Former Clinton Secretary of Labor, Robert Reich, thinks deficit spending on infrastructure is a panacea for unemployment:
Let me say this as clearly and forcefully as I can: The federal government should be spending even more than it already is on roads and bridges and schools and parks and everything else we need. It should make up for cutbacks at the state level, and then some. This is the only way to put Americans back to work. We did it during the Depression. It was called the WPA.
The Sandwichman sympathizes with Reich's sentiment. But why can't a university professor and ex-Secretary of Labor rise above cracker-barrel wisdom and deal with real facts on the ground. The fact is the unemployment rate among 16-24 year olds is already nearly 20 percent and the underemployment rate, including discouraged job-seekers and economic part-timers is over 30 percent. That's three-zero -- thirty percent. Not all the unemployed are qualified construction workers.
In fact, it's likely a relatively small proportion are. Even if they were, it's not likely that building all the roads, bridges, schools and parks WE NEED would require enough labor to employ them all... unless you're going to opt for those eight-person crews with one shovel. And another catch is that those infrastructure projects will also require the services of people whose skills and credentials are already in short supply -- thus creating bottlenecks.
No, spending even more on all those public works projects is not such a brand-new, fabulous, fool-proof panacea. Ahem. Did you know the patron saint of fiscal stimulus, John Maynard Keynes, didn't exactly have the house of pancakes bottomless coffee pot of government spending in mind?
Don't take my word for it. Read Lord Robert Skidelsky's "Keynes: The Return of the Master." Everybody else is. Even at the OECD. But even Skidelsky is being a bit coy in the latest book. He says, "Over time... the high-investment policy should yield to the encouragement of consumption through redistributing income from the higher to the lower-saving section of the population. This should be coupled with a reduction in the hours of work." That's a lot vaguer than what Keynes actually wrote and also much vaguer than what Skidelsky wrote about Keynes a decade ago.
The bottom line is that Keynes's ultimate solution for unemployment now is WORKING LESS and not "spending more". Maybe Keynes was wrong, eh? But in that case the burden of proof is on the advocates of more stimulus to show why Keynes was wrong or at least to honestly acknowledge that what they propose is NOT what Keynes advocated.
While he is at it, Reich should also consider the effect on employment of an adventure in Iran, or an expanded adventure in Afghanistan.
ReplyDeleteIn 1950, while examining the economic impact of a military containment of the Soviet Union, President Truman's Council of Economic Advisers came to this conclusion:
"With a high level of economic activity, the United States could soon attain a gross national product of $300 billion per year, as was pointed out in the President’s Economic Report (January 1950). Progress in this direction would permit, and might itself be aided by, a build-up of the economic and military strength of the United States and the free world; furthermore, if a dynamic expansion of the economy were achieved, the necessary build-up could be accomplished without a decrease in the national standard of living because the required resources could be obtained by siphoning off a part of the annual increment in the gross national product."
(http://www.fas.org/irp/offdocs/nsc-hst/nsc-68-6.htm)
The linkage between US military operations and GDP is thus firmly demonstrated by the so-called American Keynesians.
It should also be noted that the current "bounce" in GDP has, in large part, been fueled by military spending:
"Real federal government consumption expenditures and gross investment increased 10.9 percent in the second quarter, in contrast to a decrease of 4.3 percent in the first. National defense increased 13.3 percent, in contrast to a decrease of 5.1 percent. Nondefense increased 6.0 percent, in contrast to a decrease of 2.5 percent. Real state and local government consumption expenditures and gross investment increased 2.4 percent, in contrast to a decrease of 1.5 percent."
(http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm)
The fact is working time must be reduced or we will continue to be subjected to hare-brained Keynesian schemes aimed at generating make-work.
Sandwichman, what the heck is wrong with you in attacking Reich like you did?
ReplyDeleteUnskilled blue collar work means you can be relatively easily trained. It's not impossible by any means whatsoever.
The young men in the CCCs in the 1930s and WPAs had very little skill, and yet they were put to work and built marvelous structures and cleaned out forests and replanted others. I'd rather see that than extreme idleness where people don't have anything to do--and you should too.
And please, Reich's point has nothing to do with maintaining long daily and weekly work hours in America. A good union movement can push with Congress for a shorter work week and ensure the same pay prevails. But we can't even pass the EFCA with a supermajority of Democrats in Congress. Sigh.
Finally, to the first commenter, let's not call building a library or a road "make work." "Make work" is when a private developer builds a building on spec. And even then, if he's paying a decent to prevailing wage, bully for him.
No wonder Obama can't see straight when he listens to economists. Instead, Obama should listen to sociologists, who at least understand how the world really works. And no I'm not a sociologist. Just a trial lawyer who majored in History and Poli.Sci.
Mitchell,
ReplyDeleteIt turns out that "spending money" isn't quite as easy as it sounds. A few days ago, Biden announced a set of nine goals to accomplish by the end of the year. They consisted of commitments to actually spend portions of the money already appropriated by Congress.
Sure people can be trained and put to work on projects but there has to be people who know what they're doing to train them and there has to be people -- architects, engineers, etc. -- to draw up the plans. And then there's a lot of technical stuff that you need specialists for and accountants and payroll people and so on...
Yes, and somebody, somewhere has to make the determination that a project is a. really needed b. feasible and c. not environmentally destructive.
So what I'm saying is that there is an inherent ratio between qualified people and unskilled. I don't know what the ratio is but if you exceed that ratio you're hiring people to pretend to work.
Since you bring up the New Deal programs as models, I'll just mention that 1. the WPA and the CCC didn't employ everyone that was unemployed; 2. the hours of work for relief jobs were shorter than the standard hours; 3. hours of work were reduced during the New Deal and that reduction held after the war.
What Reich is talking about (albeit in vague, general terms) amounts to a much larger public works program than existed in the 1930s and no systematic reduction of hours.
Hey, I'm not antagonistic to public works projects -- as long as they are well conceived and well implemented. But this willy-nilly "spend, spend, spend" mantra is bat-shit crazy. First, it won't happen and second, it is so packed with emergent snafus that if it did happen you'll wish it hadn't.
Sandwichman,
ReplyDeleteLook around. There's lots of work to do in rebuilding infrastructure in this nation. I know architects, solid guys, too, who are essentially unemployed if they were not "self-employed" in the first place.
Your argument is an argument known as paralysis by analysis.
I would definitely not be upset if we at least tried to help put people to work rebuilding the infrastructure of this nation. You'd also be amazed at how fast the deficits turn into surpluses on a year over year basis if we followed what Reich has proposed.
I am also not upset if people only worked say 30 hours a week. It might herald a trend away from increased hours for workers, another salutary effect.
Overall, Reich's proposal is better than anything Obama, Inc. has proposed so far...
Mitchell,
ReplyDeleteI think you misunderstand my objection to Reich's proposal. I'm not against rebuilding infrastructure or employing underemployed architects. What I'm saying is that Reich's panacea doesn't scale as conveniently as you might imagine.
I also object strenuously to the systematic exclusion of what should be a key aspect of any reasonable recovery plan -- the reduction of the hours of work. Reich, Krugman, Delong and all the usual suspect liberal Keynesians won't touch work time reduction with a ten-foot pole. That's because it's a shibboleth in mainstream economics. But, hey, Keynes himself called working less the ultimate solution to full employment. I call "bullshit" on the faux Keynesianism that refuses to engage Keynes's own arguments.
I agree that a work hour reduction strikes at the heart of a corporatized America and that is why Reich is probably indeed afraid to touch that ultimate third rail.
ReplyDeleteStill, I think our nation is in such need of infrastructure rebuilding, and getting entire towns and cities back to work that I am saying let's move forward with that now, and start the argument for a 35 hour week or even 30 hour week (for 40 hours pay) now as well. One is a program that has support of most Americans outside of corporate media, and the other is an argument that will soon have more support.
This is just a fantastic statement, and should replace your current masthead:
ReplyDelete"I agree that a work hour reduction strikes at the heart of a corporatized America and that is why Reich is probably indeed afraid to touch that ultimate third rail."
Yes, as men and women of principles, it is your responsibility to coddle those who speak less than the truth because it might alienate their corporate sponsors.
Keep up the good work!
If people insisted on the whole truth, who know where it might end.
PS: We could get 40 thousand pairs of boots on the ground by December - how is that for public works!!!
At what point will people realize that fiscal stimulus is to economics what bleeding was to medicine!!!!
ReplyDeleteSandwichman: I fully agree with your attack on mass “road and bridge building”. I’ve set out what I think are the weaknesses in WPA type schemes at http://employerlastresort.blogspot.com/2009/03/employer-of-last-resort.html . And I try to set out a better alternative.
ReplyDeleteYou say “Maybe Keynes was wrong, eh? But in that case the burden of proof is on the advocates of more stimulus to show why Keynes was wrong or at least to honestly acknowledge that what they propose is NOT what Keynes advocated.” Good point. Well as an advocate the stimulus to date, and possibly some more stimulus, here goes.
WHY KEYNES WAS WRONG. I agree with what is probably the most common criticism of Keynsian “borrow and spend” (and there are plenty of well qualified economists who agree with this) namely that the stimulatory effect of the spending (and the increase in private sector net financial assets) is likely to be neutered by the deflationary effect of the borrowing and the increase in interest rates.
THIS IS WHAT I ADVOCATE “WHICH IS NOT WHAT KEYNES ADVOCATED”. It’s simple: just spend without borrowing or taxing. This is actually what has happened in the US and UK in 2009. That is, “borrow and spend” plus “quantitative easing” equals plain simple “print money and spend” I enlarge on these latter points at http://ralphanomics.blogspot.com/
See posts entitled “Let’s ditch Keynes and monetarism”, 2nd Oct, and: post entitled “No one understands quantitative easing” 1st Oct.
In the UK, the increase in the national debt (about £200bn) is roughly equal to the amount that has been “quantitatively eased”.