"Herein Lies the Problem"
Via Jared Bernstein:
Herein Lies the Problem, by Jared Bernstein: There’s an article in today’s NYT on the economic debate within the White House. The print version—not the online one—contains this quote from an admin official:It would be political folly to make the argument that government spending equals jobs.
Really? I mean, I get the reluctance, and certainly the “spending=jobs” frame, while essentially correct, may not be the right way to frame it.
But in fact, the best way to get people back to work right now, with consumers weakened and investment on the sidelines is through more government spending…it should be targeted and temporary, but jeez, the President himself has been making this point, and correctly pointing out that R’s are blocking him on it.
Far be it from me—I mean this—to advise the politicals as to what works. But I simply don’t believe it is political folly to tell the truth on this critically important point.
When you are arguing that deficit reduction -- less spending -- creates jobs because it's politically expedient to make this point and you care more about votes than fixing the economy, the truth can be uncomfortable. Is it so hard to explain that yes, in the long-run deficit reduction can be helpful. When the economy is near full employment and the demand for investment funding is high, the government's use of funds to finance its deficit can slow investment activity. Near full employment, government spending can crowd out private investment so we need a long-run plan for deficit reduction.
But presently, with so much idle capacity and with so much liquidity looking unsuccessfully for a place to earn profits, no such fear exists. Government spending won't crowd out private sector investment, it will provide a needed net addition to output and provide jobs for struggling households. Borrowing costs are extraordinarily cheap and there are plenty of infrastructure needs for the government to invest in, so it's not as though we wouldn't get something of value for our money over and above the needed help it provides to working class households. It's a short-run and a long-run win.
Deficit reduction in the short-run makes things worse, not better, and hence harms rather than helps reelection chances. I understand that the administration is doing its best to prevent immediate cuts, and that the recent deficit agreement doesn't put large cuts into place until 2013. But there are still small cuts endorsed by the administration -- we are still going in the wrong direction -- and if employment remains sluggish come election time, and if the administration has no public record of trying to do anything about it, what argument will they have? We could have provided more jobs, but we didn't bother to try because we didn't think we could explain ourselves to the public? We knew better, but the polls were unfavorable so we didn't bother to pursue it?
I don't expect that the administration would be successful if they do pursue job creation vigorously. Any job creation program that is likely to work and large enough to matter would almost surely be blocked by the other side. But I agree with those who argue there's value in the fight because it makes it absolutely clear whose side you are on, and that fighting to help the unemployed will do more for reelection chances than the milquetoast centrism that has characterized the administration recently. They are worried they will lose more votes than they gain if they fight for job creation, that they will be pegged as tax and spend liberals instead of defenders of the working class. But they seem oblivious to the dangers of being viewed as caring more about the interests of wealthy supporters driving the deficit reduction bandwagon than households who need their help.
[See here too. Apologies for being repetitive on this point -- I'm frustrated that so many people in need of jobs are being left to twist in the wind for political rather than economic reasons.]
Posted by Mark Thoma on Sunday, August 14, 2011 at 12:42 PM in Economics, Politics |
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