Jobs: Do We Give Up Too?
Mark Thoma has caused quite a stir. Which you probably missed because he’s a fairly unassuming academic in his normal guise, and a regular, sharp, commentator on his economics blog. He is one of those economists who pops up now and again in the media with a non-orthodox view, and a practical approach. Along with notables like Brad DeLong, Dean Baker, and Paul Krugman he has done much of the heavy lifting necessary to orient economics towards a real world solution and away from the loony stuff preached by our friends in Chicago.
His presence within the economics blogosphere looms larger than most so when he announced that he was ‘giving up’ hope that the Obama administration would attempt a significant job creating effort his words carried a great deal of weight. And stirred quite a debate.
He is correct, of course, that all the stimulus efforts so far have been inadequate and lightweight. Had we done more, sooner, the economy would be much further down the road towards robust health, and we would not all be wringing our hands over the turgid pace of recovery.
The really sad part is that the administration knows all this and yet still falters whenever pressed by ideological foes of stimulus. The recent ‘jobs bill’ – it deserves quote marks because of its derisory amount of spending – was more slap in the face for the unemployed than a help.
Equally sadly, the talking heads of the media have fallen prey to the silly chatter from the world of finance that America needs to switch towards belt tightening sooner rather than later. The fear of a spike in interest rates and portentous blather about a downgrade of US bonds by the rating agencies, grip the media’s attention far more than long unemployment lines. It has become as if we are resigned to a jobless recovery because we cannot afford the cure.
Fear, in other words, drives our decision making, not a focus on a solution or a determination to make our economy well again.
This implies we have not learned from the japanese experience of the past twenty years.
The Japan has become the poster child of what not to do after a huge asset price bubble collapses. The Japanese failure has been analyzed up and down by a veritable army of economists. It is the seminal reason that Paul Krugman shook off his allegiance to orthodox economics and embraced the Keynesian way. Practically every step a whole sequence of Japanese leaders took had a perverse impact. Japan lost wealth a prodigious rate; it piled up debt; it has impoverished its future; and has settled for mediocrity in the present, all because of its misdiagnosis and then timid response to its crisis.
We are following much the same course.
The simple reason is not economics, it is weak kneed politics.
The economists around Obama know what to do. They just cannot get themselves to argue strongly enough that we should do it.
They fear the cloddish opposition the Republicans will throw up: as if Jim Bunning knew anything at all about economics. Beyond the simply cloddish, they fear the calculated cynicism of people like Romney who object to government spending as a vote catching position rather than a well worked out economic policy. The procession of GOP leaders decrying big spending is long and shameless. Their position has instinctive appeal to a large number of voters. After all it seems intuitive that we should tighten our belts when money is scarce.
Wrong. Wrong. Wrong.
It is extraordinarily disappointing to realize how little attention many of our erstwhile leaders pay to history. It is even worse to realize that those who have learned the lessons of history are too weak to implement the knowledge they gleaned from that study.
Our one and only hope for a strong recovery is a demented spending spree, with the government printing money and handing it out to anyone willing to spend it.
Period.
Everything else condemns us to a Japanese experience, and the deliberate reduction of our children’s wealth.
But we have reached the point in our discussion of policy that folks like Thoma now give up. Publicly.
The effort to get the administration to do the right thing seems a hopeless cause. So Thoma quits and DeLong chimes in that he agrees.
So do we give up too?
Heck no.
We need more stimulus. Now.
Addendum:
Those of you who like pictures in order to understand things – I am with you believe me – should all rush to this chart on Brad DeLong’s site.
He shows the shortfall in economic activity, which he notes is about $1.3 trillion at the moment. Two points to note: that the gap is between current activity and projected activity as if the recession had never taken place. The idea being to put a number on the damage done by the downturn. The second point is to note that this loss is permanent. There is nothing we can do to recoup that lost spending. This is what I mean when I talk about impoverishment: we lost a ton of spending and, by extension, all the wealth that such spending implies, during this crisis. That lost activity is far greater than the cost of the bail-outs and the stimulus combined.
And it is to mitigate that loss, to shorten the period of loss and to lessen its amount, that we deploy government spending. In a vernacular sense we fill the void that the gap represents through artificial spending. We plug the hole.
By so doing we prevent much of the permanent loss. The cost is that we have to repay the amount we deploy. But that cost is a smaller burden on the future than the unfilled gap, because we kept ourselves on, or close, to our historic trajectory.
Pictures are helpful.
More stimulus. Now.
OK.OK. I know that we won’t get more stimulus. But it won’t be because we didn’t shout for it.