This is worrisome:
According to a new poll, American voters say that reducing unemployment is more important than cutting the federal budget deficit, taking the Democratic side in what is expected to be an ongoing debate in this midterm election year.
By a ratio of better than 2-to-1 — 64% to 30% — the poll respondents said that reducing employment is the priority, according to the Quinnipiac University poll released Thursday. The national unemployment rate is about 9.5%.
The either/or structure of this question includes an unspoken assumption: that these are competing goods, rather than complementary goods. It is as likely that our stimulus efforts are making unemployment worse as it is that they are making it better.
But here’s the thing: The government can cut the deficit — today, right now, this instant, if it should decide to. Government cannot manage employment, or any other economic factor, as well as the American people think. If the effects of economic policy were regular and predictable, then there would never be a recession, and there would be no unemployment. Politicians have really good incentives to support policies that promote economic productivity, high wages, full employment, and great long recessionless expanses of growth. The problem is: They do not know what those policies are. Nobody does: The economy is far too complex, the information embedded in it too vast, for any person or institution to achieve the kind of understanding of its workings that would allow micromanagement (or even very ambitious macromanagement) from Washington. They literally do not know what they are doing.
The federal budget, on the other hand, is relatively easy to get one’s head around, once you get used to seeing figures in the trillions. And we do have good reason to believe, from long experience, that large public deficits and heavy government debt are a drag on the economy. So, stop stimulating and start cutting.
Another thought: Stimulus is an income-substitution game. The argument about extending unemployment benefits, for example, emphasized the need to replace the purchasing power of the unemployed. Most other stimulus arguments have to do with replacing lost income. And that’s fine, so far as it goes, but: Our current economic distress is not principally a question of lost income, but of lost wealth – all that devalued housing and mortgage-related securities. Stimulus spending cannot replace that lost wealth. Many Americans feel poorer, and are acting poorer, because they are poorer, the value of their largest asset, the family home, having decreased substantially. And their investment portfolios aren’t in great shape, either.
As a consequence, we are spending less on lots of things — why should we be spending more on government? It’s one of the least productive things we spend money on, and every dollar we throw away by trying to stimulate the economy with beekeeper subsidies is a dollar that is not available for productive investments of the sort that produce real goods and services, build real wealth, and create real employment.
If the question asked was, Which is more - important - ..., then of course reducing unemployment is the correct answer. Many people would benefit immediately and personally from more and better jobs.
Whether government can reduce unemployment is a separate issue. For opinions on that, check the answers about the economy and responses to specific programs like the stimulus. The result may show that people are not expecting government to help effectively.
But government borrowing does not automatically reduce money available to the population. Very few dollars used by the Chinese to purchase government bonds, for example, would have been provided otherwise. Repaying the money borrowed is a problem, but some government deficit spending does introduce new money.
Reply to this commentLinkReport AbuseActually I think the govt can do something to improve the employment numbers.
Stop.
Quit legislating and go home. Employers are not going to hire anyone if the dems win in November either. Cap and trade and health care make them realize that the bar for making investment and employment decisions in the US has become appreciably more expensive than it was previously. That includes taxes, which if we don't address the spending must go up. Everyone revels in the VAT - right - lots of business formation in Europe. So the deficit is an issue insomuch as the need to raise taxes to finance it further increases operating costs in the US compared to other places in the world.
Employers are not going to hire until this gets mostly unwound. The current admin has essentially put in place a european social state with 10% built in unemployment rate.
There are orders for finished raw materials that could be filled if only the producers were willing to hire people. But they are not going to hire. They are going to evaluate foreign investment, as most have foreign operations, which have just become substantially more competitive as well as less risky.
Scary - China is less risky for investment than the good ole USA. That is where we are people.
Reply to this commentLinkReport AbuseJEM: Enlighten us on those "orders for finished raw materials." I'm not quite clear on what you're talking about, but it sounds like useful knowledge.
Reply to this commentLinkReport AbuseIf the poll respondents actually said that "REDUCING EMPLOYMENT is the priority" then America may as well close up shop.
I think it's more likely that the L.A. Times screwed up, though.
Reply to this commentLinkReport AbuseI haven't all the data, but have job related knowledge of buying steel. Now we are dealing with very tight demand for delivery of product "windows" - visibility is not very good, and all of us see that with the crazy changes of directions each day on this or that financial measure.
But short term, if the mills were willing to add more capacity - people - they could get out more product with the current capital or by maybe even adding some more capital to make their current employees more efficient. They aren't. Steel delivery is pushing out and is getting ready to stop the expansion in manufacturing. This despite the fact that steel from China is no bargain in comparison. Now when this little scenerio is played out in a number of other heavy industries, which seems logical to assume, the manufacturing burst will end. In fact, there are some indicators suggesting that is starting to happen. In a normal recovery - the mills would have sensed the building demand and started doing more to meet it. But now they are happy to take their profit and sit on the $$ because the operating parameters they usually see aren't there. The regulatory environment today has employers spooked. Trust me, every business, but especially manufacturers who are high energy users and labor dependent, don't view the US as a happy place right now. They are evaluating their global options. And when you are doing that, you are not expanding here. Obama and the democrats in congress are killing the recovery by their actions.
Reply to this commentLinkReport AbuseLook up the AP story this morning on Catepillar's earnings report. Their revenue is up something like 90%. Then look at their employment forecast where they say few (a couple thousand)of the thousands of workers laid off or released have been returned. And there are no plans to do so. No plans to increase inventory stock of equipment at dealers and rental agencies. They have reduced their capital and employment footprint - and are not looking to expand it.
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Business has spoken, particularly heavy manufacturing - they no longer care for much of anything coming out of Washington.
Stop. Just stop.
Reply to this commentLinkReport AbuseThe public opinion poll says that the public would rather see the government adopt policies that reduce unemployment than reduce the federal deficit. The poll does not say that the public prefers that the federal government increase spending and regulation over a tax cut.
A deficit merely means that federal spending is greater than its receipts. A trillion Dollar tax cut enacted in early 2009 that took immediate effect would have pulled us out of the recession we are in. Whereas, the stimulus plan that consisted of giving money to state and local governments so that they did not have to lay off any employees, and various government projects provided to well connected constituents, has done nothing to alleviate the suffering from our recession. In other words, a deficit caused by out-of-control government spending is a very bad thing but a deficit caused by tax cuts is probably a good thing.
Reply to this commentLinkReport Abuse"And we do have good reason to believe, from long experience, that large public deficits and heavy government debt are a drag on the economy."
And what, pray tell, is that long experience? Was the 1940s and 1950s economy dragged down by the debts of WWII? Was the 1920s dragged down by the debt of WWI? We have had 6 periods in our history of budget surpluses - and every one was followed by a depression (except the latest, which was forestalled temporarily by the Bush deficits, and is only now upon us). This is easy to understand if you understand the basic fact that government deficits = private surpluses, and that the converse is true.
Jim Baird
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When you are running a business, and you see your future as ...
... a cash cow for "public servants" to milk (many of whom look at you with envy and or disdain over your "greed") ...
... a social-services surrogate to fulfill a "social contract" conceived and imposed by an unaccountable bureaucracy ...
... a scapegoat for our political leaders to use, to rally the masses around them ...
... an endangered species, because you are unable/unwilling to collude with the bureaucrats and political leaders, and therefore are at a competitive disadvantage to those who can/will ...
WOULD YOU HIRE MORE PEOPLE?
And this is hardly new ... employment growth flattened out in early 2007, almost to the day that the Dim Congress was seated ... with their intent to impose the future described above clear to all those with eyes unclouded by class envy to see.
Could this threat to the pursuit of happiness ... not corporate "greed" ... have been the triggering condition that started the current downward slide?
Reply to this commentLinkReport Abuse@jimbarino: Every one of the magical Keynesian Chia-pet wealth cycles that you point to is a paper kitten. We are paying, and will continue to pay those very bills for the foreseeable future.
Economics has a scientific corollary: turbulent fluid flow. We, frankly, have no idea how to predict the behavior of complex fluid movement. And the most important thing thing to understand about complex systems? To be skeptical of those who claim that they can control them. Back to school for you.
Reply to this commentLinkReport AbuseGreat article! The author is correct about the effect of the Federal Government's rocket-like increase in defecits and spending in general since 2007, and especially since 2009. It is a false tradeoff between defecit spending and unemployment. The overhang of uncertainty about: the weight of this deficit, the level of increasing tax rates and regulatory growth make employers hunker down. They are not going to hire anyone that isn't absolutely, positively, drop-dead necessary. This rational behavior negatively impacts both tax revenues and employment levels.
Government spending is ALWAYS less effecient than the private sector and in most cases govenment spending is value-destroying. In a reasonably free market economy the private sectors' return ratio exceeds 1.0; Government's can rarely approach 1.0 and never on a consistent and long-running basis. A $1.00 spent by the government will result in less than a $1.00 returned to the broader economy. That is reality, as opposed to the let's-pretend "facts" that the Obama administration was peddling when selling the "stimulus".
However, the most important question is the one that is being ignored: WHAT is government spending money on? In most cases it's transfer payments that are by definition value-destroying for the broader economy. In a few cases they are capital investments that help the economy to perform better (e.g. roads, ports, aircraft carriers). In too many cases they are the salaries for the regulatory overhead with which government burdens the economy.
The author is correct that large deficits are a drag on the economy and employment. But this is not to say that government spending can never have a positive stimulative effect. It can, with several, critical caveats:
1) The spending must be on capital/durable goods that have a long term return (e.g. military and space hardware, roads, ports, etc.).
2) The spending must be promptly implemented and somewhat predictive in nature. By the time the popular press is talking about a recession it's pretty much too late for government stimulus to have much of a positive effect on the broader economy. It has to juice the economy when things sag a bit, without being seen to be carrying the ball.
3) In addition to being quick, stimulus spending must be short in duration and digestible in size. Otherwise we have all the bad things we see happening now: crowding out, untenable deficits, heavy tax increases, regulatory uncertainty, etc.
The added component that makes "discretionary" spending deficits even more difficult now and for the forseeable future is that the time when "non-discretionary" spending deficits can no longer be kicked down the road is upon us. The results of the high governmetnal spending and prolonged recession have brought forward by decades the inclusion of Social Security, etc. in the market's calculations for looking at national deficits. That will not change until these enormous transfer payment programs are removed from the government's ledger; switched from a monthly expense to a return-generating asset for the economy by being privatized.
The only way out of this mess to a bright future is to cut government spending and roll back the recent increases in regulation. Keep the Bush tax rate cuts. Cut governmental spending to the levels of the mid-2000s. Then cut/roll-back regulations and regulatory spending.
If done, in short order this economy will boom and the increase in tax revenues will make paying down the "discretionary" deficit possible. Employment is a lagging indicator, therefore it will be about 3-5 quarters later before we see the positive effects from this on unemployment.
After that, we can tackle fixing social security...
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