Employment Trends

The issue with government jobs is twofold. First, after a certain mass, it guarantees large government because they make up an inherently captured voting block. These industries are statist and their costs do not decrease due to benefits of technology and increased productivity. Look at health care and education. Of course this means that as government controls more, we get richer slower, regardless of government debt, which threatens the whole economy by now.

The second issue is that it is almost impossible to roll back the government. Its form and system was never meant to manage something.

The stimulus package looks eerily like Bob McRae's government package when the socialists took over Ontario in the early 1990s and transformed a budget surplus into a $10B a year deficit without affecting unemployment, including green energy, teacher salaries and health care increases. It sure did make the government unions happy though. It took a Conservative government 10 years to roll everything back. Interestingly, Bob McRae himself turned away from socialism and renounced Keynes as a practical theory. Government does not create jobs. Besides, it is an inherent Ponzi scheme and there are good financial reasons they are illegal.

I would also like to point out that government jobs are not done at the level of work outside of the government. The government is just to big to keep employees work at an effective and efficient pace. The government also doesn't have financial revenue goals they just have budgets to manage. This causes a lot of wasted spending when you are not trying to become profitable but are instead just spend. If we could do more privatization of government while still being able to regulate for fraud I think that would be a sensible solution.

Maybe I'm being dense here but...since ALL government jobs are funded FROM private sector jobs how can they, on the net, stimulate private sector jobs? It seems obvious to me that government jobs are ALWAYS a drain on the private sector and the economy as a whole. It's only a matter of the degree to which the private sector can tolerate, support or overcome this which is the extent to which this draining effect is essentially masked. I suspect that this draining effect is only mitigated to the extent that these government jobs do provide SOME kind of service.

The reason that government jobs are a drain on the economy is that very few of these jobs actually produce something of value - something that I would chose to pay for. Private sector jobs exist to create value whether it is in products or services. Those things of value are consumed by others who may also create something of value to be consumed by others. The public sector may consume items of value but seldom creates anything of value from the output of their effort. That is why public sector is a drain on the economy.

This is not what the Keynesians have in mind, but government jobs stimulate the private sector to the extent that they facilitate the smooth functioning of the market. E.g., the government hiring civil court judges aids the enforcement of contract law, which makes people more willing to engage in trade and in the end increases private sector economic activity more than the cost of the judge.

Or to paraphrase Hayek, plan FOR competition, don't plan AGAINST competition.

Yet how does a war economy work then? By this reasoning, econonmic calculations would be impossible and the war is over just after it starts when everything grind to a halt.

Is this any surprise? obama has taken the dumbest things W did and accelerated. From what I've seen every single idea from this administration is bad.

At least obama is keeping his promise to transform the nation.

Good data, great analysis, very scary.

Two points stand out. First, the U.S. economy lost the first decade of the 21st century, and neoconomics led it down the primrose path. Second, Obamanomics is neoconomics on steroids, and mind boggling Federal deficits haven't improved our resource organization one iota. We're further than ever from a sustainably profitable economy growing organically. As a consequence, demands for organization by central authority can only grow. All that public sector employment is a weakening platform over a growing sink hole.

If one truly believes the naughts were a product of a bubble, then we haven't lost a thing. We simply never had it. Isn't that the Austrian perspective? Adjusting monetary policy to prevent deflation (price correction in the eyes of an Austrian) simply puts an end to deflation that would otherwise worsen aggregate demand (from a Keynesian perspective). The modus operandi is logical even if the theory isn't.

"If one truly believes the naughts were a product of a bubble, then we haven't lost a thing. We simply never had it. Isn't that the Austrian perspective? "

I believe that a bubble is the misallocation of resources. So the cost would be significant. Real savings went into housing rather than other more productive investments.

Deflation, in the usual sense (generally falling prices), is not necessary or desirable to correct Austrian-style malinvestment. Unprofitable organization must yield to profitable organization, but this reorganization doesn't imply generally falling prices.

When bankers create money to extend credit, they create entitlements to reorganize resources. We definitely need these new entitlements when unprofitable organizations dissolve, so I have less problem in principle with all the "new money" Bernanke has created lately than with the quantity of it flowing toward the Federal Treasury (and other lords of corporatism).

I basically agree with skeptics of Hayek who say that he overemphasized time-integration and saving, assuming that he really did. I'm no expert on his academic work.

Investment is not simply deferred consumption. If no one ever retired, we'd still need investment, obviously. The quantity of investment required is not simply a matter of expected future consumption. Factors like the rapidity of technological change are also crucially important, probably more important than expectations of future consumption.

When technology changes rapidly, more investment is needed, regardless of expected future consumption. When the future is very cloudy, as when technology changes rapidly, many investments fail. The failures are not a bad thing. They're an inevitable consequence of the rapid change, even a necessary condition of the change.

But all of the failed investments make "saving" by accumulating entitlement to profits more difficult, and diversification doesn't solve this problem if the distribution of investment yields is fat-tailed.

That's why states will increasingly tax my largest investments in the future, and I don't mean the (negative real) interest on my bonds or the (practically nonexistent) dividends on my shares. I mean the labor of my children.

martinbrock: "the U.S. economy lost the first decade of the 21st century"

What do you mean by this statement?

The goods and services produced by the U.S. economy in the 21st century - the value added by U.S. based enterprise - exceeded the value added by any other decade in our nation's history. It is true that a small amount of that value added has been lost - but it is really a very small amount relative to the trillions of dollars in value which was added. The automobiles we assembled, the prepared food we produced, the aircraft we built, the medical equipment we fashioned, the haircuts we provided, the musical concerts we gave - those goods and services were all value added.

How did the U.S. economy "lose" the first decade of the 21st century?

What do you mean by this statement?

I refer to Higgs' article. "In 2009, total employment was approximately equal to its level in 2001, though the labor force had grown substantially in the interim, making the 2000-2009 period America's second 'lost decade' (the first being the 1930s during the Great Depression)." I mean just that.

The goods and services produced by the U.S. economy in the 21st century - the value added by U.S. based enterprise - exceeded the value added by any other decade in our nation's history.

I'm skeptical of this statement. You can show me official economic statistics to back it up, I'm sure, but I remain skeptical. For one thing, I doubt that a dime of the cost of the War on Terror added anything valuable to me, but every dime is counted in official measures of "added value".

Higgs says that practically all employment growth over the last decade occurred in the state sector.

The automobiles we assembled, the prepared food we produced, the aircraft we built, the medical equipment we fashioned, the haircuts we provided, the musical concerts we gave - those goods and services were all value added.

The issue is growth in output and profitable employment of U.S. resources. Of course, we produced a lot in the last decade. We were a very productive economy at the start, and we didn't suddenly stop producing stuff. That's not the point.

How did the U.S. economy "lose" the first decade of the 21st century?

It lost opportunities to employ the increases in a still growing labor force in profitable organizations providing goods and services to free consumers.

Yes, the evidence is even stronger that 2000-2009 was a lost decade. Not only was virtually all employment growth between 200 and 2008 eliminated by the end of 2009, but real median household income fell over the decade while household debt rose. For middle-income wage earners to decade was a treadmill.For others, not so much

Tex: "virtually all employment growth between 2000 and 2008 eliminated by the end of 2009"

That's an argument that 2009 was a horrible year - not that 2000-2009 was a horrible decade. It is extremely unfortunate that so many were out of work in 2009. But that doesn't change the fact that so many earned a very good living from 2000 through 2008

Tex: "For middle-income wage earners to decade was a treadmill."

First, staying in place in the wealthiest nation on earth is not being on a treadmill. Its a very good life by either global or historical comparisons.
Second, there is no reason to expect that gains from productivity should be distributed evenly across the working population. Some skills are rewarded more than others. Risk taking is rewarded more than complacency.

2009 was a horrible year. 2001 through 2008 were very good years.

Well, "staying in place" is what I thought "treadmill" meant.

Sure, staying in place in the richest economy in the world is better than staying in place in Mexico or Nigeria or any number of other countries. But that's not what the American dream of the last 200+ years is about. It's been about making life BETTER for yourself and your family, and that's not what's happening any longer.

And I agree with your statement "there is no reason to expect that gains from productivity should be distributed evenly across the working population."
But can we reasonably believe that over the past three decades, a 300% increase in income for the top 1% of income earners vs. no increase for the bottom 60% is justifiable? Have the top 1% really been that much more productive over the last 30 years while the bottom 60% has contributed nothing.

I'd have to see some pretty persuasive productivity stats to take that leap.

First, staying in place in the wealthiest nation on earth is not being on a treadmill. Its a very good life by either global or historical comparisons.

Well said, John Dewey. The middle in the United States has a higher standard of living and more opportunity than almost any other country on earth.

I've often wondered if people don't "stagnate" in this great middle simply because they are satisfied. Creating ever more wealth requires great personal sacrifice, ever more risk as well as increased and prolonged effort. The incremental dollar may not be worth it to many people who would prefer to raise a family and have some actual leisure time.

Although, I think maybe for most 2008 was not such a great year. 2001-2007 were better.

methinks: "I've often wondered if people don't "stagnate" in this great middle simply because they are satisfied."

I'm sure that happens. I've seen it often. It has recently happened to me. I sold my small business in 2008 because the financial security benefits it brought me were no longer needed. So my household's income went down in 2009, but it had nothing at all to do with economic conditions.

As far as I know, no one in the U.S. keeps statistics about how many households intentionally forego income. But millions of Americans choose to retire each year to lower incomes. Millions of Americans leave the workplace each year in order to give birth to children. Millions of adults are enrolled full time in higher education.

Yes, it would be interesting to know how many households lost income because of the loss of a job, the collapse of equity values or the loss of access to credit vs. voluntary decisions like childbearing, retirement and adult education. Anyone have a guess as to what that ratio would look like?

One problem, Tex, is that some people fall into both categories. I know several people who lost jobs in the past year and then decided to retire rather than seek new employment. These are highly talented people who would have found work.

"As far as I know, no one in the U.S. keeps statistics about how many households intentionally forego income."

Sure they do, they're put in the bucket labeled, "People for whom the economy is so bad they gave up looking for a job."

I think that would be a pretty hard thing to determine.

I also just remembered these conversations on this blog before - the people earning a middle-class income today are not the same people as 10 years ago. Some may "stagnate" because they choose to concentrate on building non-monetary wealth, but most keep moving. If a job doesn't become more valuable to the employer over time, why should the person doing that job be paid more to do it with the passage of time (in real dollars)?

JD is missing the point. What difference does it make if 2000-2008 were very good years if in 2009 you lost your job, racked up debt, and your 401K got pummeled, etc?

I take "lost decade" to mean that when the vast majority of people at 12/31/2009 stop and look back at where they were at 12/31/1999, they found that they were no better off and likely worse off, regardless of what happened in-between.

The stock market was up around 25% in 2009.

If one bad year is enough to take you that far into debt, you're living beyond your means. And that's not a problem exclusive to middle income earners. Anyone can live beyond their means.

People in general were very well off in 1999. If they're no worse off in 2009, that's great. If they're worse off, then it's likely due to mistakes they made. Learn and move forward. The problem is that people don't want to learn. They want the president to fix everything for them.

That "one bad year" brought so much misery upon so many people, sometimes even if they kept their jobs and stayed fully employed, that to blame each individual for their misfortune during the economic crash that just occurred is completely ludicrous. It's pointless to go into the details of how this downturn has affected so many in ways beyond their control because that should be common knowledge by now so I won't.

The point is that yes, there were plenty of good years over the last decade, but the point is not about the number of good years vs. bad ones, it's about the fact that at a macro level the country hasn't moved forward. I'm certainly not advocating for the president to "fix" the situation with more spending, nor that people shouldn't take responsibility for their actions, just trying to make the point that if the majority of people end the decade the same or worse off than they started it, how can you say they all "made mistakes"?

Tim, these are good points, though I disagree that "at a macro level the country hasn't moved forward." While that's true for middle income earners who have seen no growth in income in the past decade, it's not true for high income individuals. And we don't have to limit our analysis to the 2000s.

From 1980 to 2005, the top 1% of income earners have seen inflation-adjusted increases of 300%, the top 5% have seen increases of about 50%, the top 20% increases of about 20%, the top 40% increases of about 15%, and for the remaining 60% of income earners, incomes have been flat.

And this was before the past 18 months wiped out a decade of income gains for the middle class.

I didn't say that all people made mistakes - and those who didn't were far less effected by the sub-prime meltdown.

Each individual's circumstances are different. There are genuinely sad circumstances for some people even in plush years. However, you have to consider that if one bad year or one job loss can send you into piles of debt, you're living too close to the edge. You take that as just a mean comment. I take it as a silver lining. If you can do something to insure yourself against such outcomes in the future, like saving more, being more prudent with your money and diversifying, then that means you won't always be a victim. I have little sympathy for people who over-extend themselves to live a life beyond their means. Isn't the inability to pay for such a life basically the genesis of this crisis? How can you then say that most people didn't make mistakes? If people made mistakes in the past, they can learn from them and that's a good thing.

The country has moved forward. Unfortunately, it has moved forward to more government control and moral hazard and less individual freedom, which makes it more difficult for people to control their own lives. The increased moral hazard worries me.

Tim: "That 'one bad year' brought so much misery upon so many people ... to blame each individual for their misfortune during the economic crash that just occurred is completely ludicrous."

Tim. this is the 7th U.S. recession I've experienced as a wage earner. It may be the harshest, but the one in 1981-1982 was just about as bad. One thing I've learned is that Americans have progressively learned better how to blame others for their misfortunes during these recessions.

My parent's generation and the one before it understood that many factors beyond their control could impact their daily lives. Their experiences in the Great Depression left them much better prepared for downturns and catastrophes than we are today. Many if not most of them had "rainy day" savings. They could weather periods of months and even years without pay.

I don't necessarily want to "blame" the unemployed today for their economic hardships. Much of the blame should go to our national reliance on government - our socialist tendencies. But I do believe Americans could have foregone much of the misery to which you refer had they recognized one simple fact: while we cannot control the external events around us, we can easily take steps to be prepared for the impacts of those events.

Why do we extoll some lessons the Great Depression generation learned and applied, like the value of thrift and saving, and condemn others like the need to regulate financial institutions and to provide a safety net through SS and unemployment compensation?

That's easy. Some lessons promoted independence, promoted individual freedom, and provided real benefits. Other "lessons" promoted dependence on rulers, increased control of state over individual, and only generated short term transfers at the expense of long term wealth creation.

So let me get this straight: you're telling me that saving habits and thrift are going to help people who haven't been able to find a job after a year or more because their job isn't coming back and have given up looking (think manufacturing, some real estate); or young high school and college grads who haven't been able to start their career and will have problems for the forseeable future but have loans to pay off; or senior citizens who now have to work for several more years because they have had to use a portion of the nest egg they saved up to help themselves during the crisis, their family, or extended family; or people who can't move to a more economically viable place because they can't sell their home because of declining home prices that have nothing to do with the decisions they made?

Maybe it's because you've seen so many recessions that you can't imagine that this one could be different, that global imbalances and a myriad factors both domestic and abroad have resulted in a situation where our economic trajectory may have permanently changed, and some people absolutely needed and still need basic support like unemployment insurance until they can come to grips with the new reality.

I am all for the smallest government possible, but there is clearly a minimum amount in dire circumstances. This purist libertarianism (each to their own, no safety net no matter what, I made it without gov't help so everyone can) sounds fantastic in theory, but a little narrow-minded and heartless in reality.

Excellent points, Tim

" a myriad factors both domestic and abroad have resulted in a situation where our economic trajectory may have permanently changed"

What's changed is that personal savings - and the security it provided previous generations - has declined to almost zero. That's despite the fact that real income per household or per adult is significantly higher than it was 30 years ago.

Adults of two generations and three generations ago made very different choices throughout their full adult lives to prevent recessions from causing the misery you have referred to.

I am not a "purist libertarian", Tim. I am also neither narrow-minded nor heartless. But I am experienced enough in real life to know that much of today's "misery" in this very wealthy nation was directly the result of foolish choices.

This is supporting John Dewey re:decade was a treadmill.

I was looking at some relevant data on this topic last week. Except for this past year, that we all know was ugly, labor force participation and employment have been steadily rising. Household income is down, true, however real income per person is up.

So what gives? I need to look at the census data, but I think that more and more people were choosing to live in smaller households than in the past. This would naturally reduce household income, even while income per person is going up.

Furthermore, in what sense do we mean "lost decade?" I'm not clear on its usage. It seems it would largely depend on how individuals move their consumption over time using debt or savings.

Can you point me to your data source for personal income, 2000-2009? Thanks!

Tex,

The personal income data is from the Current Population Survey. You can find it by going to the Census bureau's website. Then, go to the "Income" part of "People and Households" on the home page. From there, you'll see a CPS link on the right hand side. Once you click on that, all the way at the bottom of the page you'll find a link to historical tables.

The census bureau has a lot of great data. Of course, except for the censuses themselves, data is generally survey-based.

Thanks.

Maybe I'm missing something, but the census data shows per capita personal income (2008 dollars) declined from 27,900 in 2000 to 26,900 in 2008. 2009 data is not yet reported here, but of course we could reasonably expect it to have fallen further.

That looks right. What I was getting at was the fact that labor force
participation went up, unemployment went down, and wages went up in
general, but slowed down quite a bit in the 2000s. I would expect
average real wages to normally go down when the first two things
occur, ceteris paribus.

Average personal income probably did fall, since I expect a lot of job
losses were higher-paying jobs in the finance sector. A person could
always get detailed BLS statistics about job losses by industry and
impute something from there.

What strikes me is how extraordinarily stable the per capita income is
throughout the 2000s. From 2005 - 2008, from BLS data, we've had a
reduction from 67% to 66% participation rate - its peak since it 1947
was 67%. At the same time, unemployment rates went down (until '07,
obviously).

This does not necessarily constitute a lost decade, because I still
don't have a clear idea of a lost decade. It does indicate that wages
may have plateaued, and the reasons for such are an interesting area
of research.

Household income is usually reported as median household income. Income per capita is usually reported as mean per capita income. The distribution of income can be very different from one period to the next and thus produce the result you noted. A number of reasons cause distribution of income changes, including:

- higher returns to education and risk-taking, which skews income to the top quintiles;

- larger proportion of retiree and immigrant households, which increases the number of lower income households;

- larger number of single person households (not always voluntary: widows and widowers).

martinbroack: "making the 2000-2009 period America's second 'lost decade' (the first being the 1930s during the Great Depression)."

No one would seriously claim that the economic conditions from 2001 through 2009 are anything remotely similar to those of the 1930's. That's just plain silly.

martinbrock: "I doubt that a dime of the cost of the War on Terror added anything valuable to me"

Ok. But what does the value you place on the output of others have to do with U.S. economic growth. Obviously others in the U.S. placed a high value on fighting the War on Terror, or else all that money would not have been spent.

martinbrock: "Of course, we produced a lot in the last decade. We were a very productive economy at the start"

We were a productive economy throughout the decade. Real U.S. GDP reached an all time high in 2001, then again in 2002, then once again in 2003. Ditto for 2004, 2005, 2006, 2007, and 2008. It was only in the last year of the decade you refer to as "lost" that GDP will not increase.

Employment in the U.S. was high for almost all of the last decade. Only in 24 of the 120 months of the decade you refer to as "lost" did the unemployment rate exceed 6%. By contrast, the 1990's had 42 such months. the 1980's had 91 months in which unemplyment exceeded 6%.

No one would seriously claim that the economic conditions from 2001 through 2009 are anything remotely similar to those of the 1930's. That's just plain silly.

You're arguing with Higgs here. He's not comparing 2001 through 2009 to the thirties. He's comparing it to the twenties and comparing the present to the early thirties. Maybe the comparison is silly, but I don't know yet.

Ok. But what does the value you place on the output of others have to do with U.S. economic growth.

"Growth" doesn't simply mean that everyone is producing more of just anything. Digging holes produces a growing pile of dirt, but if I don't value more and more dirt, this growth is not valuable to me. Building pyramids isn't valuable to me either, because I can't afford a pyramid. If we build lots of pyramids, even though no one can afford a pyramid, the pyramids aren't properly "valuable" at all, regardless of their cost.

Obviously others in the U.S. placed a high value on fighting the War on Terror, or else all that money would not have been spent.

The state is not what I mean by "free consumer in the market". If state spending is "what other people want", then the distinction between "market economy" and "command economy" means nothing. The other people in this case take what they want by writ of their monopoly of force. If the War on Terror were "valuable" in the sense I'm using here, security companies would be advertising their services and waiting for others to call, and others would be calling, but that's not what happened.

We were a productive economy throughout the decade.

We're still a productive economy, but the size of the labor force employed by the market economy didn't grow. Only the command economy employment grew.

Real U.S. GDP reached an all time high in 2001, then again in 2002, then once again in 2003. Ditto for 2004, 2005, 2006, 2007, and 2008. It was only in the last year of the decade you refer to as "lost" that GDP will not increase.

These "GDP" numbers don't reflect the fact that more and more of the "output" is from the command economy, including a housing sector inflated by various state policies.

Employment in the U.S. was high for almost all of the last decade. Only in 24 of the 120 months of the decade you refer to as "lost" did the unemployment rate exceed 6%.

How much unemployment did the Soviet Union have?

By contrast, the 1990's had 42 such months. the 1980's had 91 months in which unemplyment exceeded 6%.

Higgs' comparison of this decade, the next ten years, to the thirties could be wrong. Private sector employment could recover this year, but it's not recovering now, despite unprecedented Federal deficits, possibly because of unprecedented Federal deficits.

We're headed for another repetitious discussion shrinking to the right, so you may have the last word here.

martinbrock: "Higgs' comparison of this decade, the next ten years, to the thirties could be wrong"

Neither Higgs nor you referred to the "next ten years" when you wrote about the lost decade.

Higgs: "making the 2000-2009 period America's second "lost decade"

martinbrock: "the U.S. economy lost the first decade of the 21st century"

The facts show you both to be mistaken. For almost all the first decade of the 21st century, the U.S. enjoyed steady economic growth and historically low unemployment levels.

That's right, jd, as long as you ignore what's happend in the last 18 months.

Higgs writes: ". . . the possibility that government employment crowds out private employment, rather than stimulating it, should not be dismissed."

"possibility" ????

Wouldn't it be more accurate to substitute

"virtual certainty, given current circumstances,"?

What do you have in mind when you say "given current circumstances"? Even if I were hypothetically to accept that government spending is always harmful, I would imagine I'd have to still concede that it is less harmful when capacity utilization is as low as it is now. In other words, "current circumstances" don't seem to strengthen Higgs's point, even if you're compelled to agree with him.

What did you have in mind about "current circumstances" that makes Higgs's point even more true right now?

Current circumstance meaning the scale and scope of the Leviathan.

But if you stretch to tackle "the aggregate demand problem" then it wouldn't be unreasonable to think that, in place of private employment, it would be expeditious to employ these people in any way (be careful; don't take that to be perfectly literal), say in government, than to let them sit around. Especially when they're just eating up your welfare-state funds. A person who accepts the aggregate demand problem would ultimately have to admit that their theory holds that nearly any employment is better than none. As with any macro theory like this the problem becomes what do you do with them once we've "recovered". When The State creates an emploment problem by paying these people much higher than their market value there is no conclusion left to draw other than the solution has created a market crowding problem... i.e. They slow the recovery rather than expedite it.

"A person who accepts the aggregate demand problem would ultimately have to admit that their theory holds that nearly any employment is better than none."

Exactly my thought while I was reading Keynes. I think of it as "emplyment bias" - a social theory that people must be kept busy at any cost.

If in fact you mean literally "that nearly any employment is better than none" (i.e., that an economy with some jobs is better than one with none), I don't see how one can argue with that. Perhaps you mean "any increment in employment is better than static employment."

If so, then you don't understand contemporary Keynesianism. Since the early '70s most Keynesian have accepted the classical view that there is a "natural unemployment" rate in the economy, and as Friedman argued, attempts to drive unemployment below this rate will lead to high levels of inflation.

My take is probably a bit different than most. I think that the "natural" employment rate is the point at which everyone who finds it of value to hire out a job does so. That could mean nearly everyone, or almost no one, having a job. It is a concept driven not by social agendas, assumptions, or bias, but simply by the desires of the individuals who hire out jobs.

Classic Keynesians would agree with your position that "the point at which everyone who finds it of value to hire out a job does so", but government intervention in the economy can alter this point and move the economy to full employment. Current Keynesians would also agree with you but differ from classic Keynesians, acknowleging Milton Friedman's argument, that government intervention is constrained (not "prohibited") from reaching full employment by the high inflation costs of attempting to do so.

It seems too much of "stretch" to think it better "to employ these people in any way, say in government, than to let them sit around . . . eating up your welfare funds."

This begs questions like: 1) why are there so many, many welfare funds; 2) what does "any way" mean (for example having some dig holes and others fill?); 3) what evidence is there to support the notion that "make work" projects did anything but prolong the Great Depression?; 4) What is the social loss of having people "sit around" on welfare versus having them employed by government (doing say nothing of any worth to society)?

I don't disagree you're points. I'm only pointing out that the "certainty" is only a perspective. You first have to dismiss their overall theory before you'll ever get them to acknowledge it is certainly. Until then they are acting rationally on their own understanding.

Yes; given that the average Congressperson is about 61 years old we have to assume that they were trained to believe in crappolla like the paradox of thrift as gospel, and in other aspects of what I think you are calling the "aggregate demand problem." This does not excuse their ignorance, it might explain it though. That is, I think it may be that the average Congressperson has a lousy economic model running in the back of his/her head (due to having had it place their via their undergrad training in macroeconomics in the heyday of Keynesianism).

Sometimes I think I'm just not smart enough to understand what Keynesians are getting at when they hype the importance of stimulating "aggregate demand."

They talk macro; I just see magical hand-waving.

taking it to a micro level, employers see growth of government and that = more taxes. Somebody has to pay all of these government drones. That means that investment in any capital (including human) will have a lower future after-tax return. So, they don't hire.

There's no such thing as "temporary" government hiring, really. Most business owners understand this.

The interesting thing is that before Keynes, recessions didn't drive us back to the stone age or anything close. The economy just corrected. Is there a liquidity trap then? Where's the evidence? Keynesianism did prolong the depression and brought us the 1970's, though.

All econ, in the end, comes down to a micro level. The government can't stimulate because every dollar it spends is taken from productive individuals (minus shipping and handling, of course). I believe it was Russ who aptly compared government stimulus to taking water from the deep end of the pool and pouring it in the shallow end.

I think most people support Keynesianism because they really truly believe in the power of government to do good. And politicians love it because the prescription is to spend. It's the hard task of libertarians to "demonstrate to men how little they really know about what they imagine they can design," as Hayek said. No matter how hard we try, they can always point to the counterfactual about how it could've been worse.

I'm going to modify what you said just a bit.

Most people support Keynesianism because they don't understand basic economics. They don't understand that government does not create the wealth necessary to pay its employees and that this burden will fall on non-government workers who are loathe to bear it. Interesting to me is that I rarely meet people from either the right or the left who actually think government is capable of doing good because too many times they have actually come into contact with government.

Politicians love it because it's a prescription to pay back political favours. Just a tweak.

I think libertarians can talk until they're blue in the face. Either most people aren't capable of logic or they're capable but prefer fantasy. I think it's the latter. But, there's nothing like experience to shatter fantasy. Looking at the political environment, I think we're seeing the shards of hopey changey fly and I'm happy to admit I underestimated Americans.

Good tweaks. I think it would be a good addition to anyone's high school/college education to actually operate a small business, complete with profit, loss, and taxes. Many people I know who are corporate employees think the big corporation can effectively print money and don't understand the theoretical links between a job and a paycheck.

Same goes for understanding of government. People want to believe in a free lunch.

That's an excellent suggestion. Unfortunately, there are very few teachers who understand the theoretical links between a job and paycheck. Especially unionized teachers.

Maybe we can all be bureaucrats.

Hopefully I can phrase this well enough....I think there's another crucial component in the deadweight loss caused by the crowding out effect.

Take any entrepreneur you want...say Dave Thomas of Wendy's fame, for sake of argument. If he had taken a government job and spent his career doing paperwork there, instead of founding and building Wendy's into a giant business, think of the huge deadweight loss that would have taken place.

I wonder just how many of these potentials will stagnate in government jobs as both the number and the salaries of those jobs continues to grow. There's no way to measure that, of course, but it's clear to me that there is a deadweight loss, and, in a way, a negative multiplier effect to jobs in the private sector.

I wonder about the likelihood of a "Dave Thomas" persona taking a job as a (level 10) bureaucrat. Certainly it would be an obvious waste of talent (running a business) as compared to fulfilling some public need (making sure my whatever has been properly filed, in triplicate). But I've never met an entrepreneur that would ever dream of doing anything else. It may be that some who remain on the edge of their comfort zone and chose a desk job might otherwise have suceeded. But I doubt the number is significant.

However, people like that don't go into public employment anyway.

I disagree. Some, maybe.

But, some entrepreneurs are people that didn't have many other options so they made of go of it with their own elbow grease and figured out how to succeed. I have several friends in that boat and they employ more people than me.

Agreed. Entrepreneurs aren't a "different breed," they just took an opportunity and succeeded. Many were effectively forced into that opportunity through a lack of other good options.

I agree, but the focus on Dave Thomas is misplaced. He's only the tip of the Wendy's iceberg. In the right economic environment, if Dave Thomas had become a state sector bureaucrat instead, some other organization would have emerged out of the free resources now bound to Wendy's. I don't know who or what or how, and it doesn't matter.

The state sector absorbs countless factors of production critical to the success of a market organization, not only the people who begin as small business owners and eventually become chairman of a large organization. The focus on Dave Thomas only leads central planners to believe that they can outdo the market by hiring more Dave Thomases.

I don't worry about central planners hiring the best and the brightest. I only worry about a critical mass of resources in the state sector, unconstrained by the necessity of profit in a free market.

Dave Thomas is a good example in an important sense though. A high school dropout who earned a GED only when he was 45, he wasn't among "the best and the brightest". He had no letters after his name. He'd never have risen in a bureaucracy governed by standards of entitlement.

If the Federal government hired every Harvard MBA but could only hire Harvard MBAs, at their current numbers, it wouldn't make any difference.

Re; Critical Mass. I agree. At some point, rational human beings will "realize" that government work really is "better" than productive work. The system of rewards will leave no other rational conclusion. TW's statement that the result is dead weight loss is an extreme understatement.

Wonderful point!

Thought experiment: Who does more good?

A: A person who donates a small fortune to charity, or

B: A person who uses a small fortune to start a profitable business, which creates jobs and employs people indefinitely.

Who arre we talking about here? Gates, Buffet, Ford, Rockefeller, Carnege, Pew, Kellogg, Kresge, all of whom gave large fortunes to charitable foundations after profitable business careers? They must have thought it had some merit. I know, it was all PR for the brand.

Give me a fish or teach me to fish? The answer depends on how hungry I am right now, but if I'm very hungry very often, teach me to fish and stop monopolizing the pond.