The Institute of Supply Management issued a study warning that American manufacturing growth had come to a standstill in September, and the Labor Department’s latest employment figures, the worst jobs report of the year, tell the same story from another perspective: unemployment rate stagnant, wages stagnant, hours worked down, number of new jobs far below forecast, previous reports revised downward, labor-participation rate at 38-year low, with nearly 95 million eligible American workers sidelined.
That the Obama administration is foundering from an economic-policy point of view is not news. Barack Obama & Co. represent the very freshest and most imaginative thinking of the 1930s — stimulus, public works, monkeying with the minimum wage, political favoritism for union constituencies, the ancient superstition that simply putting money in somebody’s pocket makes the nation richer through the miraculous power of the economic multiplier, etc.
“Get ready for the new normal,” writes Scott Sumner. “3.0 percent NGDP growth — it’s coming soon.”
Tyler Cowen and others argue that we have entered into a new kind of economy. “There is more and more evidence that we’ve shifted into a new regime where wage growth for most income classes simply doesn’t happen to any significant degree,” Professor Cowen argues. “This may not last forever, but it remains the status quo, and too many people find it too hard to wrap their heads around that. That to me is the single biggest takeaway.”
There is a temptation, especially on the left, to argue that the current prolonged weakness is a result of the financial crisis of 2008–09, but it probably is more accurate to say that the crisis and subsequent recession revealed the weakness of the current regime rather than that they caused it.
#share#President Obama and his advisers take an essentially managerial view of the economy. Their hearts may secretly thrill to memories of exciting old campus Marxists in days gone by, but they are not in the main government-ownership-of-the-means-of-production guys. They see themselves as chess masters. If you remember those scenes in the original Clash of the Titans with the gods of Olympus moving little figurines around on a gameboard — that is how they see government (and, not coincidentally, themselves). Their role, as they see it, isn’t to own the farms and factories, but to set the terms of employment, to give this constituency a nudge, to take that one down a peg, to push sugar imports in one direction and so-called green energy in another. The Right’s habit of comparing President Obama’s thinking to that of the Italian fascists and their corporazioni isn’t (only) for the purposes of denigration. The president and his men see the government as a partner, an entrepreneur, an economic actor with incomparable resources and power. If you read Ezra Pound’s admiring estimates of 1930s European corporate-state economics, it will sound quite contemporary: The state has the power to act — why not make the most of it?
’Create jobs,’ but create jobs creating what? No politician ever wants to think about that too deeply, because it means thinking about why demand for their pet projects is insufficient without their artificially inducing it through subsidy or mandate.
What about the knowledge to use that awesome power effectively? There’s an old joke about an engineer, a priest, and an economist trapped at the bottom of a deep pit: The engineer looks for a way to get a handhold on the wall, the priest prays for deliverance, and the economist says, “No problem. First, assume a ladder.” Assume you know what the balance of trade in sugar should be, assume you know what McDonald’s fry guys should earn per hour, assume you know what the mix of energy sources used in electricity generation should be . . .
Those assumptions are running up against a persistent and unpleasant reality just now.
Our metaphors fail us. Our political leaders still talk about the economy as though it were one of Henry Ford’s factories: It creates so many jobs, produces so many pieces, consumes so much steel and rubber, and if government lent it some money at subsidized rates, maybe it could add another line, which would “create jobs,” etc. Create jobs creating what? No politician ever wants to think about that too deeply, because it means thinking about why demand for their pet projects is insufficient without their artificially inducing it through subsidy or mandate. At his worst, President Obama really does seem to believe that paying a man to dig a hole in the morning and fill it up in the afternoon makes the country richer because it contributes to consumer spending. This is superstition. Pull the consumption lever, watch production ramp up. But the 21st-century economy isn’t a series of levers; it’s a series of relationships. The nature of our technologically enabled present global connectedness means that for the first time in human history all economic activity happens in immediate relation to everything else. You cannot isolate the variables, which is a real problem if you believe in political management of the economy and see the policy question as nothing more than a really tough math problem.
The persistent failure of our current approach to economic policymaking suggests a very different role for government from the one that exists in the mind of the purported chess masters in Washington. President Obama, whose background is in the crank-turning mechanicalism of the law, is not intellectually up to the challenge. It isn’t clear that there is anybody on the scene who is.