As far as I can tell here’s Lawrence Summers’s strategy for spurring economic growth: the beatings will continue until morale improves. After examining and dismissing two possible strategies, “emphasize what is seen as the economy’s deep supply-side fundamentals: the skills of the workforce, companies’ capacity for innovation, structural tax reform and ensuring the sustainability of entitlement programs” and “lowering relevant interest rates and capital costs as much as possible and relying on regulatory policies to ensure financial stability”, his proposal is to increase demand, both by increasing government spending and increasing private spending. Ignoring the circular nature of his proposals (the way to encourage spending is to spend more), I’m a bit concerned about his approaches.
“Public investment” as it’s been construed recently does precious little to produce sustainable economic growth. We don’t need more infrastructure spending (defined as building roads and bridges). We’re already overbuilt. Although the actual construction spending might do a bit of largely localized good, ensuring that we have 154 bridges across the Mississippi rather than 153 or that all cities with more than 50,000 population are within ten miles of an Interstate has practically no residual benefit. Neither does spending more on healthcare or education. More healthcare and education might but the pattern of the last thirty years is that greater inputs do not yield greater outputs. If anything, it’s the reverse. We spend a multiple today in real terms of what we did twenty years ago on education without material benefit except in a Red Queen sort of way.
I’m open to the the idea of public spending as a means of producing sustainable growth but I’d like to see some specific proposals. This is not the 1930s. Now we have a large component of the economy that’s mobilized to suck up every dollar the federal government is willing to throw.
Similarly with Dr. Summers’s approach to encouraging private investment:
Much could be done in the energy sector to unleash private investment toward fossil fuels and renewables. Regulation that requires more rapid replacement of coal-fired power plants would increase investment and push growth as well as help the environment.
Does this strike anyone else as a nearly perfect example of the “Parable of the Broken Window”?
Here’s an alternative: the president could approve the building of the Keystone pipeline. It appears that’s something that people already want to do rather than breaking a window so the glass can be replaced.
However, I’d like to hear other suggestions.
I just seems to me that if we continue to do what we’ve been doing, which is largely what Dr. Summers advocates, we’ll continue to get the results we’ve been getting.
Public spending, or cutting taxes, is not a viable method for producing job growth. Note that the Bush tax cuts remain, largely, in effect. I don’t see a quick fix, never have. The stimulus appeared to successfully stop the slide into the abyss, but more debt financed job growth just leaves more debt to pay back.
Good long term policy will pay off. Do the kinds of infrastructure stuff we need done anyway, like fixing our grid. Interest rates are low so take advantage. More public investment in basic research, especially in non-medical areas. Fix our immigration policy. Do away with the drug war and stop incarcerating so many people. Work on deregulating small business. Health care reform 2.0 to address costs. Make all political donations of any kind transparent to the public, including the listing of where all children of public employees at the level of Congressman on up have jobs and when.
Steve
Thanks to a series I’m writing I’ve had to pay way more attention than usual to the immediate pre-WW2 and early WW2 period.
To indulge in a reductio it seems to me that in effect we went from depression to full employment by building things which were promptly destroyed. Build tanks, blow them up. Build ships, blow them up. Build airplanes and use them to destroy German cities, blow up the plane and later help rebuild the cities.
A giant nihilistic works project the final effect of which was destruction. And yet, it worked like a charm at creating jobs.
My question is, why did this government expenditure work to create jobs, but we can’t do something similar today? It’s not like we were building things of value, we were just littering the world with scrap metal.
The Keystone Pipeline will never be built while President Obama is in office. Warren Buffett owns the rail cars that are shipping the oil south. He did not spend a lot of money getting an unknown senator elected for no reason. He expects to get a substantial return on his investments. He is Robber Baron #1.
@michael reynolds
Britain, France, Germany, and Japan had far more broken stuff to rebuild, but it did not seem to work out too well for them. There must have been some difference. I wonder what that difference was.
War also tends to kill off the most productive workers.
Tasty:
It actually worked pretty well for Germany – until they lost. Their economy roared through the late 30’s and into the 40’s, and they were doing much the same thing we were doing: building stuff to blow up.
Insofar as we financed our effort by means of bonds we were basically borrowing money from people in exchange for which they got high-paying jobs making stuff to blow up.
I visited the National Winston Churchill Museum in Fulton, MO last year. The most incredible thing was that it was located in the basement of a beautiful London Church that was bombed in 1941 and twenty years later it was still a bombed-out ruin like numerous other buildings in London. The Yanks bought it and shipped it over stone-by-stone in 1965, with a bit of sour grapes on the other end that we could afford such extravagances.
We could alleviate the unemployment problem somewhat by making the entire political and pundit class about a foot shorter. I mean, clearly Larry Summers’s job is EXTREMELY important, as are the jobs of all those Tsars recent Presidents keep insist on creating, so once the current occupants have, ah, left office then someone else can take their jobs.
It seems at least as plausible as Nancy Pelosi’s idea that more unemployed people with more unemployment benefits will spur economic growth.
So, why can’t we, for example, hire thousands of guys with hand tools to go through the tens of thousands of abandoned buildings in this country, strip out any copper or other useful metals left, knock same buildings down, cart away the trash and seed the land with grass?
I understand the, “Oh, environmentalists ill whine and local zoning boards blah blah,” but it’s not like in 1942 Americans weren’t complaining. We had strong unions at that point, for example, and had to get past that hurdle.
So, really, why can’t we do that? Why can’t we hire unemployed people to do useful work that does not involve building unnecessary bridges? There are abandoned buildings, there are run-down areas that could use a coat of paint, there are parks with fallen-down structures and weed-choked trails, there’s trash in lakes and streams, there are animal shelters that need to be brought to code, I mean, it’s not hard to come up with a very long list. There is a whole lot of work that could be done by anyone with a pair of hands that does not run up against Dave’s objection to overbuilding, or his point that construction now is a more machine-intensive job. And in the end we wouldn’t even have to nuke anyone.
I think WWII worked because we started building and shipping stuff to Europe even before we entered the war, so our economy was already recovering. Upon entering, we achieved full employment by spending borrowed money, but we started the war with very low levels of public debt. During the war we rationed, so we had major pent up demand, and lots of GIs who couldnt spend their money anyway. After the war, demand was freed with rationing gone. There was massive investment as companies retooled. We have nothing like the same starting conditions now. Companies have been making record profits since 2009. Why would they invest?
Keystone would provide a miniscule number of jobs (ignore the oil company estimates). It mostly helps Canada.
Steve
I’ve never had any problem w/ a WPA type project, but I’ve seen little discussion of how it would work today. My grandfather was working at gravel quarry according to the 1940 census; in 1930 he was a farm manager and by the late 40s he was working on a factory assembly line building construction equipment. The economy has gotten more complicated, more inclusive and there are fewer people qualified to handle purely physical labor.
@michael, When this topic came up before, I think the main point Dave and I made was that demo work is asbestos work, requiring the participants to have specialized licensure and training. Not that it can’t be done, it just has to address that matter.
@michael reynolds
After WW2, the US was the only country with a manufacturing base, and the war debt was easily paid off.
After Vietnam, the US was not the only country with a manufacturing base, and the war debt was was not easily paid off. Remember stagflation.
One other difference between post-WW2 and post-Vietnam is cheap energy. If you want to decrease income inequality, increase cheap energy. If you want to increase cheap energy, build more coal plants.
It would be easier to pay people to sit around 8 hours a day not building the things that will eventually be broken. It does not require any special skills or education for this job, and cots could be provided for people who cannot stand.
… [D]emo work is asbestos work, requiring the participants to have specialized licensure and training.
Only if you give a shit about their health. If you just want the useless fuckers dead, this is great. As is sending people with no experience in demolition or construction work onto a site expecting them to tear stuff down. “Hey, let’s just remove this beam and see what happens….”
More work for the government employees who will have “oversight” roles. More work for the private contractors with the connections to get governmental contracts. Plus it will funnel more money into the healthcare sector as the people get sick and start utilizing their ObamaCare before dying. The right people will make a killing off the killing, and the wrong people will end up dead. It’s a win for everyone (that matters)!
***
It’s a work project for the wealthy: Get rid of aggravating poor people and improve the look of the place to boot. It’s exactly the kind of thing Mayor Bloomberg would support.
If you want to decrease income inequality, increase cheap energy.
Or restrict the labor supply and let market forces do their magic. It’s worked before! But the elites are doing exactly the opposite, because they prefer income inequality, as long as they’re on the side getting the lion’s share of the spoils.
@Icepick
… But the elites are doing exactly the opposite, because they prefer income inequality, as long as they’re on the side getting the lion’s share of the spoils.
Just because income inequality has increased under President Obama does not mean that he does not care. If he did not care why does he give so many speeches about his caring?
@Tasty, a cynic would say that the best strategy for the fox who wishes to continue guarding the henhouse is to blame the farmer’s dogs for the missing chickens, all the while begging for more power with which to end the depredations once and for all.
Note that this has nothing to do with party.
None of this is answering my question, unfortunately. We can’t train people to remove asbestos? Please. For WW2 we trained housewives who had never held a job to work with planes, electronics and explosives. I had a house professionally lead abated which isn’t that different than asbestos removal and it isn’t rocket science. As for learning to take down structures, you’ve got to be kidding. I was doing that kind of work when I was 16 and my “training” involved my uncle smoking a cigarette and saying, “Not that beam, this one.”
This is Learned Helplessness Syndrome. Nothing can be done because it’s too hard? Harder than making an atom bomb from scratch where “from scratch” meant let’s start by building facilities in the woods and the desert? Harder than let’s figure out how to get a plane to fly twice as far and twice as high with a bomb load – and do it from design to mass-production in a year? Harder than building ships at a speed never even before contemplated?
It’s really pitiful stuff. If we want to put people to work we can do it. Should we? That’s a different question. But let’s start with the fact that of course we could.
@michael reynolds
A year ago I was assured that these folks were unemployable. There would be no jobs for them, and if any jobs were available, they would be too stupid to do them. It is amazing how things change in a year.
The world of 1944 is a lot different from the world of 2014. Which do you want? No OSHA. No environmental studies. No EPA. No etc., etc., etc.
I am philosophically against government work programs, but I think that there are areas that are better for the government.
Restart the space program. When did it ever make any sense relying on the Russians to get into space?
Just because income inequality has increased under President Obama does not mean that he does not care. If he did not care why does he give so many speeches about his caring?
I’m sure he cares. I’m sure that, just like every other politician in DC, he is THRILLED by this. I’m sure he has had some very expensive champagne (paid for by the tax-payer’s credit card) toasting the accomplishment, probably with Reid, Pelosi, Boehner and McConnell in the room with him. Well, okay, not that last part. He doesn’t deign associate with mere Congresscritters. But if he did, I’m sure they would have toasted the achievement together.
A year ago I was assured that these folks were unemployable.
Oh, we are unemployable. We’re all stupid, lazy, shiftless, unskilled and have uncouth manners. It happened to us all suddenly in 2008, for some unexplained reason. I’m told so by both parties all the time. After all, what did I ever do, what with my big test scores, and IQ, and mathematics and IT degrees, and all the jobs I ever did? Seriously, when did I ever do ANYTHING that might make someone think I’m capable of, say, mopping up the place? (I mean, other than mopping up the place, as I’ve done that too.)
The LTUEs are the lepers of modern American society, and the only reason the Dems want to keep UE benefits extended is for a talking point during campaign season. The Democrats would be just as happy to have us all exterminated so as to make Obama’s monthly BLS reports look better. Pure cannon fodder, that’s all we are.
Michael,
I think the biggest problem with your deconstruct proposal is that all those buildings and land are likely owned by private citizens who may not want scores of temporary government workers taking everything off the property and selling it or doing whatever else. There just might be a lawsuit or two…
And sure, in theory there are a lot of “odd jobs” that could be done on public land, but the details matter. Just a few things to consider:
– What’s the scale of the work?
– How many would it actually employ and for how long?
– How many people would have to move/travel to where the work is?
– What compensation is necessary to entice workers to do this work for whatever length of time is required?
– What do you do about the private firms who work in these areas and what will happen to their businesses?
– How much would it cost and is that cost politically feasible (For example, the WPA in the 1930’s cost 1-3% of GDP annually to employ from 2-5.25% of the workforce.)
We’re a long way from the 1930’s and implementing a WPA-style program absent significant government reforms would be challenging to say the least.
As for the comments on WWII and how great all the destruction was for the economy, all our military expenditures over the last 10 years haven’t bought us prosperity.
I agree with all of the comments about the impediments to the idea Michael describes but I do think extraordinary times and situations might come into play- Detroit, for instance? Could exceptions to normal regulations be carved out, while retaining core safety rules and training? And piece together the demolition work with empowerment zone program to try to stimulate some private investment and rebuilding.
Obviously that wouldn’t benefit unemployed folks in other areas of the country if they aren’t able to relocate, but it still might be worth doing.
This caught my attention:
“make sure that a widening trade deficit does not excessively divert demand from the U.S. economy.”
How? Why should widening trade deficits be accepted at all? Maybe he knows our trade policies are hurting us but is afraid of directly challenging them.
1) The U.S. did not pay off “debt” accumulated during WWII. The war was financier by monetary creation as the Fed bought the Treasury’s bonds directly. Wages surged as unemployment fell toward 1% and government was competing with the private sector for a greater share of the economy’s output. The purpose of the personal income tax of 1938 and the war bond program were to reduce private spending power so there was more stuff for government to buy; it was about inflation control, not funding.
2). A myth that just won’t die (because the same people keep repeating it no matter how many times it’s debunked) is that America prospered because it had the only intact manufacturing base and supplied the world after the war. In reality our trade surplus varied between 1-2% of GDP and was never responsible for the country’s strong post-war performance. War bonds were savings accounts and Americans had a tremendous amount of money to spend, which they gleefully did once they could take back the lion’s share of output.
Michael asked the $64,000 question: if you can have full employment killing Germans then why not in peace? The answer is we can. The economic paradigm which has been in place for the last forty years is not written into the fabric of the universe as some would have us believe. You put dollars into citizens’ pockets directly rather than throwing it at contractors and hoping it trickles through.
And for anyone thinking about objecting to “make-work”, sod off. An enormous number of private sector jobs are in bloated administrative, legal and financial sectors which produce nothing of value, and that doesn’t include all the work produced by companies like Goldman and JPMorgan trucking raw materials between different warehouses all day solely to drive up prices.
Well, why not, as you say, just put money it people’s pockets?
Just to clarify, I’m not skeptical about the idea of “make work,” as idea or possibility or theory in the abstract, I’m skeptical of how it would be implemented in early 21st century America.
I still think the main problem is sclerotic government institutions that can no longer function with anything close to efficiency. All the big ideas in the world can die by the red hand of the established bureaucracy – it’s something I see in government service every day. I don’t see any way that existing government institutions could effectively build and manage a WPA-style program for all the same reasons that government can no longer do most any kind of big project with basic competence whether it’s developing new military equipment, or implementing the ACA. People complain about these problems all the time – and use them as political ammunition – but they will persist absent significant government reform – on the scope and scale of the changes that occurred around WWII. But there are very few interested in such reform and no one of consequence among our class of elites. All the grand ideas in the world mean jack shit unless there is the capacity to actually carry them out. Wishful thinking is not a strategy.
Well, mobilization for war tends to drive down unemployment…not sure what that has to do with our current situation or what lessons that tells us about a peacetime economy.
@Ben Wolf
A perpetual economic machine will work no better than the energy type. It is against the laws of nature, and therefore, it is impossible. It will always fail.
I would suggest a small scale test first. Start with Venezuela, Nigeria, Cambodia, or somewhere else. When these places become bright shining examples of this winning strategy, the rest of the world will follow.
Somehow every other country fighting was also producing war materials, but after the war, they were an economic shambles. The $64,000 question is what was different?
If I understand correctly, their destroyed manufacturing base was not the problem. Their problem was a lack of government spending. They should have been printing money.
I guess the Marshall Plan was a US scheme to keep Europe economically in a shambles.
@Andy
Mobilization for war meant spending until all we could buy all the things we could produce, which we can also do in peacetime. In fact I’d like to hear a coherent argument from someone as to why full employment only works when we need to destroy things.
Unemployment increases suicides, domestic abuse, family breakups and perpetuates a permanently disadvantaged underclass. My personal opinion is our tribal psychology gives us the need to feel we are contributing to general well-being, which is why we want to work. Although I have met people who contrive to remain unemployed I have yet to meet an unemployed person who was happy or contented.
@Tasty
If I understand correctly, their destroyed manufacturing base was not the problem. Their problem was a lack of government spending. They should have been printing money.
That you can write these two sentences together indicates I have utterly failed to make myself understood to you over the last three years. Well, I never claimed to be a great communicator.
I was going to try to make the argument about blowing things up by saying that wartime creates a new category of demand that is immune to the fluctuations that accompany consumer demand.
Then I realized the rebuttal would be that this is true of all public spending…am I right?
But then my mind goes to the idea that what matters (as to whether or not public spending works as stimulus) is the ratio of public to private spending. Are we now pushing against the limit now (aside from other problems of a larger central government, like less transparency and more opportunity for rent seeking, so that the public spending isn’t accomplished in a productive way)?
It just seems to me that we’ve shot our wad of fiscal and monetary policy armament. I say this of course as a lay person who only barely understands the concepts, but sometimes I think that gives me a forest over trees perspective. I’ve read on MMT, for instance, and it still sounds like wishful thinking to me.
Maybe that itself is part of the problem….since everyday people don’t buy into the idea that government debt doesn’t matter, the spending doesn’t lift consumer confidence and demand. Politically the discomfort with deficit spending poses it’s own limit, even if somehow the reality is that the deficits can grow infinitely large.
@Ben Wolf
That you can write these two sentences together indicates I have utterly failed to make myself understood to you over the last three years. Well, I never claimed to be a great communicator.
I understand. I probably understand better than you. Everybody has been stating the glass is half-empty, but the MM crowd has noticed it is really half-full. This is no breakthrough. Nothing has changed.
MM is about accounting identities, bubble mechanics, fractional reserve lending, and the Fed. The US is playing “musical chairs” with the money supply + credit, and what you are proposing is to add more chairs, play the music faster, and to move the missing chair.
I offered Venezuela as a test case because they have oil. If they cannot produce the predicted result, the hypothesis is faulty.
Venezuela will fail substantially sooner than the US because they lack additional factors you do not account for. They do not have a Fed with a world-wide accepted currency. They do not have a long term stable government. They do not have an economy the size of the US’s.
As to full employment, I am not opposed. I am only opposed to the government guaranteeing the full portion. Again, there are things the government should do. I think that there are several new areas, but this is a different debate.
@Cstanley
… I say this of course as a lay person who only barely understands the concepts …
Most of the concepts are not that difficult to understand, but they are dressed up in “smart sounding” language to make them seem more than they are. In many instances, the experts have no idea of what they are talking about.
I often wind up knowing far more about a subject than I ever wanted to know because I was trying to reconcile the experts explanation with reality. At first, it is hard to believe that I know more than the experts, and I keep digging to find out where I went wrong. After mind numbing research, I learn that the experts are idiots.
If something is “too difficult for you to understand”, the person telling you does not understand it.
Agree, Tastybits. I find that most people writing on these subjects seem to fall in one of two categories: either they are deluding themselves or attempting to delude others. And anyone who is skeptical enough to resist the delusion is dismissed as having insufficient intelligence or knowledge.
“I still think the main problem is sclerotic government institutions that can no longer function with anything close to efficiency. All the big ideas in the world can die by the red hand of the established bureaucracy – it’s something I see in government service every day…….
All the grand ideas in the world mean jack shit unless there is the capacity to actually carry them out. Wishful thinking is not a strategy.”
Andy’s post, IMHO, cuts to the chase in citing the root of so many of our economic problems — “sclerotic government” and the “red hand of bureaucracy.” It’s estimated that seventy percent of job-creation is via small business. However, these days it’s a navigation ordeal of red tape and government-mandated obstacles for small business to initiate an idea, let alone open it’s doors. There’s a televised ad circulating, illustrating the low-key origins of once fledging, now thriving, enterprises. It’s put out by Dell, stringing a series of places, addresses and dates together showing the actual location sites where visions were discussed and dreams put together — dated anywhere from the 1970’s to 2007. The genesis for such extraordinary ventures were ordinary cafes, apartments, bus seats, dorm rooms, where light bulb went off, ideas flourished into implemention, eventually actualizing from a head game to employment opportunities for others.
Ironically, there was nothing representative of notable start-ups, during the current administration, in the Dell ad. This has been the era, though, when even kid’s lemonade stands are attracting attention, being hounded by government employees for the absence of a business licence. It seems to me that the more you tie entrepreneurial enthusiasm, motivation and energy up into bureaucratic knots, the less inclination there will be to create and owner-operate a legitimate business concern . Could that be why there’s so much hesitation/uncertainty out there, as well as bigger investors floating money into safer mediums, such as precious metals and the stock market, rather than testing their patience and assets under an unfriendly-to-business government environment?
My personal opinion is our tribal psychology gives us the need to feel we are contributing to general well-being, which is why we want to work. “
I fully agree with Ben’s insightful comment regarding our tribal psychology, and the intrinsic need to be a contributing member of society (working) to be fulfilled and happy with ourselves.
A man wants to work for his pay
A man wants a place in the sun
A man wants a gal proud to say
That she’ll become his lovin’ wife
He wants a chance to give his kids a better life
Well hello brother, hello, yeah
—— instrumental break ——
He wants a chance to give his kids a better life, yes
Well hello, hello, brother hello
I said hello, hello, brother hello
A couple of points:
1) We were not actually at war when government spending brought us out of the Great Depression, the rest of the world was, and were preparing, but the population had not been galvanized by Pearl Harbor.
2) I think we tend to believe that things were rosy and swell in, say, 1940 as we started ramping up. In fact we experienced an awful lot of labor strikes and those had to be dealt with. They had a different set of difficulties, but there was no shortage of same. We had impediments that we no longer have, for example, widespread illiteracy and racial laws that hampered the free movement of labor.
3) We had the opposite problems of a bloated government, our government was too small. Bureaucracies had to be built from the ground up, and during a presidential election during which FDR either had to lie to the American people or else leave the country defenseless.
Present difficulties always seem huge while we paint a rosy wash over all the issues earlier generations dealt with. The notion that workplace safety laws or environmental concerns are even in the same league as the problems we faced then is absurd. When they built Oak Ridge they had to start with, “build road to Oak Ridge.” We have the infrastructure they did not, we have the government they did not, we have the educated work force, we do not have organized labor, nor do we have communist organizers in same.
Again, this is Learned Helplessness, molehills to mountains stuff.
@michael reynolds
I would like to see a small scale demonstration of this plan in a peacetime environment. Venezuela is the perfect place. Perhaps you and a few other rich liberals could fund a proof of concept. You should be able to get Nobel Prize winning economist Paul Krugman to head up the venture.
You need a demonstration that the government can hire unemployed people to clean trash out of a national park?
I think the point you are missing is that the earlier generations you reference (as a model of success) threw out the old governance paradigm and created a new one in response to a series of existential crises. In contrast, our system of governance is in old age, can charitably be described as “sclerotic” and is in the clutches of a powerful and motivated establishment. Radical solutions comparable to what happened in the 1930’s and 40’s are not even on the political radar today. Insisting that such things are possible in the current environment is little more than wishful thinking.
In short, what you suggest IS possible, but not until other changes occur first.
@michael reynolds
I want to see a demonstration of a peacetime buildup and destruction of materials. The government would be allowed to use price and wage controls plus rationing, and the government would be allowed to control manufacturing.
You would need to start with a shitty economy and produce a prosperous economy. The prosperous economy would require all the government control to be relinquished.
If you want to replay the WW2 experience, you will need to replay all of it.
Cstanley,
With respect, please ask a specific question and we can discuss it.
@Tastybits
As usual, almost everything you’ve written is hyperbole and metaphysics. Your sort doesn’t like getting into the mechanics so it’s no surprise you’re so confused. Enjoy your time down the rabbit hole.