Brad DeLong mocks Steve Horwitz here for suggesting that the stimulus didn’t create jobs. DeLong then launches a defense of Christina Romer and her thoughtful examination of the data for crowding out caused by the stimulus package. Brad says there isn’t any.
He argues that higher interest rates and wages are how we observe the “unseen” in economics–jobs, for example, might be being lost from the stimulus due to crowding out. We observe those losses via the change in prices.
Because interest rates haven’t risen, there isn’t any crowding out of private investment. And because there’s no “wage inflation” there’s no crowding out of employment.
Then there is a charming analogy between jobs and neutrinos as if Romer and other careful economists were like white-coated physicists working at an accelerator facility.
Then he points out that of course there isn’t any crowding out in employment:
That there hasn’t been any wage inflation-induced crowding-out is, to me, not surprising: the fracking unemployment rate is ten percent, after all. The full-employment world of Bastiat is very very far away. And relative to the magnitude of excess supply in the labor market, the stimulus is simply not big enough to induce any wage inflation-based crowding out. So I am not surprised that there has been no wage inflation-induced crowding out: that is a normal and expected part of our empirical reality.
But there’s a problem with that analysis. The unemployment rate is 10% for every industry in every place. If you don’t have a high school diploma, the unemployment rate in December was 15.3%. If you had a college degree or higher it was 5%. So when the “stimulus” package increases spending on medical research by millions of dollars, it doesn’t do much for the unemployed who were in the construction industry. It does push up the demand and wages for medical researchers. I suspect there’s some crowding out there. It’s hard to measure but I bet we could at least see some of those wage or at least income increases that Brad says haven’t happened.
There is no evidence that the hundreds of millions of dollars that the government has borrowed to spend on the “stimulus” package has created any jobs at all. If Brad has that evidence, I’d sure like to see it. Remember, it was Christina Romer who said that without the stimulus, the unemployment rate would reach 9%. With it, we’re hit 10.2%. Of course it could have been even worse without the stimulus. But what is the evidence for that view, Brad, other than your desire that it be true?
