Why Won’t the President Just Create the Jobs?
November 9th, 2009 . by economistmomThe Washington Post’s Alec MacGillis asks a rather provocative question in today’s Outlook section: “Why won’t Obama give you a job?” The article challenges the Administration’s claim that “the stimulus is working” and argues that the Administration could have done or be doing better for the American public in terms of job creation:
Since taking office, the Obama administration has studiously avoided paying people to go to work, which could be accomplished by subsidizing workers’ private-sector employment or by creating new government-paid jobs…
Instead Obama’s team has taken a more indirect approach, a prudence that critics on the left say is misplaced. If you’re spending hundreds of billions of dollars on stimulus, why not do it with conviction? Engaging in more forthright job creation could invite some political pitfalls (such as those constant accusations of socialism), but is double-digit unemployment any less a political risk?
I’m no expert on the labor market, but I suspect there are two main reasons why the Obama Administration has chosen a less aggressive, more indirect route to “job creation”:
- It’s not clear whether the federally-created jobs would be sustainable or valuable. Alec does say that the Administration “opted against direct job programs not for political reasons but because they thought such efforts would not produce long-term value.” I think the more government gets in the business of creating jobs “out of thin air,” the less confident we can be that the jobs make “economic sense” in terms of our human resources being put to their highest and best uses as signaled by the price system (or any other social-value system where signals aren’t nearly as clear).
- It’s not clear that just because the federal government pays for or subsidizes jobs or engages in any other policy labeled a “job creation program,” that they’re actually creating new jobs or changing employment outcomes much, versus handing out money for behavior that would have occurred anyway. Once the federal government gives lower-level governments or private businesses money to hire workers or not fire workers, there’s no guarantee that it actually makes a difference, and it’s impossible to verify in the data. It’s sort of on the “honor system.” Just like the Cash for Clunkers program, at least a good chunk of the money goes to people as a pure bonus, or windfall.
So I think for both those reasons, if the goal is true job creation, there’s no reason to believe that the federal government making up new jobs or subsidizing others to make up new jobs is any more successful in creating sustainable, valuable jobs than the other ways of injecting cash and stimulating aggregate demand in the economy. If the government simply hands out extra cash to seniors or first-time homebuyers (and even if they would have bought that first home anyway) and it translates into newly-created consumer spending almost dollar for dollar, isn’t that more likely to lead to a created or saved job than a job-creation subsidy to a company who simply uses it to reduce their net costs for the employees they were going to hire or retain anyway?
This whole issue of how to best stimulate the short-term economy is a big puzzle to me. When I hear the press pondering the question of “how many jobs have been created or saved” as a result of the recovery and reinvestment act (aka the “stimulus” bill passed in February), I always think: “how would we know?” It’s just like a lot of economic policy: we never have a perfectly controlled experiment. (My chemist parents would argue that that’s just one more reason why economics isn’t “real (hard) science”–it’s pseudo/soft science.)
It so happens that Alec will be live online at washingtonpost.com Monday morning at 11 am EST to discuss his article; just follow this link to participate in the discussion.
It’s not jobs that most people want or need. It’s money. “Jobs” are just a device to get money. Given money, people will spend it, thereby improving the economy.
Therefore, even handing out money will help the economy in the short term. (That’s how you do it, Mom.)
Yes, economically viable jobs will help the economy even more, but if such jobs are not available the government should simply give out money, ala the original stimulus mailing to taxpayers.
That mailing was the right idea, just too little and too late.
It’s not jobs that most people want or need. It’s money. “Jobs” are just a device to get money.
Jobs are also the device by which we create things of value that we can purchase with that money. As Larry Summers is quoted to have said in the Washington Post article:
“The primary objective of our policy is having more work done, more product produced and more people earning more income. It may be desirable to have a given amount of work shared among more people. But that’s not as desirable as expanding the total amount of work.”
“Jobs are also the device by which we create things of value that we can purchase with that money.” Yes, that’s what I meant when I said, “. . . economically viable jobs will help the economy even more. . . ”
Speaking of jobs, how does one reduce the number of people interested in a job? One answer: Cut the pay. So how will attempts to cut Medicare payments affect the number of doctors? Might we have better health care if we increased Medicare payments and increased the number of doctors?
This is just another example of how debt-hawk psychology hurts us.
P.G.,
To my point from an earlier post, wouldn’t the logical extension of your point of view on debt be to eliminate all taxes and just manage the currency to give people what they want?
P.G. Garber wrote:
Speaking of jobs, how does one reduce the number of people interested in a job? One answer: Cut the pay. So how will attempts to cut Medicare payments affect the number of doctors? Might we have better health care if we increased Medicare payments and increased the number of doctors?
The key problem that health care reform is supposed to address is the rapid increase in costs, not a lack of quality. You can see the rapid increase in Medicare costs that is projected by the most recent U.S. Budget in the second graph at this link. A secondary problem that several of the reform bills attempt to address is the large number of people who have no health insurance. Neither of these problems would be helped by increasing current Medicare payments.
Speaking of cutting the pay of jobs, however, following is another interesting excerpt from the Washington Post article:
Lerman offers a variation: Pay people lower-than-market wages, maybe $8 an hour, and reserve the jobs for those who really can’t find better work. Instead of extending unemployment benefits over and over, the government would help people develop job skills and would get something in return. He estimates the cost of 1 million jobs (including supervisors) at $30 million, or about $30,000 for each job created, compared with the $92,000 per job that the White House estimates its approach is costing.
I’ve long thought that our system of unemployment benefits could be improved. Currently, full unemployment benefits are paid for some period of time after which they are terminated. I’ve known a few people who were happy with the level of unemployment benefits and have not seriously looked for a job until they approach the end of their benefits. I’ve heard of others who have seriously looked for a job but have simply not been able to find one. There was a story on the Lehrer Newshour this evening about an Iraqi refugee family that was planning to return to the Middle East for that very reason. It would seem to make more sense to set unemployment benefits such that a person receiving them would, over time, have to steadily jump through more and more hoops to provide evidence that they are truly looking for a job. On the other end, however, their benefits would not be terminated. At some point, they might be required to take one of the lower-than-market wage jobs (mentioned above by Lerman) until they can find better work.
The Washington Post’s Alec MacGillis asks a rather provocative question in today’s Outlook section: “Why won’t Obama give you a job?” The article challenges the Administration’s claim that “the stimulus is working” and argues that the Administration could have done or be doing better for the American public in terms of job creation:
Paul Krugman wrote an interesting New York Times editorial on this topic last Thursday. Following are the final two paragraphs:
Just to be clear, I believe that a large enough conventional stimulus would do the trick. But since that doesn’t seem to be in the cards, we need to talk about cheaper alternatives that address the job problem directly. Should we introduce an employment tax credit, like the one proposed by the Economic Policy Institute? Should we introduce the German-style job-sharing subsidy proposed by the Center for Economic Policy Research? Both are worthy of consideration.
The point is that we need to start doing something more than, and different from, what we’re already doing. And the experience of other countries suggests that it’s time for a policy that explicitly and directly targets job creation.
In the editorial, Krugman mentions the Civilian Conservation Corps which employed millions of Americans during the 1930s. I recently saw an interesting documentary on the CCC by American Experience on PBS. You can see it online at this link.