Why a jobs program is taboo
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.
Then there is the fact that things are going quite well for capital so why would they give a flying fuck about employment.
For believers in technocracy, like Yglesias, class isn’t all that important. Given the structure of the party, as Doug has described it many times before, there is no way for a card-carrying member to believe in a viable technocracy, unless they believe that social-science expertise can transcend and tame class conflict. Of paramount importance is the battle of the best and brightest against the deranged and benighted. That’s the New Democrat worldview: “competence, not ideology.”
Yeah, that should all go without saying, but given the prominent role of these true believers in these debates, it bear repeating.
Please repeat away, Shane.
” (high-speed rail = Europe = fags) “—A brilliant and true Henwood Classic.
Yglesias is basically a liberal. He believes that raising taxes is the most progressive thing you can do, which isn’t a New Democrat thing. (In Doug’s Wall Street, he advocates “soaking the fat boys.”) He agrees with Keynesians that our problem is a lack of demand.
The obvious point is that Republicans control the House and a jobs program would be politically difficult to do. Even fiscal stimulus would be. Doesn’t mean that Obama and Democrats shouldn’t propose it.
He also says its a balance sheet recession in that there is a lot of debt. Inflation would bring down debt levels and get demand going again sooner than if nothing at all was done.
New Democrat doesn’t mean supply-side economics. I am quite happy to call them progressives. If you want precision, call it “Technocratic progressivism,” as defined by Michael Lind:
Personally, I don’t believe in “progress.”
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Private debt is the problem. But inflation is not the only, nor even the best, solution. (Richard Koo, who wrote the book on balance sheet recessions, largely seems to agree with Doug. Koo’s not a fan of QE2, either) A real solution would be to restructure the debt. That’s fair, because you can’t have irresponsible borrowing without irresponsible lending. To claim otherwise is to claim that finance was not responsible for its own intermediation.
As both parties are responsible, both should sacrifice. The borrower, in a restructuring (say, because Congress actually passes “cramdown” legislation), wouldn’t be permitted to walk away. Something of the original loan would still have to be paid off. The lender, in turn, wouldn’t be able to get 100 cents on the dollar. Again, that’s fair, but verboten. The guiding principle of post-crisis policy has been that the creditors, above _everyone_ else, must be kept whole.
And there is no objecting to restructuring on the grounds that it will be opposed as “class warfare.” You’ll get the same fucking rebuke from the asset-holding class if you try to inflate the debt down.
Of course, restructuring might raise some ugly questions about big bank solvency (one person’s liability is another person’s asset). For Obama and his apologists, that’s a no-no. But I’ve learned a few things from Obama about crisis management. It’s only insolvency if a bank files for bankruptcy, and it’s only fraud if they’re convicted. Everything else can be “solved” through perception management.
Doug, you should read Yglesias occasionally. He is unintentionally hilarious, a highly economistic technocrat who doesn’t understand economics very well (you can hear the gears turning as he hauls out a phrase like ‘marginal utility’). He believes every problem can be reduced to adjusting supply and demand through the market. For example, he hates any “NIMBY” effort to intervene in urban real estate markets. Let the markets provide affordable housing! He is stupefyingly blind about class and power.
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Kalecki gave a lecture on this subject called the Political Aspects of Full Employment. Pretty much sums things up.