It’s still the jobs, stupidPosted: August 29, 2011
In what I hope is not some symbolic hype, Alan Krueger–an actual economist and a labor one at that–was nominated by President Obama today to head the Council of Economic Advisors. He will replace Austin Goolsbee.
As the Wall Street Journal noted, Krueger’s scholarship suggests he will “likely provide a voice inside the administration for more-aggressive government action to bring down unemployment and, particularly, to address long-term joblessness.”
If his name sounds familiar, it’s because Krueger’s academic work has frequently played a valuable role in the political discourse. When congressional Republicans blatantly lied about the costs of a cap-and-trade plan, it was Krueger who set the record straight. When conservatives said in 2009 that slashing the minimum wage would boost the economy, Krueger explained why the opposite is true.
The economist also brings relevant experience to the table.
I’m hoping this finally brings the correct policy priorities and prescriptions to the table. We’ve had nearly three years of confused messages and results and the economy is clearly the worse for it. There’s an article up at The Guardian by economist Dean Baker that pretty much sums up all of my economic posts for the past few years. Obama never seemed to understand that high unemployment is a problem and never instituted any kind of policy to target the problem directly. He says he gets it now, but I’d just like to remind every one that he said he got it after the election that delivered the House of Representatives to the Tea Party terrorists and still has shown no sign that he understands that people expect bold fiscal policy in the face of low economic growth. All we keep getting is tax breaks for rich people and opposites day fiscal policy.
President Obama has discovered how serious the recession is. That’s what he told an audience in Chicago last week. To be fair, he was referring to revised data from the commerce department showing that the falloff in GDP was larger than originally reported.
But ridicule is appropriate. He and we knew all along how many people were out of work. The employment numbers told us the size of the hole and the desperate need for government action.
This sort of ridiculous comment, and President Obama’s weak response to the recession over the first two and a half years of his presidency, explains the tidal wave of scepticism facing his widely hyped upcoming speech on jobs after the Labor Day weekend. The list of remedies leaked ahead of time does little to inspire hope.
At the top of the list of job-creating measures is extending the 2 percentage-point reduction in the social security payroll tax. This provides no boost to the economy, since it just keeps in place a tax cut that was already there, but if the cut is allowed to end at the start of 2012, it will be a drag on growth.
As it stands, the social security programme is being fully reimbursed for the lost tax revenue, but there is always the possibility that Republicans will use this as a basis for attacking the programme. Given President Obama’s willingness to support cuts to social security, it is understandable that this part of his jobs agenda doesn’t generate much enthusiasm.
Baker goes on to call for a new CCC and explains why trade agreements, tax cuts to business yet again that undermine social security, and all the rest of the “jobs” agenda touted by the President aren’t going to do much of anything. Economist Nancy Folbre has a great piece of analysis up at the NYT explaining why letting this high level of unemployment go on for a period of time has an increasingly negative impact on the entire economy because things multiply over time. However, a new study covered by Folber shows that the unemployed just don’t sit around and act like they are on vacation. They create value by doing unpaid work. The same folks that think that the unemployed just lie around are the same ones that push the meme that homemakers spend their days eating bon bons and watching soap operas.
The overall increase in non-market work implies that household consumption among the unemployed fell less than market income, but it’s hard to put a dollar value on the unpaid work. When people make a voluntary decision to substitute time for money, we can infer something about the relative value they place on it.
But most unemployment is involuntary, and some unpaid work probably represents an effort to stay busy more than a significant contribution to household living standards.
The authors emphasize the relatively large impact of unemployment on unpaid work, in part because this is a new finding, and in part because it counters the wrong impression that, as Professor Hurst put it, the Great Recession was a Great Vacation.
But it is also important to note that most of the unemployed can’t allocate more of the free time they gain to productive uses, even if they want to. They lack the capital, land, tools and skills needed to flexibly shift from wage employment to production for their own use. Even when they can make a partial shift, their productivity is likely to be lower in unpaid work than paid work.
That’s why involuntary unemployment represents such a waste of human capabilities and loss of productive output for the economy as a whole.
So, what can Alan Krueger bring to the White House if the President will listen to this economist? This is economist Mark Thoma’s take on the appointee.
His most well known research is on the minimum wage and immigration, The work is somewhat controversial in that the results show small negative effects from raising the minimum wage and from increasing immigration. In my view that is a sign of an economist who is willing to let the evidence do the talking, and that is a good trait to have in this job.
He has also worked in many other areas, including occupational licensing, the economics of terrorism, and more recently on job search in periods when unemployment is high, including how job search is affected by things such as unemployment insurance. But that is just a small taste of the large amount of research he has done.
Krueger’s been working at the Treasury so maybe that will give him access that many of the other Obama economic advisers seemed without. Time is running out for policy to help the unemployed in any meaningful way. I say this because as we get closer to the election, it will make the Republicans more surly and less likely to do anything to help a Democratic administration. They’ve already been rewarded for hostage-taking behavior. Then, there’s the policy lags. Things like infrastructure banks take a lot of time to set up. Ideas like patent reform are laughable as job creation tools. I have no idea why the Obama administration won’t embrace things that worked in the past, but that doesn’t appear to be their MO. They seemed to get their jobs mojo from reheating failed Republican canards and presenting them as the higher, middle ground. I continue to be discouraged.