Opinions from economists are converging: Unemployment, now at 9.8 percent for adult men, 8 percent for adult women, may not improve for three years. What’s even more sickening is that the decay (an appropriate word to describe the human misery and eroding human and physical capital caused by joblessness) doesn’t have to happen.
Congress and the president could boost economic growth with a trillion-dollar stimulus—not more war please, though that works, but more unemployment benefits, a work-sharing program, an aggressive home principal adjustment mechanism, massive apprenticeship training, etc.
The first panel at a lively and well-attended conference* yesterday in Washington at the lovely Newseum featured three economists, one on the right wing, Martin Feldstein (a dignified Harvard economist who has taught economic principles to thousands of students and chaired Ronald Reagan’s Council of Economic Advisers); one on the left wing, blunt Paul Krugman (Nobel prize winning Princeton professor and New York Times writer); and one on the “up wing,” Jan Hatzius from Goldman Sachs.
They were supposed to disagree.
They didn’t.
Bleak consensus: Unemployment will surely rise over the next few months despite the stimulus of $787-billion and unprecedented Fed easy-money policies.
Feldstein repeated his August forecast for a second recession.
Krugman was even gloomier: “In the long run, we’re going to look at Japan’s lost decade as a success story compared to what we’re going through.” Krugman wants a stimulus akin to the spending of World War II.
The “upbeat” Wall Street Hatzius said he could visualize an economic scenario that was “pretty bad” or “very bad.”
Feldstein expressed cautious optimism that if government did nothing but promote a lack of faith in Washington, then a dramatic dollar depreciation might boost exports and the economy. But Krugman and Hatzius took aim: “A loss of confidence in the dollar would coincide with instability in other markets.” Which is a way to say if the dollar crashed, the world economy would too.
Reporting in the Financial Times disarms Feldstein, and supports the other two. “Governments are risking a currency war if they try to use exchange rates to solve domestic problems, the head of the International Monetary Fund has warned.”
Currency wars are not the mainstay for blog space in The Chronicle of Higher Education. But the topic’s important, so please allow a brief review:
Currency devaluation and zero interest rates are promoted by anti-government types (see Feldstein and Judge Richard Posner’s new book) as substitutes for digging in and boosting aggregate demand, like spending on education. But zero interest rates don’t work in liquidity traps and making your currency cheaper so their people buy your exports and your people don’t buy theirs is fatally flawed. It only works if no one notices or retaliates. The fear of retaliation is oozing out of the pink pages of the Financial Times.
Bottom line: We need governments in developed nations worldwide to stimulate demand; we need to do it at the scale of World War II; and we need to do it now.
*NOTE: Four think tanks sponsored the conference: Demos, the Century Foundation, the Economic Policy Institute, and the Center for Budget and Policy Priorities put on the conference entitled “Budget Policy, Short-Term Recovery and Long-Term Growth.”
Photo: Jobs With Justice on Flickr
6 Responses to Make Jobs, Not War
dank48 - October 7, 2010 at 12:59 pm
The problem seems clear enough.It’s the proposed “solutions” that worry me. This country has spent about forty years trying to ignore one basic principle: What you reward, you get more of. What you punish, you get less of.
lexalexander - October 7, 2010 at 2:32 pm
Ezra Klein of The Washington Post is on point:People say that the government should be run more like a business. So imagine you are CEO of the government. Your bridges are crumbling. Your schools are falling apart. Your air traffic control system doesn’t even use GPS. The Society of Civil Engineers gave your infrastructure a D grade and estimated that you need to make more than $2 trillion in repairs and upgrades.Sorry, chief. No one said being CEO was easy.But there’s good news, too. Because of the recession, construction materials are cheap. So, too, is the labor. And your borrowing costs? They’ve never been lower. That means a dollar of investment today will go much further than it would have five years ago — or is likely to go five years from now. So what do you do?If you’re thinking like a CEO, the answer is easy: You invest. You get it done. Happily, that’s what the administration is proposing to do. But its plan is too modest. The $50 billion bump in infrastructure spending it has proposed is only for surface transportation. The infrastructure bank envisioned in the proposal is also likely to be limited to transportation. And as for our water systems, our schools, our levees? This is not a time for half-measures. It’s a rare opportunity to do what we need to do and to save money doing it.I would add that the U.S. Internet infrastructure is nowhere near world class, and the current proposal doesn’t even mention it.
lexalexander - October 7, 2010 at 2:32 pm
Source for the previous: http://voices.washingtonpost.com/ezra-klein/2010/10/infrastructure_the_best_deal_i.html
trendisnotdestiny - October 7, 2010 at 4:33 pm
well communicated lex
vpostrel - October 11, 2010 at 2:27 pm
Labor is not cheaper for government projects during a recession, because of “prevailing wage” laws. Construction materials are somewhat cheaper than a few years ago, but are still expensive because of China’s demand.
minfxbg - October 20, 2010 at 3:00 pm
ah,hmmm, all you’ve said, “professor” is that the governments need to do something; specifically dump more money into something.
“Higher learning.” Right. Deeper in debt to the company (the federal government) – and you can do is push the US citizen that the same company will forever own their soul. Remember this professor: “…when you take the king’s shilling, you must do the king’s bidding.”