There are two Economic pundits I read every week: Robert Samuelson and Paul Krugman. Samuelson is what I’ll refer to as a Realist Economist who generally understands that actions produce results, some of them unintended and therefore we must think carefully before we act. Krugman is a Nobel prize winner who proudly wears his far left liberalism on his sleeve and couldn’t care less about unintended consequences because Economic policy should be thought of like Christmas presents from your aunt Helen: It’s the thought that counts.
Samuelson, in my opinion, is right more often than Krugman but Krugman is way more fun to read. Consider his latest argument for a national jobs program. In a piece from Monday’s New York Times professor Krugman admonishes the Obama administration for not giving top priority to job creation. He carefully words his backing statistics claiming that “There are six times as many Americans seeking work as there are job openings" and “the average duration of unemployment — the time the average job-seeker has spent looking for work — is more than six months, the highest level since the 1930s” (1). Yikes, looks like we haven’t stimulated the economy enough and a government lap dance is required to stiffen up our flaccid GDP.
Krugman thinks “our best hope now is for a somewhat cheaper program that generates more jobs for the buck. Such a program should shy away from measures, like general tax cuts, that at best lead only indirectly to job creation.” He favors federal aid to states to hire teachers and other public service providers combined with federal programs comparable to the failed Works Progress Administration (WPA) of the Depression era. He admits that these jobs would be low paying and would be considered “make work” but that they would benefit society by creating the kinds of cultural and economic homeruns like pay toilets on the Mass Pike and monuments commemorating Indian massacres.
Samuelson weighed in on Thursday, his take being that more government stimulus with the aim of creating jobs would create “risks in overaggressive government job-creation programs that can be sustained only by borrowing or taxes.” He favors an approach of less government spending with more attention paid to rationalizing taxes to promote growth and more focus on long term deficit reduction in order to prevent a budgetary nose offing to spite the face of economic recovery.
It is the opinion of your humble shade tree economist that both Krugman and Samuelson miss the mark. Job loss is a symptom of a bad economy, not a cause. To someone unemployed or looking for a job this sounds like a bullshit opinion from an amateurish wannabe economist. But let me explain: Jobs are lost when there is a lack of demand for the products and services those jobs produce. The current lack of demand for housing, financial services, and consumer products is the result of a double whammy of contracting credit and a deflated asset bubble. Having government, at various levels, hire more teachers, police, and people to fix roads and infrastructure will provide us with lower teacher/student ratios, safer communities, and better roads (music to the ears of a poor bastard that commutes over 100 miles a day). It won’t, however, fix the demand for products and services lost over the past two years. It will increase the staggering public debt and will eventually push interest rates and taxes to levels that further strangle the economy.
If you don’t believe me (good for you, always a safe bet) here’s what an invitee to last week’s jobs summit had to say: “The lack of jobs is a symptom of a down economy due to asset bubbles bursting and a drought of credit and a lack of direction and clear communication of policy from Washington.” That comment came from Fred P. Lampropoulos, CEO of Merit Medical Systems Inc., a medical devices manufacturer from Utah. Comments like this are frightening not only because they expose the lack of clearly understandable policy coming out of Washington but also because they demonstrate the freeze the lack of clear direction has put on business decision making.
Net, net we don’t need a jobs program we need to understand what the roadmap is for getting the economy back on course to grow and create jobs. How about a program to communicate the direction the Obama administration and Congress will take to create an environment favorable to growth and not more taxes and debt? It’s often been said that American business can adapt to anything as long as the rules are understood. Let’s hope the rules are established soon so that we can at least make decisions and then read about the consequences instead of why decisions are not being made.
(1) The two statistics Krugman cites are somewhat apples to oranges comparisons as the latest Bureau of Labor Statistics available (maybe PK has a bat cave like facility deep beneath Princeton where he gets and analyzes data faster than the Feds) shows that in September there were 2.5 million job openings and the October data shows 15.7 million unemployed. Programming this mass of data into a sophisticated multidimensional model and running it through my super fast six year old Dell laptop I come out with a ratio of 6.28 unemployed people for every job opening. In a noteworthy comparison, the lowest ratio since the BLS has been measuring job openings was .83 back in January of 2001 (5.1 million openings to 4.2 million unemployed). The seasonally adjusted duration of unemployment was 26.9 weeks in October, with historical data hard to come by the best I could compare to was over the past year when in November of ’08 the duration was 18.9 weeks.