all he can think to suggest is more government spending.
Liberal economist admits job picture is horrendous, but . . .
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Give Alan Blinder credit for this: The left-wing Princeton economist is willing to say what a lot of Obama supporters want you to forget, which is that 7.6 percent unemployment is horrible. As Blinder says in today’s Wall Street Journal, “So any complacency is misguided. Rather, policy makers should be running around like their hair is on fire.”
He is talking about the tendency in recent reports to greet numbers like 194,000 jobs created as a good month, since 194,000 is such a big-sounding number. In fact, Blinder points out, this is nowhere near the pace of job creation we need to get back to full employment (which I will point out is what we had during most of the presidency of George W. Bush):
After all, the story goes, the U.S. economy has been creating an average of 194,000 net new jobs per month over the past six months. And despite the small uptick on Friday, the unemployment rate has crept down another six-tenths of a percentage point over the past year, to 7.6%, even though GDP growth has been anemic. That’s pretty good, right?
No, it’s pretty bad. The Federal Reserve estimates that normal “full employment” corresponds to a measured unemployment rate around 5.6%. Americans used to think 7.6% was an unemployment rate you get during a recession.
The Brookings Institution’s Hamilton Project, with which I am associated, estimates each month what it calls the “jobs gap,” defined as the number of jobs needed to return employment to its pre-recession levels and also absorb new entrants to the labor force. The project’s latest jobs-gap estimate is 9.9 million jobs. At a rate of 194,000 a month, it would take almost eight more years to eliminate that gap.
So we have a liberal waking up to reality here, yes? Well, not quite. Blinder isn’t willing to buy the nonsense that the job picture is looking good, since it clearly isn’t. The fact that the current number is “good” compared to the Obama-era worst of over 10 percent merely highlights what an atrocious economic record Obama has. But when it comes to solutions, Blinder sadly falls in line with the usual left-wing orthodoxy, thinking the problem is that the government isn’t purchasing enough and hiring enough:
Consider: Private employment comprises about five-sixths of total employment in the U.S. while government employment is one-sixth. Since the economy as a whole created 5.41 million net new jobs over the past three years, you might expect that about 4.51 million of them were in the private sector and about 900,000 were in the public sector. In fact, the private sector created 6.56 million net new jobs over the past three years while about 1.14 million net government jobs were eliminated via layoffs and spending cutbacks.
Never before in postwar history has government employment declined during a recovery. Compared with historic norms, we’re down over two million government jobs.
To listen to Blinder, you’d think government was shrinking like a scared turtle. In fact, it’s been spending close to 25 percent of GDP at the federal level and close to 50 percent of GDP at all levels. Not only that, but governmental units at all level are grappling with massive debt. So if anyone thinks government in this country has been in a spendthrift mode, they’re insane.
The private sector is exactly where you want job creation centered. When the private sector hires a person, that is likely a person who will produce a healthy rate of goods and services that will add value to the economy. Government, by contrast, sometimes hires people who are truly needed but far too often hires just for the sake of hiring - sometimes because people like Alan Blinder are screaming that this is necessary to boost the economy.
And where has all the spending the government’s been doing gotten us? We’re now running a national debt of more than $16 trillion, and one of the reasons government spending doesn’t equate to government hiring is that we’re having to spend so much of what we have on entitlement programs. Meanwhile, the debt is leading to mounting interest obligations, and while interest payments today are “only” about $200 billion a year, a return to sane interest rates in a few years could see that number jump to $500 billion or higher.
If Blinder is upset that we’re down 2 million government jobs, I wonder if he’s considered how many government employees you could hire with the $200 billion we just turn around and pay in interest on the debt. If you hired 2 million of them, you could spend $100,000 a year on each one. But no, we’ve run up too much debt and we have to pay that money in interest, so sorry, 2 million people. No government jobs for you.
That’s always the inevitable result of government deficit spending, though, which is why Blinder’s solution is no solution at all. At least he acknowledges the problem, but it’s too bad he fails to see that thinking like his is exactly what got us here.
Finally, Blinder makes a curious comment about the idea of a tax credit to spur hiring. He says:
For example, companies might be offered a tax credit equal to 10% of the increase in their wage bills over the previous year. No increase, no reward. Several small-scale variants of this idea have been proposed, and one was actually enacted in 2010—applying only to certain unemployed workers and new hires. It has since lapsed. The emphasis, however, was always on small scale. We need large scale.
You might imagine that Republicans would embrace an idea like that. After all, it’s a business tax cut, and all the new jobs would be in the private sector. But you would be wrong. Maybe it’s because President Obama likes the idea. Maybe he should start saying he hates it.
Cute, but for a purported economist, Blinder shows a lot of ignorance here. The problem with the idea is not that it’s a business tax cut, or that “Obama likes it,” but rather that it makes no sense. You don’t hire people to get a tax credit. You hire people because you need them, and because you’re able to ascertain with some confidence that what they produce will generate what it costs you and more back in revenue. A 10 percent tax credit might be helpful if you need the person anyway, but if you don’t need people and you still hire them to get a tax credit worth 10 percent of what you spend on them, you are going to go out of business.
Is it too much to expect a liberal economist to understand this? I guess it is.