yawn*
We haven’t been in an recession where the primary factor was excessive private sector debt since the Great Depression. It takes a long freaking time for households to deleverage the massive amounts borrowed, and it’s amazing how much effort has gone into recasting a consumer debt crisis as a public debt problem. Why hasn’t the rrcovery been faster? Because policy makers continue to misdiagnose the disease.
Isnt it odd that so many who think government cannot do things right, still hold on to the belief that if government followed the correct plan, this recession/sluggish recovery would be resolved? I dont see anything that makes this get better fast. We need to address longer term structural issues and need to fix health care.
Steve
@Steve
A great start would be to scrap unemployment insurance and replace it with a limited term jobs program. I can’t think of a greater source of mal-investment than paying people for not working. Even if we just put the unemployed to work for 99 weeks beautifying the country we’d still get vastly more bang for the buck, and it makes those people easier to hire back into the private sector.
“I can’t think of a greater source of mal-investment than paying people for not working. Even if we just put the unemployed to work for 99 weeks beautifying the country we’d still get vastly more bang for the buck”
This is called calling the liberal’s bluff. Good luck.
I think that the repeated extensions retain support for several, possibly contradictory reasons. With so many people unemployed and so few jobs opening up it’s darned hard to vote against the extensions. Some can’t imagine any solution other than just extending the payments. For some it’s a political calculation. They couldn’t care less about budgets, perverse incentives, etc.
For some the benefits of the increased aggregate demand overwhelms the perverse incentives. And so on.
Note that your CCC strategy isn’t the only possibility for creating jobs. Others include eliminating Davis-Bacon wage requirements for federal infrastructure spending projects and wage subsidies.
@Ben- Sounds good to me (for long term UI), but doubt you can get it past the conservative House. To be fair, it has lots of room for abuse. However, if you scrap short term UI, I think you create a lot of inefficiencies in people reallocating themselves to new jobs.
Steve
As someone coming up on 99 weeks of being a 99er (a 9801er, if you will), I can tell you that the “perverse incentive” of paying people not to work has marginal impact at this time. There just aren’t enough jobs to go around. If you eliminated UEC tomorrow, there still wouldn’t be enough jobs. Not paying people to not wok won’t make a damned bit of difference.
“I think that the repeated extensions retain support for several, possibly contradictory reasons. With so many people unemployed and so few jobs opening up it’s darned hard to vote against the extensions. Some can’t imagine any solution other than just extending the payments. For some it’s a political calculation. They couldn’t care less about budgets, perverse incentives, etc.”
Yes, this is most assuredly the political calculus. Unfortunately, the intersection of political calculus and good policy is all too often the null set.
Icepick,
My point is to scrap unemployment insurance in favor of a job offer of equal duration. So if you lost your employment in the private sector, the feds would offer you work for a fixed term in exchange for the same paycheck you would have gotten from your insurance. You accomplish something productive,you aren’t made to feel as though you don’t contribute, and you retain at least some of your skills while perhaps gaining others.
@Dave Schuler
The problem with waiving wage requirements alone is while it may improve employment it doesn’t guarantee employment, meaning some who want to work for their keep will inevitably not be able to participate. Maybe a mixed system whereby wage requirements are waived and the guarantee kicks in to offer employment to those who fall through the cracks, but we could probably set pay at $9.00 per hour and still come out ahead.
Ben:
My point was that we’re not limited to single solutions. “All of the above” has its advantages.
You accomplish something productive,
Working for the government?
you aren’t made to feel as though you don’t contribute,
Yeah, we’ll be on an equal footing with those guys in the orange jumpsuits cleaning up the highways.
and you retain at least some of your skills while perhaps gaining others.
What job is the government going to give me that would have allowed me to retain any of my skills as a number-crunching analyst? (They’re pretty much all gone now, as well as the skills I acquired in “job training”. What a joke. But I don’t see anything that you’re proposing that would have made any difference.) I already know how to do yard work, and I already know how to clean toilets, and for that matter I even did a little road construction in my youth, so I’m not seeing the big skill add.
I’m not necessarily opposed to your idea, but what you’re selling doesn’t match what you’re describing. It’s just the same old “Make ’em work for their supper” argument dressed up in some fancier terms from economics.
Icepick,
There’s always work for accountants. I assure you that if I were given the staff and mandate, I could find an appropriate job for every unemployed person in America. A lot of work needs doing that isn’t economically feasible for the private sector, and almost anything is more productive than what we currently get from unemployment insurance, which is nothing.
” almost anything is more productive than what we currently get from unemployment insurance, which is nothing.”
Not starving has some value, though I guess it might not be considered productive. Welfare? Able bodied workers who want work but cannot find it. Not sure UI or welfare will be acceptable to the current House. They seem convinced that people just dont want to go out and get a job. Lazy bums all of them seems to be the POV of those wanting to end UI.
Steve
There’s always work for accountants.
I’m not an accountant, though I test very well with the staffing agencies. (I test best on the hardest material, and worst on the easiest material. The easy stuff is all definitional, which means you have to have memorized it beforehand, the hard stuff is all conceptual, so easy to think it through on the fly.) And there is no way I’m going to go several more tens of thousands of dollars in debt to try and get another useless piece of paper. I will confess that I don’t recall running into any unemployed accountants in my journey through the bottom of the US economy, but I haven’t been looking for them either. (And if I didn’t live near Cape Canaveral I wouldn’t have met any unemployed rocket scientists, either, but I have met at least one.)
As for stuff that needs done – I think we need lots of hard decisions made about what we AREN’T going to do. For several decades we tried to do way more than anyone else had ever attempted, and while the demographics (and other factors) favored us we got away with it. Those factors don’t favor us like they used to, and it’s time to prioritize.