I just posted this to Facebook in response to a query by Corey Robin about the dismal “debate” on jobs hosted by The Atlantic, and Matthew Yglesias’ side commentary on it. Corey’s question: why can’t the gov solve the unemployment problem by hiring people? My reaction:
Wow, what a collection of tiny little “ideas” that “debate” gathers. It’s up there in tininess with Obama’s jones for patent law reform.
Raising the inflation target implies that the Fed has been too tight, when in fact it’s been anything but. It’s been pumping like crazy since the financial crisis broke out. We’ve gone through two rounds of quantitative easing (which basically means the Fed bought gobs of long-term Treasury bonds, which it usually doesn’t do). This ease has set the loons aflame, leading them to fulminate about currency debasement and hyperinflation, when in fact it’s done little but encourage commodity speculation. So we’ve seen commodity prices rise, but with no effect on general inflation, which is still very low – as you might expect with the economy flat on its back and the labor market in a torpor.
Orthodox types usually prefer monetary to fiscal remedies, because they operate through the financial markets and don’t mess with labor or product markets or the class structure. A jobs program and other New Deal-ish stuff would mess with labor and product markets and the class structure, and so it’s mostly verboten to talk that way. I’m not sure that Yglesias understands that – I haven’t read a lot of him, but he seems like a bit of a hack – but it’s probably part of his unexamined “common sense” as a semi-mainstream pundit.
The multipliers on jobs programs and infrastructure investment are very high – meaning that for every $1.00 spent on such programs, GDP increases about about $1.60-1.70. (These numbers come from Mark Zandi of Economy.com, who advised John McCain during the 2008 campaign, so they’re not from some pinko source.) The multipliers on tax cuts are much lower – under $0.40 for extending the Bush tax cuts or giving corps tax breaks (meaning that they increase GDP by less than half what they cost). The multiplier on the payroll tax holiday is higher – around $1.20 – because the working class spends all it gets, but the upper brackets don’t.
So aside from putting the unemployed to work, jobs programs and infrastructure investment would boost broad economic growth dramatically. But we can’t do that, because the yahoos don’t like it (high-speed rail = Europe = fags) and because jobs programs might lead the working class to develop an attitude, and we can’t have that. Therefore, respectable people don’t suggest such things.