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August 15, 2011

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Paul Krugman: The Texas Unmiracle

Posted: 15 Aug 2011 12:33 AM PDT

The claim that conservative policies caused an economic miracle in Texas, and that the same policies would fuel growth for the nation as a whole, relies upon a myth and a fallacy:

The Texas Unmiracle, by Paul Krugman, Commentary, NY Times: ...Rick Perry,... governor of Texas, has announced that he is running for president. And we already know what his campaign will be about: faith in miracles.
Some of these miracles will involve things that you're liable to read in the Bible. But ... his campaign will probably center on a more secular theme: the alleged economic miracle in Texas, which, it's often asserted, sailed through the Great Recession almost unscathed thanks to conservative economic policies. And Mr. Perry will claim that he can restore prosperity to America by applying the same policies at a national level.
So what you need to know is that the Texas miracle is a myth,... that Texan experience offers no useful lessons on how to restore national full employment. ...
So where does the notion of a Texas miracle come from? Mainly from ... faster population growth than the rest of America — about twice as fast since 1990. Several factors underlie this rapid population growth: a high birth rate, immigration from Mexico, and inward migration of Americans from other states...
But what does population growth have to do with job growth? Well, the high rate of population growth translates into above-average job growth... At the same time, the rapid growth in the Texas work force keeps wages low — almost 10 percent of Texan workers earn the minimum wage or less, well above the national average — and these low wages give corporations an incentive to move production to the Lone Star State. ...
Still, does Texas job growth point the way to faster job growth in the nation as a whole? No.
What Texas shows is that a state offering cheap labor and, less important, weak regulation can attract jobs from other states. I believe that the appropriate response to this insight is "Well, duh." The point is that arguing from this experience that depressing wages and dismantling regulation in America as a whole would create more jobs — which is, whatever Mr. Perry may say, what Perrynomics amounts to in practice — involves a fallacy of composition: every state can't lure jobs away from every other state. ...
So when Mr. Perry presents himself as the candidate who knows how to create jobs, don't believe him. His prescriptions for job creation would work about as well in practice as his prayer-based attempt to end Texas's crippling drought.

links for 2011-08-14

Posted: 14 Aug 2011 10:04 PM PDT

"Herein Lies the Problem"

Posted: 14 Aug 2011 12:42 PM PDT

Via Jared Bernstein:

Herein Lies the Problem, by Jared Bernstein: There's an article in today's NYT on the economic debate within the White House. The print version—not the online one—contains this quote from an admin official:

It would be political folly to make the argument that government spending equals jobs.

Really? I mean, I get the reluctance, and certainly the "spending=jobs" frame, while essentially correct, may not be the right way to frame it.

But in fact, the best way to get people back to work right now, with consumers weakened and investment on the sidelines is through more government spending…it should be targeted and temporary, but jeez, the President himself has been making this point, and correctly pointing out that R's are blocking him on it.

Far be it from me—I mean this—to advise the politicals as to what works. But I simply don't believe it is political folly to tell the truth on this critically important point.

When you are arguing that deficit reduction -- less spending -- creates jobs because it's politically expedient to make this point and you care more about votes than fixing the economy, the truth can be uncomfortable. Is it so hard to explain that yes, in the long-run deficit reduction can be helpful. When the economy is near full employment and the demand for investment funding is high, the government's use of funds to finance its deficit can slow investment activity. Near full employment, government spending can crowd out private investment so we need a long-run plan for deficit reduction.

But presently, with so much idle capacity and with so much liquidity looking unsuccessfully for a place to earn profits, no such fear exists. Government spending won't crowd out private sector investment, it will provide a needed net addition to output and provide jobs for struggling households. Borrowing costs are extraordinarily cheap and there are plenty of infrastructure needs for the government to invest in, so it's not as though we wouldn't get something of value for our money over and above the needed help it provides to working class households. It's a short-run and a long-run win.

Deficit reduction in the short-run makes things worse, not better, and hence harms rather than helps reelection chances. I understand that the administration is doing its best to prevent immediate cuts, and that the recent deficit agreement doesn't put large cuts into place until 2013. But there are still small cuts endorsed by the administration -- we are still going in the wrong direction -- and if employment remains sluggish come election time, and if the administration has no public record of trying to do anything about it, what argument will they have?  We could have provided more jobs, but we didn't bother to try because we didn't think we could explain ourselves to the public? We knew better, but the polls were unfavorable so we didn't bother to pursue it?

I don't expect that the administration would be successful if they do pursue job creation vigorously. Any job creation program that is likely to work and large enough to matter would almost surely be blocked by the other side. But I agree with those who argue there's value in the fight because it makes it absolutely clear whose side you are on, and that fighting to help the unemployed will do more for reelection chances than the milquetoast centrism that has characterized the administration recently. They are worried they will lose more votes than they gain if they fight for job creation, that they will be pegged as tax and spend liberals instead of defenders of the working class. But they seem oblivious to the dangers of being viewed as caring more about the interests of wealthy supporters driving the deficit reduction bandwagon than households who need their help.

[See here too. Apologies for being repetitive on this point -- I'm frustrated that so many people in need of jobs are being left to twist in the wind for political rather than economic reasons.]

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