Sunday, August 29, 2010

Putting Out Fires

The University of California at Berkeley produces some rather strange professors. It is, for instance, the venue for Robert Reich, who touted a plan for Obama to place BP into receivership due to the oil rig blowup in the Gulf, something that our president doesn’t have the authority to do with a domestic corporation, let alone a foreign one.

Now we have an op-ed in today’s New York Times by Laura Tyson of UC Berkeley, which suggests that absurdity of thought may be endemic to, or at least epidemic at, that esteemed school. She provides multiple reasons why we need a second stimulus bill and those reasons range from sensible to “Alice in Wonderland” idiotic.

I don't disagree with the premise that more stimulus is needed, and there are plenty of valid arguments to be made for it, so here come the airheads giving spurious arguments and discrediting the whole thing.

She starts with a modestly absurd claim that the first stimulus has not failed and “is working as intended.” Ah, so the intention was for the stimulus bill to leave unemployment at near 10% indefinitely? That was not what the president and Congress claimed it was going to do when they passed it. She goes on to say that without the stimulus and “3 million jobs created” by the stimulus, unemployment would be in the neighborhood of 11.5% today.

Assuming that such is actually that case, if San Diego suffered another major fire and the fire chief were to claim that he had managed his water use carefully and allowed a mere 80% of the city to burn and had saved a lot of water, I don’t think the citizens would praise him and give him a raise. I think they would want to know why he didn’t use more water sooner and put the damned fire out.

In putting out a fire, the purpose is not to reduce its intensity by trickling water onto it over a long period of time. You dump everything you have on all at once and you put it out. The purpose of the stimulus was not to reduce the intensity of unemployment, it was to turn the recession around, and it did not do that, so it is not “working as intended.” If, instead of trickling money out over three years, the stimulus had dumped that money into the economy in a manner that was visible and tangible, it might have had a far different effect.

"Federal aid to the states," she says, "is especially important because they finance education. Although the jobs crisis is primarily a crisis of demand, it also reflects a mismatch between the education of the work force and the education required for jobs in today’s economy."

It’s unfair to pick on her specifically for making that claim because it’s a common one and is even made frequently by President Obama, but it’s nonsense. The problem with our economy is not that we don’t have enough people sitting in front of computers, it’s that we don’t have enough people in factories building computers, a function that does not even require a high school education, let alone a college degree. Altogether too often the education that is touted by these people winds up leading the educated person to a career in the “financial services sector” a function that is entirely parasitic upon and destructive to our economy.

She then waxes enthusiastic about investing in roads and bridges and, at the risk of being repetitive, I would point out that jobs in construction do not require advanced education and, for the most part, don't really require even a high school degree.

I actually agree with infrastructure investment, but her logic is bizarre because she gives as a reason for it that doing so will reduce “the road congestion, airport delays and freight bottlenecks that reduce productivity and make the United States a less attractive place to do business.” She apparently has not read of road congestion in China, where traffic backups are measured in days rather than hours. Additionally, I would say that the bridge collapse in Minneapolis might serve as a better reason for roadwork investment that being friendly to business investors.

She then asks if the nation can afford that kind of spending, and her answer is “yes” because, “global savers, including savings-hungry American households, are snapping up United States government securities at very low interest rates.”

That is very close to “I can’t be overdrawn, I still have checks left.”

Regardless of existing debt or income, that fact that we can borrow money, that there are people willing to lend money to us, means that it is just a sizzling great idea for us to borrow that money. Especially since the interest rate is really low. Where have we heard that before? Oh, yes, that’s how houses were sold in the late 90’s and early 2000’s.

And, of course, now is a really great time to buy a house.

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