Chicago economist Casey Mulligan on the "paradox of toil", stimulus, unemployment, Krugman, and liquidity trap.
The Marginal Revolution boys offer their thoughts here and here.
Sumner here.
And here's a link to Krugman's blog, where he has a number of posts on the topic.
Question for liquidity trap proponents: can the Fed actively buy debt (as oppose to passively inflate through zero interest rates), both private and public, to further increase the money supply? If so, would this make fiscal stimulation unnecessary?
Showing posts with label Unemployment. Show all posts
Showing posts with label Unemployment. Show all posts
What Will Be the Reaction?
Russ Roberts advises we "remember our Hayek" before the inevitable political/media firestorm erupts over the most recent unemployment numbers. Hayek:
The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.
We shall see. But I am not confident.
The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.
We shall see. But I am not confident.
Where is Truth?
John Tamny on politicians and unemployment.
Some points made by Tamny:
1. Employment is a means to an end, not the end itself. Jobs are constantly destroyed in an economically vibrant country, but this is overall a good thing. Bad jobs (for lack of a better term) are destroyed (by technology, outsourcing, etc...), but better jobs, in the long run, result, due to the freeing of capital, time and other factors that stem from growth and production.
2. The benefits of a job (wages) are a cost (capital) to an employer (investor). So an investor will only invest in labor if he feels he will get an adaquete return on his investment.
This paragraph sums up these points nicely:
Harsh as it may sound to some, businesses are only in business thanks to investors willing to support their operations. But what this means is that if businesses successfully destroy jobs on the way to profitability, the act of doing so enables them to attract the capital necessary to enter into new lines of work that almost as a rule will require them to hire people. Production is always the end, while employment is frequently the means to that end.
The part concerning politicians and investors' reactions to said politicians interference in the market gets a bit tricky. Tamny claims:
Corporate bailouts are supported by politicians owing to their belief that they'll save jobs. In the near-term that's true, but over the long-term bailouts repel the capital necessary for true job creation for keeping human and physical capital locked in the hands of failed managers. Investors as a rule invest to make money, and as such, they're logically unwilling to commit capital to the prominent business concepts of the past.
President George W. Bush foisted no less than two stimulus packages on the economy to President Obama's one (so far?), and both did so in name of job creation. But the obvious problem beyond stimulus merely redistributing wealth is that it too is anti-investment.
Investors correctly see that only the politically connected will receive stimulus funds, and they deduce that those in receipt will forever be in thrall to governments who seek to achieve social goals over profits. Stimulus similarly repels investment for those with capital being well aware that far from generating productivity, stimulus rewards the indolent at the expense of the productive.
Lastly, the Obama administration is mimicking the Bush administration in its support of a weak dollar, once again in the name of jobs. Sadly, Obama like Bush before him is failing to consider the investor in possession of capital in pursuing this most foolish of policies. Indeed, investors have to consider inflation before committing job-creating capital, and if monetary debasement is going to erode any returns, they logically invest elsewhere. It seems nearly every politician and economist believes in the power of debased money to create jobs, but reality and rational investors keep proving them wrong.
What this boils down to is supply-side assumptions vs Keynesian assumptions:
Is the private actor rational and emotionless in his decision-making, responding to institutional incentives in the most sensical manner imaginable?
Or is he dominated by his 'animal spirits', the tides of fear and greed, a mere lemming in a herd of irrational exuberant behavior?
No doubt both theories play a role in examining the ever complex human mind. But to what degree does each play a role?
That is the ultimate question.
Some points made by Tamny:
1. Employment is a means to an end, not the end itself. Jobs are constantly destroyed in an economically vibrant country, but this is overall a good thing. Bad jobs (for lack of a better term) are destroyed (by technology, outsourcing, etc...), but better jobs, in the long run, result, due to the freeing of capital, time and other factors that stem from growth and production.
2. The benefits of a job (wages) are a cost (capital) to an employer (investor). So an investor will only invest in labor if he feels he will get an adaquete return on his investment.
This paragraph sums up these points nicely:
Harsh as it may sound to some, businesses are only in business thanks to investors willing to support their operations. But what this means is that if businesses successfully destroy jobs on the way to profitability, the act of doing so enables them to attract the capital necessary to enter into new lines of work that almost as a rule will require them to hire people. Production is always the end, while employment is frequently the means to that end.
The part concerning politicians and investors' reactions to said politicians interference in the market gets a bit tricky. Tamny claims:
Corporate bailouts are supported by politicians owing to their belief that they'll save jobs. In the near-term that's true, but over the long-term bailouts repel the capital necessary for true job creation for keeping human and physical capital locked in the hands of failed managers. Investors as a rule invest to make money, and as such, they're logically unwilling to commit capital to the prominent business concepts of the past.
President George W. Bush foisted no less than two stimulus packages on the economy to President Obama's one (so far?), and both did so in name of job creation. But the obvious problem beyond stimulus merely redistributing wealth is that it too is anti-investment.
Investors correctly see that only the politically connected will receive stimulus funds, and they deduce that those in receipt will forever be in thrall to governments who seek to achieve social goals over profits. Stimulus similarly repels investment for those with capital being well aware that far from generating productivity, stimulus rewards the indolent at the expense of the productive.
Lastly, the Obama administration is mimicking the Bush administration in its support of a weak dollar, once again in the name of jobs. Sadly, Obama like Bush before him is failing to consider the investor in possession of capital in pursuing this most foolish of policies. Indeed, investors have to consider inflation before committing job-creating capital, and if monetary debasement is going to erode any returns, they logically invest elsewhere. It seems nearly every politician and economist believes in the power of debased money to create jobs, but reality and rational investors keep proving them wrong.
What this boils down to is supply-side assumptions vs Keynesian assumptions:
Is the private actor rational and emotionless in his decision-making, responding to institutional incentives in the most sensical manner imaginable?
Or is he dominated by his 'animal spirits', the tides of fear and greed, a mere lemming in a herd of irrational exuberant behavior?
No doubt both theories play a role in examining the ever complex human mind. But to what degree does each play a role?
That is the ultimate question.
I Still Don't "Get" It
Caroline Baum of Bloomberg summarizes my ideas of stimulus and government spending far better than I have. She also touches on the morality/consitutionality of this issue, something I hope to weigh in on tonight or later in the week.
Again, maybe I'm just an ignorant layman, but the arguments of Romer, Krugman and other neo-Keynesians strike me as ivory tower, academic economist-in-a-bubble wishful thinking. I'm very open-minded though, so I really want to try and "get" these arguments.
I'm trying to get at the heart of the matter, but every time I think I do, a new layer emerges. So here is where I stand now. The point of stimulus is to keep GDP and employment numbers up. And based on the way economists measure these aspects of the economy, they should go up.
Two problems. The first, as I've alluded to before, is methodology. If economists setup the model GDP = C + I + G + (X - M) and it is accepted as legitimate (whether it actually is legitimate as a measurement is a whole other matter), to counteract the fall in C and I is most easily done by increasing G. So this is done. Then economists measure it, and presto!, GDP is as it was before and G has saved the day. But this is asinine. It's like saying if my income falls dramatically I can just borrow and spend until I'm back on my feet. This isn't how the real world works.
Secondly, and more importantly, and accepting the whole spending/GDP argument to begin with (which I don't), so what? In other words, what are the real effects? What real value is being created? What is the opportunity cost of taking this money out of the private sector? What will the future costs of borrowing be?
The crux of my stance: A "job" is an action (not a thing) one private party pays another private party to perform with that party's own money because they deem the end result of that job more valuable than the price (wage) they are paying for it. When the paying party no longer feels the product of the labor is worth the wage, then the job no longer exists.
A job is not money coercively taken from some (private actors) by another (government) then paid to others (special interests) to perform arbritary tasks government deems worth paying said special interests to perform. This is not valuable. This is not productive. It is only legalized thievery and the redistribution of wealth under the subtle guise of "stimulus" and "helping the common man".
As Milton Friedman said, nobody spends money as wisely as the owner of that money when they spend it on themselves.
Rob, tell me where I'm wrong because I'm sure I'm missing something or am misrepresenting something.
Again, maybe I'm just an ignorant layman, but the arguments of Romer, Krugman and other neo-Keynesians strike me as ivory tower, academic economist-in-a-bubble wishful thinking. I'm very open-minded though, so I really want to try and "get" these arguments.
I'm trying to get at the heart of the matter, but every time I think I do, a new layer emerges. So here is where I stand now. The point of stimulus is to keep GDP and employment numbers up. And based on the way economists measure these aspects of the economy, they should go up.
Two problems. The first, as I've alluded to before, is methodology. If economists setup the model GDP = C + I + G + (X - M) and it is accepted as legitimate (whether it actually is legitimate as a measurement is a whole other matter), to counteract the fall in C and I is most easily done by increasing G. So this is done. Then economists measure it, and presto!, GDP is as it was before and G has saved the day. But this is asinine. It's like saying if my income falls dramatically I can just borrow and spend until I'm back on my feet. This isn't how the real world works.
Secondly, and more importantly, and accepting the whole spending/GDP argument to begin with (which I don't), so what? In other words, what are the real effects? What real value is being created? What is the opportunity cost of taking this money out of the private sector? What will the future costs of borrowing be?
The crux of my stance: A "job" is an action (not a thing) one private party pays another private party to perform with that party's own money because they deem the end result of that job more valuable than the price (wage) they are paying for it. When the paying party no longer feels the product of the labor is worth the wage, then the job no longer exists.
A job is not money coercively taken from some (private actors) by another (government) then paid to others (special interests) to perform arbritary tasks government deems worth paying said special interests to perform. This is not valuable. This is not productive. It is only legalized thievery and the redistribution of wealth under the subtle guise of "stimulus" and "helping the common man".
As Milton Friedman said, nobody spends money as wisely as the owner of that money when they spend it on themselves.
Rob, tell me where I'm wrong because I'm sure I'm missing something or am misrepresenting something.
Meyerson's Wrong. Again.
Harold Meyerson of The Washington Post yet again flaunts his economic ignorance as political insight. Meyerson concludes in his latest column:
But is a new federal public works program really that unsalable? Consider the experience of Perry County, Tenn., where the closing of an auto parts factory had increased unemployment to a staggering 27 percent this spring. Tennessee Gov. Phil Bredesen, a Democrat, decided to use federal stimulus funds to immediately subsidize hundreds of new jobs -- some public, some private -- which reduced the local unemployment rate five percentage points by June. "If I could have done a WPA out there," Bredesen told the New York Times' Michael Cooper in July, referring to the New Deal's largest job-creation program, "I would have done a WPA out there."
Yeah, that sounds like the kind of country the Founders had in mind.
But is a new federal public works program really that unsalable? Consider the experience of Perry County, Tenn., where the closing of an auto parts factory had increased unemployment to a staggering 27 percent this spring. Tennessee Gov. Phil Bredesen, a Democrat, decided to use federal stimulus funds to immediately subsidize hundreds of new jobs -- some public, some private -- which reduced the local unemployment rate five percentage points by June. "If I could have done a WPA out there," Bredesen told the New York Times' Michael Cooper in July, referring to the New Deal's largest job-creation program, "I would have done a WPA out there."
Tennessee is not, by most accounts, a sleeper cell of socialists, yet its reversion to New Deal economics has been met with approval from residents. It's too small, though, to do its own Work Projects Administration. Only the federal government can do that -- and it should.
Why should it? Because a politically-motivated governor used money legally plundered funds from a lot of people to artificially deflate the unemployment rate over the short-term for the benefit of a select few people who happen to have enormous control over said governor's political future?Yeah, that sounds like the kind of country the Founders had in mind.
More Stimulus and Unemployment
Wisdom from Chicago Boyz.
In a recent meeting, my boss made the obvious but true point that it would make no sense for us to hire someone who would provide $0.90 worth of value per $1.00 of cost. In a similar vein but from a consumer perspective, I would never spend $1.00 on a candy bar that I valued at $0.90 (trivial prices aside).
I assume the New York Times would agree that the above logic makes sense. So then why do they invoke government to do the exact opposite at taxpayer's expense?
The stimulus bill was $787 billion. The bill is estimated (by Obama administration) to "create" 3 million jobs. Forget the fact that these jobs are all temporary and for the most part are involved in sectors of the economy that see very little current demand, and thus will provide very little short-term value (and more likely than not long-term as well). The fact is each job will cost taxpayer's $262,333.33 per job.
How again does this make sense?
In a recent meeting, my boss made the obvious but true point that it would make no sense for us to hire someone who would provide $0.90 worth of value per $1.00 of cost. In a similar vein but from a consumer perspective, I would never spend $1.00 on a candy bar that I valued at $0.90 (trivial prices aside).
I assume the New York Times would agree that the above logic makes sense. So then why do they invoke government to do the exact opposite at taxpayer's expense?
The stimulus bill was $787 billion. The bill is estimated (by Obama administration) to "create" 3 million jobs. Forget the fact that these jobs are all temporary and for the most part are involved in sectors of the economy that see very little current demand, and thus will provide very little short-term value (and more likely than not long-term as well). The fact is each job will cost taxpayer's $262,333.33 per job.
How again does this make sense?
Stimulus and Unemployment
Professor at the University of California at Berkeley and former Secretary of Labor Robert Reich claims on his personal blog, "the stimulus is working but it is far from adequate. Before the stimulus, we were losing more than 500,000 jobs a month. Now that 40 percent of the stimulus has been spent, we are losing more than 250,000 jobs a month."
There are numerous problems with this assertion with the most significant being the lack of source or explanation of the data. And assuming the data is correct, there is the problem of correlation does not mean causation. However you lean, the jury is clearly still out.
But I would just point out the above graph (discovered via Greg Mankiw's blog) which is now being widely circulated around the net. I would really like to know where Reich found his data and how it was compiled.
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