Tuesday, June 21, 2011

The Easy Answers Aren't Easy

Dean Baker debunks careless reporting on the economy in his column Beat The Press, but he is sometimes a little quick with his Keynesian solutions and it seems to me that he doesn’t always think things through. Today he is “debunking" Dana Milbank for claiming that “there is very little that government can do to create jobs.” Here are the things that Baker suggests the government can do.

"The government can spend money. People work for money, meaning that government spending will create jobs."

Yes indeed, spending money always feels good. I had a girlfriend once who, every time she felt depressed, went out and bought shoes. She didn’t need any more shoes and didn’t ever wear the ones she bought on her sprees, but spending money made her feel better.

So, indeed, the government can spend money, and it has been doing so like crazy for the past couple of years. Where are the jobs?

"The government can also have more tax cuts or credits. If these tax breaks go to low and moderate income people, then they will spend money. This will create jobs."

Or maybe those people will just pay off debts. Or maybe they will just save the money in case they lose their jobs. Or maybe they will spend it, okay, but will just quit adding debt on their credit cards. None of those things will create jobs.

"The Federal Reserve Board can deliberately raise the rate of inflation, thereby lowering real interest rates and reducing debt burdens. This will also lead to more spending and more jobs."

Inflation will also reduce the spending power of people who have jobs, which will cost jobs. And when people's debt load is reduced, they may merely say, "Whew" and not engage in additional borrowing, which will not create more jobs. And the debt reduction may make homeowners less underwater on their homes, but still underwater and still unable to borrow or spend, which will not create jobs. And inflation will utterly destroy the buying power of people on fixed incomes, which will cost jobs.

"The government could also push down the value of the dollar which will increase net exports. This will also create more jobs."

This will also increase the cost of imports, which is a large portion of what we buy these days, which will reduce the buying power of everybody and cost jobs. It will also raise the price of oil, thereby raising the price of a great many products and transportation and crippling the economy, which will cost jobs.

"And, the government could provide incentives to employers to shorten workweeks as an alternative to layoffs."

Except that eliminating layoffs is not exactly “creating jobs” is it? And what is going to happen to the spending power of the people who are working the shortened workweeks?

There just are no easy answers, and any person who wants to be president at this point should automatically be discredited and eliminated from consideration.


Sandwichman said...

"Except that eliminating layoffs is not exactly 'creating jobs' is it?"

Actually, technically it is. Every month there is a huge amount of "churning" in the labor market. Hundreds of thousands of people are hired and hundreds of thousands of people are laid off, are fired or quit. It is the net of those two figures that counts as "job creation". You can create jobs either by increasing hiring or by reducing layoffs.

bruce said...

good post with arguments and rebuttals. every sitting or wanna-be politician ought to take heed.

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