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September 25, 2011

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Posted: 24 Sep 2011 10:01 PM PDT

Romer: A Plan on Jobs Deserves a Hearing

Posted: 24 Sep 2011 04:32 PM PDT

Christina Romer takes on several arguments against Obama's job creation proposal, e.g. that worry about the deficit is standing in the way:

A Plan on Jobs Deserves a Hearing, by Christina Romer, Commentary, NY Times: ... People are concerned about the deficit, and this concern is holding back the recovery. Fiscal austerity, not more stimulus, is the answer.
This argument makes me crazy. There's simply no evidence that concern about the current deficit is a significant factor limiting consumer spending or business investment. And government borrowing rates are at record lows, suggesting that financial markets are not worried about the deficit, either.
Moreover, as I discussed in a previous column, the best evidence shows that fiscal austerity depresses growth and raises unemployment in the near term. That's the experience of countries like Greece, Portugal and Britain... Cut the current deficit and you will raise unemployment, not lower it.
Like many other countries, the United States has two terrible problems: a devastating lack of jobs right now and an unsustainable budget deficit over the longer run. The right question is not whether we can reduce unemployment by lowering the deficit (we can't), but whether we can make progress on both problems.
With 14 million Americans unemployed and no prospect of rapid recovery on the horizon, we really have no choice: we must take additional measures to create jobs. ... Just as important, policy makers should be discussing how to make meaningful progress on the long-run deficit at the same time. We need a credible plan that phases in aggressive deficit reduction as the economy recovers.
The president has started a discussion about job creation. His proposal deserves a full debate based on facts, evidence and careful analysis.

One thing -- I wouldn't say that long-run deficit reduction is "Just as important" as job creation. Job creation is the more important concern right now.

"A Genuine Revolution in Human Thinking"

Posted: 24 Sep 2011 10:08 AM PDT

Marshall and Keynes brought about "a genuine revolution in human thinking":

...Alfred Marshall, the man most responsible for Keynes's career choice, was also the one most responsible for the new way of thinking. To paraphrase a great American economist, Paul Samuelson: before Marshall, economics was about what you couldn't change. The new economics was about what you could.
Consider the dismal science when Marshall took it up. There was no cheering up Karl Marx... The British founders of political economy were scarcely less glum. John Stuart Mill ... doubted whether democratic reforms or technological progress could have much effect on how the average Briton lived. ...
The new,... social science that Marshall pioneered and Keynes and others innovated was a genuine revolution in human thinking...

It seems to me that the current crisis is, to a large extent, reversing the economics of hope. When workers look forward today, what do they see? Technical progress that will make them better off -- change that will elevate their standard of living -- or do they see a future where they'll be lucky to keep the job, benefits, and wage rates they currently enjoy (if they have a job at all)? Much of the rhetoric from the right -- from opposition to government trying to help to the age old worry that the rate of technological progress is slowing -- has been about "what you couldn't change," and pessimism about the future is as high as I can ever remember.

I refuse to give up. It's distribution, not production that has failed us over the last 30 or 40 years. We produce far more than we ever have, and we will continue to increase our ability to squeeze more and more out of the resources we have. We have the ability to produce enough stuff. But the distribution of the things we produce has been tilted toward the top. Instead of wages rising with productivity as our textbooks say they should, wages have stagnated and the rewards have gone elsewhere. Thus, while the pessimism of the past was about production not being able to keep up with population -- many classical economists looked forward to a long-run outcome of a dismal, stationary state with most people struggling at subsistence wages -- the pessimism of the present is driven largely by a failure of distribution. The haves get more and more, and the have nots get less and less even though overall output is rising. And to make it worse, those in power have successfuly promoted the idea that intervening to ensure that workers get to keep the share of output they've earned will harm our long-run growth prospects.

Pessimism about breaking through the wealth and power structures that stand in the way of change is understandable, as is the desire of the winners in our increasingly two-tiered society to keep the focus on growth rather than distribution. However, this outcome is not pre-ordained, it is not etched in stone, it's something we can fix without sacrificing our long-run growth prospects. But only if we refuse to buy into the narrative that the "it can't be changed so suck it up and deal with it" crowd is peddling.

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