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Friday, February 01, 2008

"If You Really Think the Economy Needs a Jump-Start, Let's Try Suspending the Americans with Disabilities Act"

Steven Landsburg and Jason Furman are debating stabilization policy and other issues. This round goes to Jason Furman:

Let the economy adjust, by Steven E. Landsburg, Commentary, LA Times: ...Our assigned topic for today is, "What's wrong with this economy?" My answer is, the same things that are always wrong with it: bloated government, a badly designed tax system and an excess of regulation.

Addressing those fundamental problems would do far more good than shuffling a bunch of checks around. If you really think the economy needs a jump-start, let's try suspending the Americans with Disabilities Act for a year.

As always, some people are experiencing hardship. As always, we can sympathize without rushing in to do more harm than good. ... It's hard to be unemployed, but there's no way around the fact that people are going to have to find new ways to be useful. For example, we built too many houses during the sub-prime boom, so we need fewer builders now. Some builders will be unemployed while they figure out what to do next. It's tough, but it happens all the time.

There's a lot we can do to make our economy more productive and our children more prosperous — I'd start with an overhaul of the tax system — but none of it involves trying (almost certainly without success) to slow down the adjustment processes that are needed to keep this economy (or any economy) functional.

Stimulus doesn't stop adjustment, by Jason Furman, Commentary, LA Times: ...You blame bloated government, badly designed taxes and an excess of regulation. ... There is a simple reason why your diagnosis, and thus the remedy you prescribe, is implausible. All of the factors you cite have been relatively constant. They ... are very important for long-run growth, overall efficiency and the prosperity and living conditions of our children. They are all big, complicated and controversial topics. But none of them has very much to do with the business cycle.

In the early 1980s the unemployment rate rose to almost 11%. In the early 1990s it rose to nearly 8%. It has increased 0.6% in the last nine months. None of these episodes can be explained by fluctuations in the design of the tax system or regulation. And even if we had the perfect tax, regulatory or health systems, we would still have business cycles if for no other reason than the "animal spirits" cited by John Maynard Keynes, which can lead to bouts of optimism and pessimism, driving consumer spending and investment up and down in ways that get propagated into business cycles. ...

Economists are very much divided on the question of how to increase the economy's productive capacity over the long run. But there is near universal agreement ... that when the economy is operating below its productive capacity the problem is insufficient aggregate demand, and the solution is to temporarily boost spending or investment through monetary or fiscal policy.

Such a solution prevents needless suffering but does not impede the adjustment you rightly note is needed. As I pointed out Wednesday, during the roaring 1990s the economy lost 252 million private sector jobs as a result of closing establishments or downsizing. But the economy was successful because it created 274 million new jobs — meaning that a low unemployment rate coincided with a dramatic shift in the makeup of U.S. jobs.

We can debate whether the economy is slipping into recession or about to rebound. We can debate whether the best tools are for the Federal Reserve to cut interest rates or Congress and the president to apply fiscal stimulus. And we can debate the most effective forms of fiscal stimulus. But to argue that the downturn could be solved by temporarily permitting discrimination against people with disabilities is just daft.

Indeed. [Update: Tyler Cowen comments.]

    Posted by on Friday, February 1, 2008 at 12:36 AM in Economics, Fiscal Policy, Monetary Policy | Permalink  TrackBack (1)  Comments (55)

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    [Source: Economists View] quoted: When Jason and Steven debated the stimulus issue, it struck me that Steven totally rejects the central premise of Keynes's General Theory. This comes out clearly here - even as Steven doesn't present a very convin... [Read More]

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