If I were to teach a course on Economics, or American Politics--the two most likely courses for me to teach--I'd explain why cutting the debt and the deficit now, when we're in a jobless stagnation, is certainly not going to create jobs. It is a perfect example of the Paradox of Thrift. If one family, or a small proportion are thrifty, they will thrive, and others only less so. They will be saving in an expanding economy in which most people spend too much, or almost too much, and maintain demand for goods and services. The thrifty will save more.
When everyone is thrifty, or simply isn't spending because they don't have any money, even less will be sold; there will be fewer transactions of any kind. To cut spending by governments, laying off workers, closing parks, doubling up in classrooms, even laying off police, is only going to compound the problem: even more people who did have jobs, no longer have them. How is this going to create jobs?
Why would the investor class, what the GOP calls "job creators," hire more workers, when demand is sagging even further?
Perhaps it's counter-intuitive, but if government spends more money now, in targeted ways, to employ the unemployed--there's much to do with our crumbling infrastructure that's falling far behind the world standard, for example--it will more likely erase deficits sooner than if it cut back expenditures and reinforced the "beggar thy neighbor and thyself" process that Obama has caved to. His strength was not economics.
It's very simple: if people are already spending too little to maintain the kind of demand--for goods and services--that will employ the unemployed, then cutting jobs and programs in the government sector will only make things worse. This is especially true because the investor class ("job creators") are sitting on huge piles of cash, or are investing it in places like China, so it's not a lack of capital that stymies the US--and Europe; it's low demand.
Only the Federal Government can create money, and only the government can create demand when there is none: by employing people, and paying them. Despite all the anti-government sentiment in the US, governments do a lot of positive things, when it's creating demand. In the Depression, the CCC restored land destroyed by the dustbowl, roads were built, even, the WPA hired painters to paint murals for our central post offices; they are still there today. Now, a new WPA could build high-speed rail lines, or rehab neighborhoods blighted by defaults, install insulation in public or private buildings, teach smaller classes; there are lots of things the unemployed could do. Americans are among the most highly skilled of workers, but they will be decreasingly so, the longer large portions of the workforce remain out of work.
Rome tried the "beggar thy neighbor" policy in the 3rd Century: it never recovered.
Showing posts with label WPA. Show all posts
Showing posts with label WPA. Show all posts
Wednesday, July 13, 2011
Saturday, June 11, 2011
Our Debt Trap
The "new" economy: workers have no rights, and are paid a few dollars over minimum wage. They have to pay for an American lifestyle: a decent rental, at very least, a car, insurance and gas, cable and phone, electricity, medical care and food, going up almost as fast as gas.
I have friends who are barely making it, working full time; they're good at what they do, highly valued by their employers, yet they're paid too little to afford the minimal American lifestyle.
Prices go up, although Bernanke tells us we don't have meaningful inflation, that deflation is the danger. Deflation is a danger, not just in the housing market, where prices are marching downward, but in the labor market. Workers are paid less and less, because everything, including rent, goes up--except their wages. The result is that people have less and less money to spend; they economize. In the country, people only drive to the store when they have multiple tasks; gas costs too much for multiple shopping trips, so there is less money as demand for goods and services.
Meanwhile, corporations are sitting on piles of cash, much of it from foreign earnings, and from squeezing more work out of fewer workers. The rise in unemployment (from 8.8% to 9.1%) is driven by labor deflation, i.e. people don't have enough money to maintain the demand necessary for businesses (small and large) to hire more workers.
No tax cuts for corporations and wealthy investors will stimulate job creation when there is flagging demand for the goods and services those businesses sell. No lay offs of public employees (Federal, state and local) is going to create more jobs; the opposite is true; layoffs drive demand downward.
Two policies would create jobs: resolving the housing collapse by allowing people to stay in their homes and renegotiating mortgages based on their homes' current value, and/or subsidizing housing payments. And, government creating needed jobs directly. Our crumbling infrastructure alone indicates that WPA-type jobs would be positive investments in the nation's future. It doesn't matter where the money comes from, but only the Federal government can make a political decision to invest in jobs.
Instead, governments slash jobs and spending, suddenly reducing money available for goods and services. The result is a debt trap. Fewer jobs mean less money being spent. This results in lower tax revenue and higher expenditures on services to the unemployed, which then forces cuts of even more jobs. This self-reinforcing deflation, is a debt trap. Deficits will rise as expenditures are cut; debt will increase as unemployment rises and as people spend less. That's not a paradox, it's how things work.
Rome was caught in a debt trap in the 4th century--and never got out of it. Keynes and FDR found a way out in the 1930's. Why don't we?
I have friends who are barely making it, working full time; they're good at what they do, highly valued by their employers, yet they're paid too little to afford the minimal American lifestyle.
Prices go up, although Bernanke tells us we don't have meaningful inflation, that deflation is the danger. Deflation is a danger, not just in the housing market, where prices are marching downward, but in the labor market. Workers are paid less and less, because everything, including rent, goes up--except their wages. The result is that people have less and less money to spend; they economize. In the country, people only drive to the store when they have multiple tasks; gas costs too much for multiple shopping trips, so there is less money as demand for goods and services.
Meanwhile, corporations are sitting on piles of cash, much of it from foreign earnings, and from squeezing more work out of fewer workers. The rise in unemployment (from 8.8% to 9.1%) is driven by labor deflation, i.e. people don't have enough money to maintain the demand necessary for businesses (small and large) to hire more workers.
No tax cuts for corporations and wealthy investors will stimulate job creation when there is flagging demand for the goods and services those businesses sell. No lay offs of public employees (Federal, state and local) is going to create more jobs; the opposite is true; layoffs drive demand downward.
Two policies would create jobs: resolving the housing collapse by allowing people to stay in their homes and renegotiating mortgages based on their homes' current value, and/or subsidizing housing payments. And, government creating needed jobs directly. Our crumbling infrastructure alone indicates that WPA-type jobs would be positive investments in the nation's future. It doesn't matter where the money comes from, but only the Federal government can make a political decision to invest in jobs.
Instead, governments slash jobs and spending, suddenly reducing money available for goods and services. The result is a debt trap. Fewer jobs mean less money being spent. This results in lower tax revenue and higher expenditures on services to the unemployed, which then forces cuts of even more jobs. This self-reinforcing deflation, is a debt trap. Deficits will rise as expenditures are cut; debt will increase as unemployment rises and as people spend less. That's not a paradox, it's how things work.
Rome was caught in a debt trap in the 4th century--and never got out of it. Keynes and FDR found a way out in the 1930's. Why don't we?
Thursday, September 16, 2010
Small Business's #1 Worry?
A survey of small businessmen by the National Federation of Independent Business found: it's not taxes, and it's not credit. It's no customers.
So, the political dialogue about taxes or credit is less relevant to them than anything that would increase demand, like accelerating job creation. So, here are Democrats saying middle income tax cuts ought to be preserved, and Republicans insisting tax cuts for the wealthy not only must be maintained, but made permanent--at a cost of $700-800 billion to the debt--because, they insist some are small business proprietors--though few are). In addition, Democrats (with one Republican) have just passed similar bills in House and Senate, providing tax cuts and extended loans to small businesses: to spur hiring. But they probably won't have much effect.
What no one, either in the administration, or in either party, or either chamber, seems to get is this: people need jobs; business needs employed people; but businesses aren't employing them. So, what's the problem? Has government never acted as temporary employer of last resort before?
There are many areas where government could meet huge needs. The unemployed don't have to have jobs digging holes and filling them. We no longer allow heavy manual labor--we have machines for that, which costs more money and skills--but we could use clean up crews, teachers assistants, parking meter attendants, construction workers to repair and rebuild, and so on. Local governments could manage local projects.
If people are so concerned about illegal immigration, then they should go to work bringing in harvests, following crops northward; maybe the Feds could subsidize citizen workers.
The point is: what's holding up the recovery is a lack of jobs. Apparently, tinkering with loans, credits and taxes is not enough. Of course it isn't. Why would a business invest in higher output, by hiring more workers, or buying more machinery, when demand for the good or service they're trying to sell is so feeble and uncertain?
What are people thinking? The best and the brightest are pretty stupid.
When no one else creates jobs, government should be the employer of last resort. It can be. There are many things of lasting value that were built by the WPA, like the mural scenes in Post Offices, and the forest windbreaks planted by the CCC in the Great Plains; they stopped the dustbowl storms.
Yes, there would be a temporary hike to the deficit, but if there are no jobs, deficits will march off into the future--no jobs mean no taxes paid, and welfare or basic survival costs to pay for--or the costs of a repressive police state to keep down the growing, angry underclass, for whom there are no jobs.
The latter sounds a bit like the late Roman Empire: the wealthy got wealthier and enslaved everyone else, until the whole system collapsed in the face of the barbarians.
So, the political dialogue about taxes or credit is less relevant to them than anything that would increase demand, like accelerating job creation. So, here are Democrats saying middle income tax cuts ought to be preserved, and Republicans insisting tax cuts for the wealthy not only must be maintained, but made permanent--at a cost of $700-800 billion to the debt--because, they insist some are small business proprietors--though few are). In addition, Democrats (with one Republican) have just passed similar bills in House and Senate, providing tax cuts and extended loans to small businesses: to spur hiring. But they probably won't have much effect.
What no one, either in the administration, or in either party, or either chamber, seems to get is this: people need jobs; business needs employed people; but businesses aren't employing them. So, what's the problem? Has government never acted as temporary employer of last resort before?
There are many areas where government could meet huge needs. The unemployed don't have to have jobs digging holes and filling them. We no longer allow heavy manual labor--we have machines for that, which costs more money and skills--but we could use clean up crews, teachers assistants, parking meter attendants, construction workers to repair and rebuild, and so on. Local governments could manage local projects.
If people are so concerned about illegal immigration, then they should go to work bringing in harvests, following crops northward; maybe the Feds could subsidize citizen workers.
The point is: what's holding up the recovery is a lack of jobs. Apparently, tinkering with loans, credits and taxes is not enough. Of course it isn't. Why would a business invest in higher output, by hiring more workers, or buying more machinery, when demand for the good or service they're trying to sell is so feeble and uncertain?
What are people thinking? The best and the brightest are pretty stupid.
When no one else creates jobs, government should be the employer of last resort. It can be. There are many things of lasting value that were built by the WPA, like the mural scenes in Post Offices, and the forest windbreaks planted by the CCC in the Great Plains; they stopped the dustbowl storms.
Yes, there would be a temporary hike to the deficit, but if there are no jobs, deficits will march off into the future--no jobs mean no taxes paid, and welfare or basic survival costs to pay for--or the costs of a repressive police state to keep down the growing, angry underclass, for whom there are no jobs.
The latter sounds a bit like the late Roman Empire: the wealthy got wealthier and enslaved everyone else, until the whole system collapsed in the face of the barbarians.
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