In today’s Washington Post, Steve Landsburg speaks much good sense about so-called "economic stimulus." Here are the closing sentences:
Ultimately, the only solution to unemployment is for displaced
workers to get retrained and find their way back into the workforce.
The new stimulus package only delays that process by propping up dying
industries for a while and postponing the day of reckoning. Ultimately,
there will be just as much hardship because the stimulus package can’t
last forever. Why spend all this money trying — and probably failing
– to delay the inevitable?
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"Ultimately, the only solution to unemployment is for displaced workers to get retrained and find their way back into the workforce."
Is unemployment the problem? I thought it was pretty close to all time lows. It seems to me that people have spent all that they have and just don't have anymore to spend or save for that matter.
Is THIS not a problem with having so much wealth and income concentrated in a small group who can't even find ways to spend their money?
I guess I've been impressed by a book I read a while back, Wealth and Democracy: A Political History of the American Rich by Kevin Phillips, that seemed to make a good case on past histories of economies failing when wealth is too concentrated.
muirgeo: Is THIS not a problem with having so much wealth and income concentrated in a small group who can't even find ways to spend their money?
I don't believe it. He hit this one out of the park. 535 members of Congress, $2.9 Trillion they're spending in 2008, projects like the Bridge to Nowhere. I think we finally got him thinking!!
What's a "day of reckoning" look like? Big asset price adjustments? What's "inevitable?" A higher unemployment rate?
It occurs to me that we're looking at this the wrong way. They're calling it "economic stimulus", but its really just a tax cut, and personally, I don't think there is such a thing as a bad tax cut. So maybe the government will just keep on spending to the point that they have to raise taxes in the future. So what? – at least we've paid them less for now. And if they ask for too much later we can just tell them no. And if they cut government services as a result of being told no… well, how would that be a bad thing?
Back in the Rustbelt days government retraining programs were a big thing. What this accomplished was to reclassify the unemployed as students which drove the unemployment rate down and kept these people from wandering the streets looking for jobs that didn't exist.
After retraining, these people went from students to limbo. The newly retrained did not have jobs in either their old careers or new careers, yet they didn't (officially) rejoin the ranks of the unemployed; They were disappeared.
The flaw in those government retraining programs was that they were taking semi skilled unemployed and retraining them for other semi skilled work. In reality, all semi skilled work was going away.
I was one of the semi skilled unemployed but, I chose to break away from the crowd and self direct my retraining. I decided on a BS degree in computer science. I used up most of my savings getting to that degree. I got lucky and made a twenty year career with that degree as a base.
A great analysis of the Landsburg article (and it's hiddne assumptions, such as complete Ricardian Equivalence) by Mark Thoma here: http://economistsview.typepad.com/economistsview/2008/01/landsburg-why-t.html
You're both thinking right. The question is: now what?
I agree with Landsburg's sentiments, but I don't believe that "retraining" implies channeling more cash toward his university. Most job training occurs on the job and builds on prior experience.
How old were you then? What would you do now?
I have a friend who made a dramatic mid-life career change. He started out as an engineer, spent a few years in his father's office furniture business until it went belly up and then spent several years as a wine merchant. [His dad made out fine, thanks to corporate bankruptcy.] I haven't gotten to the career change yet … A few years ago, he dropped everything and enrolled in college full time (at Duke). Now, he's a Methodist minister, and I suppose he's deeply in debt, but he seems happy.
Sometimes, I'd love to do the same thing. I wanted a research career at one time. Then I had three kids and a panic attack that hasn't ended yet. I only worry about my bottom line now … only not enough to keep me away from this web site.
$150 billion. That's $50,000 three million times. Suppose we have a lottery. All bonafied businesses may participate. If you win, you get $50,000, and you must use it to employ someone who is currently unemployed. You may pay more than $50,000, but all of the $50,000 must reach the employee as a wage or benefit or other cost of employment. Three million people are employed this way. If it works out, the lucky business has a productive factor and the job continues.
Or we could just buy a hundred million votes with it.
It's not a tax rebate, since every dollar "rebated" is borrowed, and apparently, you can get more "rebate" than you actually paid in taxes.
Martin,
I doubt there is anyone in this county who doesn't pay at least $600 a year in hidden federal sales tax. Its a rebate.
I suppose so, but they've already spent the taxes and then some, so it's not a rebate. They're borrowing money on our own credit and giving it to us to spend. That or they're printing money and giving it to us to spend. Either way, I can't call it a "rebate" of anything.
If they were actually crediting idle factors to try to get them more productive, I'd at least see a little hope in it, but the unemployment rate isn't even very high now. Jobless claims were down last month.
Martin,
It's a nice thought experiment, and of course I agree that the stimulus is a cynical joke, but what about year 2 of your employment program alternative? Most entrepreneurs I know won't even think about hiring for a key (e.g. non-temp) position in their firm without having a worst case scenario plan to keep that position on for two to three years. It hurts your reputation as a business owner when you churn through people. If that one guy isn't generating revenue to cover his costs, year 2 is gonna be a killer. And except in service businesses, many employees don't cover their costs in revenues they bring in. Specialization of production and sales and all that….
Martin,
"They're borrowing money on our own credit and giving it to us to spend."
In theory… but we don't have to repay the loan. And they know that, or they wouldn't be handing out money.
With all due respect:duh!
"Why spend all this money trying …"
They do this because this is what they are actually good at.
The big question is why they spend so much time on talk about how they are going to "delay the inevitable?" and so little on the fact that they spend money because they can.
Is it just me, or is the polity cynical enough yet to just accept the latter?
The money I attribute to tax at some point comes back to me for a brief while (stimulus package) so that I may spend it on things that will keep people employed who build the things or invest in stuff that is losing investment. All the while I will be paying this out at some point makes it sound like a loan to me. If it is truly a rebate where I don't have to pay for it, I can stuff it under a mattress, or I can put it in the bank. By putting it in the bank I help stimulate the economy? Would anyone explain why, thanks.
If I am in a lower tax bracket I get a check and possibly spend it on my mortgage that I can't afford because I bought into the idea of owning a home worth much more than I could afford thinking it could only go up in value, and the lender must be thinking the same thing otherwise they wouldn't have given me the money. Ultimately I spend the money on my mortgage helping to aleviate the assault of defaulting borrowers in a sense bailing out the bank while all this time I don't even pay the taxes that are being rebated to me, the middle class does. That seems like a perversion of R Roberts analogy of taking a bucket of water from the deep end, but instead of dumping it into the shallow end you dump it in the kiddie pool which you have no intention of swimming in.
This is how I percieve the issue, can anyone confirm or re-educate my opinion. Thanks.
It's not an economic stimulus, it's a perception stimulus. They're trying to psych investors/the public into a recovery.
We have to suffer the inflation. On the other hand, as long as China wants to print its money and give it to us too, I suppose we should grab it hand over fist. It's all so absurd. I hardly know what's in my interests.
It's definitely a great time to be me, but I just have this feeling that it can't last. You know?
Brian-NJ:
I think you're appropriately confused.
Brad:
It's a special case. Everyone knows about the lottery and knows the entrepreneur won it. If the new employee doesn't work out, he doesn't lose much face by letting him go. He's already transferred the benefit to the unemployed guy. If it's not looking good after half a year, he gives the guy a clue. Everyone knows the game.
A business isn't required to participate in the lottery, so only businesses that think they might benefit from a new employee are players. It's a threshold decision thing. I'm not sure I need the new employee now, but there's this "stimulus incentive", so I'll go ahead and hire now, because I have a bit less to lose if the gamble doesn't pay off, and I also lose less credibility if I let the guy go after a year. I won the lottery and did my duty. That's what's expected. I didn't gain anything by it. It's not like the employee is worse off after a year of employment. Hopefully, he got some useful training.
From the employee's perspective, I'm happy for a larger crack in the door to slip my foot through. So I'm unemployed again a year later. Is that worse? It's always up to me to make myself useful.
Martin,
"We have to suffer the inflation."
Yeah, I thought about that. But if the economy starts to go south because of the inflation… they'll have to give us more money back
Here's Brad DeLong's critique of Landsburg.
the accompanying comments are pretty vile.
Biomed Tim: … I'm still waiting for DeLong to become relevant… In fact, his post is not much more than a big pile of sad macro-minded crap. But macro people tend to think differently. They seem to assume that basic economic principles do not apply to them and that their big fat fingers can actually prod an economy into doing something with no fear of the long-run consequences. Most of DeLong's argument can be rebutted with a single, poignant line in Landsburg's piece:
"Ah, say the package's more honest proponents, that's exactly what we care about — the very short run."
I liken many of the macro-minded commenters to chickens – confined to headless chicken races in the short-run without realizing they are dinner in the long run.
Looked at the Brad De Long article,
and I have to agree with colson.
Just read through the comments of DeLong's post. The thing that jumps out at me is that there is not a single dissenting voice.
"If everyone is thinking alike, then somebody isn't thinking." George S. Patton
Patton rocked.
Of course DeLong and co. have nothing to say about what to do with obsoleted workers, except employ them all in vast public works projects indefinitely.
"Ultimately, the only solution to unemployment is for displaced workers to get retrained and find their way back into the workforce."
Maybe it's a pedantic point, but this should be "and/or". It seems to be assumed these days that all unemployment is structural and that doesn't seem to be the case to me. People I know are "retraining" to get jobs in completely new fields while interviewing for jobs they're already qualified for. More likely than not, much of the retraining expense will be a waste.
Mike:
The harsh reality is the even for computer programmers, they can be obsoleted in the next 10-15 years, and then what? Retrain for what?
We had some recent discussion about education and the drop-out rates of High Schools. We are now discussing education/retraining so I thought people might find this article interesting concerning the performance of some (maybe many, perhaps even all) colleges.
http://www.townhall.com/columnists/DrMatthewLadner/2008/01/28/enabling_animal_house_america_needs_to_create_rational_higher_ed_policy
If the University of Arizona has a 4 year graduation rate of 28%and a 6 year graduation rate of 58%, at the very best one could say the drop=out rate is at least 42%, which is terrible. And, it is obviously taking students a 2 year longer period just to get what our dads and moms got in four years or less.
Perhaps universities and colleges offer students too many distracting bullshit courses about gender, sexual persuasion, ethnicity, pornography, socialist economics (oh I already said pornography didn't I?) etc., that distracts them from learning something useful.
For whatever reason that URL didn't come through in entirety.
http://www.townhall.com/columnists/DrMatthewLadner/2008/01/28/enabling_animal_house_america_needs_to_create_rational_higher_ed_policy
Well chit!
Okay I hand type it:
http://www.townhall.com/columnists/DrMatthewLadner/2008/01/28/enabling_animal_house_america_needs_to_create_rational_higher_ed_policy
Okay I give up. My membership in the club Computer Illiteratti is obvious.
If you're interested just go to Townhall.com and pick the article from the daily list.
vidyohs:
I can say with a lot of certainty that universities are bogged down with tons of bullshit courses, not to mention all kinds of other useless distractions on campus.
FreedomLover,
Here is the results in stark terms.
http://www.snopes.com/photos/signs/mlkday.asp
I had it sent to me under the subject line of: "I have a what?"
Basically the only serious students are those that apply to the hard sciences and engineering. Everyone else is wasting their time intentionally or not. Does it matter? Oh so you have a BA in Gender-Studies, let me show you how to work the french-fry machine, and remember to say "would you like fries with that"?
Did you check out the link?
vidyohs:
Yeah I took a glance. Pretty pathetic. "A mind is a terrible thing to waste" – United Negro College Fund
I thought it was a photoshopped hoax at first. Too pat and too unbelievable.
Truth is wilder than fiction in some cases though.
According to CNN.com, "Congress is rushing to pass a $150 billion stimulus package that the Bush administration said should add 500,000 jobs to the economy." $300,000 per job from a one off, one year stimulus. I need to start polishing resume.
I've been retraining since I started working. I literally retrain every day, and I don't see any end to it.