When asked this morning by Politico to assess Obama’s jobs summit, here’s what I said:
The group at the White House knows a lot more than me about this jobs stuff so I hope they figure something out.
However, this could be a lot harder than it looks.
First, I don’t think economic stimulus works as well as it used to. Back in the old days, say the 1950’s, you pumped money into the economy and everybody went out to buy GE refrigerators and Big Three cars made in the USA. Now they go to the Toyota dealership, pick up a new import and drive it to the Wal-Mart to pick up some Christmas toys from China. If I can dimly reconstruct my memories of economics as taught in ancient times, they used to talk about the ‘multiplier effect’ in which a dollar of federal spending ended up generating many additional dollars in economic activity. The taxes off all that new income helped cover the costs of the original stimulus.
A very neat trick, but I’m not sure it still works. As the American economy has become more open and trade-sensitive, the multiplier presumably has gone down: we are stimulating economies in China and Vietnam rather than here at home. This hurts us twice: once when we don’t get as much growth per dollar of stimulus, and again when we have less tax revenue to replace what we’ve taken out of the Treasury.
Second, we really have spent about all the money we can safely shove out the door. The dollar is low, gold is high, and the bond market is singing the blues. A big fat second stimulus program would hurt more than it helps if it drives up the interest rate.
Third, I frankly think most of this talk about ‘green jobs’ is a pious fraud. If it’s cheaper to build a subway car in China, I suspect it’s cheaper to build a wind turbine there too. I’m sure there are some jobs in there somewhere, but it’s unfortunately hard to see why environmentally benign manufacturing jobs are going to be less sensitive to international competition than traditional ones have been.
Fourth, Davis-Bacon is a significantly bigger problem than it used to be. By raising wages to union-type levels, this policy (which mandates high wages for workers employed in certain government construction, etc.) means you create fewer (but better paying) jobs with any given level of spending. In the old days, the magical multiplier effect mitigated the downside of this. All those lucky stiffs in the well-paid government jobs went out and bought mostly domestically-produced stuff, spreading the benefits of the stimulus around and creating more jobs out there in the less well paid private economy. A good Democrat like me might not want to use the phrase ‘trickle-down’ to describe this approach, but that’s more or less what it was. The ‘primary’ jobs created by direct government stimulus went on to create many more ‘secondary’ jobs as the money circulated through the economy. Now — I wonder. It looks more as if there will be fewer secondary jobs so the main thing is to create as many primary jobs with the original stimulus spending as possible to help people get through the hard times. Democratic trickle-down doesn’t work as well as it used to.
If you put a gun to my head and made me propose something, I’d suggest a payroll tax holiday: cut both employee and employer Social Security and Medicare taxes for 2010. By reducing the cost of hiring people, you might encourage more employers to hold on to their workers and hire some new ones. It’s a tax cut, so Republicans can’t hate it too much. But it’s reasonably progressive and puts money right in the pockets of working people.
Then to offset any bond market panics I’d convene a bipartisan commission of the great and the good to deliberate gravely and thoughtfully and give me a package of long term fiscal reforms both on entitlements like Social Security and Medicare and more generally on federal expenditures. The commission would deliver its report in January of 2011, which is after the midterm elections but when there is still some space for presidential leadership before the re-election cycle kicks all the way in.
And when I’d done all that I would light a candle in the church of my choice and hope things turned up.