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What will we get from the stimulus?
Mark Thoma runs through some numbers. Of course the plan has not been announced, so I don't have a good sense of it. There is talk of five million new jobs, however, and that figure makes me suspicious. There is very often a trade-off between spending the stimulus money well and spending the money to create new jobs. For instance the better "Green Energy" ideas mostly involve hiring or reallocating skilled people who already have jobs. Many of the recently unemployed seem to be coming from construction, retail, finance, and, soon, manufacturing. If we spend to build up mass transit, can we cobble together a team from these people? And do they live in the right regions, have the right skills, and have the right willingness to lay some extra Metro track? Don't accept the rosy scenario numbers until you see at least partial answers to these questions.
The New Deal put many people to work in the physical construction of infrastructure; at that time the skills of labor were more homogeneous, people were more desperate for work, and it was more expected that "labor" meant physical labor for able-bodied men.
Addendum: Arnold Kling makes a similar point.
Posted by Tyler Cowen on November 25, 2008 at 06:43 AM in Economics | Permalink
Comments
To some extend, general "working in an office" jobs are the modern equivalent of physical labour in the 30s.
But i guess your point is very true. I can get very irritated when this or that project is announced as "generating X jobs", as if jobs are good in themselves.
Posted by: Zamfir at Nov 25, 2008 7:47:29 AM
Your last point is vastly underappreciated, I think.
Stimulating the economy by building infrastructure projects may have made sense in the 1930s when the work force consisted almost exclusively of healthy adult males (white, of course, but that's another blogpost).
How, I wonder, will an all-Democratic government deal with lawsuits claiming that a "new WPA" violates Title VII, the Americans With Disabilities Act, the Rehabilitation Act, the Age Discrimination in Employment Act of 1967, the Age Discrimination Act of 1975, etc., etc., etc.
Posted by: KipEsquire at Nov 25, 2008 8:26:29 AM
well then lets rebrand it. How many 'jobs' were created by the US Interstate Highway System? Well, there were 1000s of jobs created to build it over the years, but what about the creation of entirely new systems of distribution, new demographic trends, housing and (sub)urban development trends, retail marketing trends, etc. that generated billions of dollars in wealth and jobs over the subsequent years since it was begun? We need new mass transit systems. We need better bridges. We need improved school buildings. Private companies are not chomping at the bit to fund these things. But once they are funded, new economic opportunity will be created for those companies to benifit from.
Posted by: darin london at Nov 25, 2008 8:38:51 AM
darin london,
hmm, i think i see your point about counting the second and third order effects, but unless you mean more and better bus routes for mass transit, I would disagree with that claim. I would agree that more and better bridges would be good, especially when in comes to crossing the Potomac here in the DC area. I totally disagree about the need for improved school buildings, especially if the claim is that there will be second and third order effects from having a nicer school physical plant. Schools too often end up building a planterium or TV studio, or other fancy whiz bang gizmo that they can point to, and the school boards spend the time negociating construction contracts and getting kickbacks, and then expenses for maintenence is higher and the whole time education outcomes decline. Kids end up spending time in a dark room watching a light show, instead of learning how to read, write, or think critically. No more money for government schools.
Posted by: scott clark at Nov 25, 2008 9:02:45 AM
There is a tendency during these days to give out Just numbers and billions!
Posted by: Massimo GIANNINI at Nov 25, 2008 9:13:27 AM
We already have highways and rural electrification, so the long-term benefits of most new infrastructure projects will be greatly limited compared to past projects. They'll mostly be about shifting resources around. And I need to see more people actually use the mass transit systems we have before I'm convinced we need more of them.
Posted by: Ted Craig at Nov 25, 2008 9:15:52 AM
Bob Hall makes a good point.
Gov't spending is imperfect because much of it will go to boondoggles instead of efficient spending choices, but at least can happen quickly, when we need it most.
However, a tax cut is also imperfect because much of it will be save only to be spent after the recession is over, which is a waste. However, consumers will at least tend to buy things where the benefit exceeds the cost.
How can we get the immediacy of gov't spending but the efficiency of a tax cut?
Hall proposes a tax cut only on spending during a certain period (e.g. Jan-March 2009). This could be done via a sales tax suspension (funded by the feds) or a 10% rebate on all spending during this period.
Posted by: a student of economics at Nov 25, 2008 10:23:50 AM
I get irritated by this too. The government really can't create jobs because any capital it takes to create those jobs has to come from somewhere. They can't create jobs in one place without taking away jobs from somewhere else.
The best we can hope for in this case is a more efficient rearrangement of capital... but of course, the free market is better than the government at finding efficiency.
Posted by: Zachary Kurtz at Nov 25, 2008 11:49:04 AM
How is constructing an apartment that different from a metro station? Or from laying track?
Posted by: Andrew at Nov 25, 2008 1:17:18 PM
Zamfir commented earlier: 'To some extend, general "working in an office" jobs are the modern equivalent of physical labour in the 30s.'
The point is that "infrastructure" is not just asphalt, bricks, and mortar. Many kinds of service sector skills correspond to the infrastructure labor that was employed in the 1930s.
In addition to expanding and repairing the physical infrastructure, we should expand and strengthen many social systems to meet the needs of society.
One possibility for use of stimulus money is sponsorship of community-led cadres to meet currently unmet needs of society. Local governments already possess the institutions to employ additional service labor in social work, public health, and other fucntions. Skilled and unskilled labor is needed to expand these functions to meet the needs of society.
At a national level, a wide variety of skills can be employed in alternative energy, health care, and other targets of the stimulus.
Posted by: David Thompson at Nov 25, 2008 2:07:48 PM
Obama is a Chicago politician who has watched how Richie Dailey does things for 19 years. Indeed, up through 2000, Obama's primary ambition was to avenge his hero Harold Washington and replace Daley as mayor. Bill Daley is now an Obama advisor.
What Richie Daley does is pay for constant road repair, giving huge contracts to his campaign contributors. They fill potholes with crummy gunk that wears out four times as fast as the stuff used in Europe. But that's four times as much in road repair contracts and four times as much in campaign contributions, so everybody is happy except the taxpayers and motorists.
Yes, we can do that at the national level as well.
Posted by: Steve Sailer at Nov 25, 2008 2:23:58 PM
In contrast, Obama's Stuff Mayor Daley Likes ideas such as resurfacing roads, his Stuff White People Like ideas such as constructing vast wind farms are a joke in terms of adding many new jobs in 24 months. Environmentalists' fantasy megaprojects will only create full employment for environmental impact consultants in 24 months. Schwarzenegger got a bunch of bonds passed for this kind of thing in 2006 but no dirt has been turned yet.
Posted by: Steve Sailer at Nov 25, 2008 2:29:13 PM
"There is talk of five million new jobs, however, and that figure makes me suspicious. "
How can you question the mighty "O"? What do you think he is, a politician?
Chicago was a sinkhole for porn movie houses before Ronald Reagan cut taxes. It has been having a building boom since Reagan left office. No doubt after the Democrats raise taxes, the porn movies will return.
ExxonMobil employs over 80,000 people. Drill, baby, drill.
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Posted by: Steve at Nov 25, 2008 2:58:11 PM
I totally disagree about the need for improved school buildings, especially if the claim is that there will be second and third order effects from having a nicer school physical plant.
California could do with earthquake-retrofitted schools to avoid a Sichuan scenario where thousands of children are crushed to death under collapsing schools during the inevitable next Big One.
And I need to see more people actually use the mass transit systems we have before I'm convinced we need more of them.
New York, San Francisco and D.C. don't exactly face the problem of too few people riding public transit. Building out mass transit in less dense cities is a harder sell, on the other hand, since few use public transit currently which leads to service cuts which leads people to ask why they should ride the train or bus when service is so infrequent which leads to more service cuts, etc. It's an impossible sell in places with free and convenient parking.
Posted by: Ricardo at Nov 26, 2008 3:48:37 AM
New York, San Francisco and D.C. don't exactly face the problem of too few people riding public transit.
Actually, I believe the figures show Metro use declining in D.C. for the past 20 years. I don't know about Frisco, but overall usage has been declining in most urban areas for years.
Posted by: Ted Craig at Nov 26, 2008 8:51:48 AM
I think Andrew makes an excellent point. I don't know the specific numbers, but if the government builds/repairs infrastructure after housing/construction slumps it would seem to me that those skills are readily transferable. Plus the firms that do the construction would need to expand their backoffice as well, e.g. payroll, accounting, HR, etc. Not saying that this is perfect, but it may not be as much of a problem as Cowen/Kling think. This is all conjecture on my part though. I don't know the actual employment/unemployment numbers by sector.
Posted by: Scot at Nov 26, 2008 9:11:58 AM
There seems to be an appropriate skepticism based on the current predominance of white collar work vs the Great Depression era. However, if government stimulus involves accelerated infrastructure project, the actual outcome of such programs seems obvious. They will soon become an illegal alien jobs program, since they constitute a significant proportion of the semi-skilled and skilled blue collar work force. Of course, in that case, a lot of the stimulus money winds up in Mexico and Central America, bypassing any impact on the U.S. economy. If anyone has a means for preventing this, it needs to be discussed immediately, before such a boondoggle becomes law.
Posted by: boqueronman at Nov 26, 2008 5:10:55 PM
I say give the money to the taxpayers. I was reading on a website where they wanted signatures to send the president to have him give the whole stimulis to the tax payers 100,000 single 200,000 each if married but it has conditions on how you spend he money 50% must be used in the housing market (IE: Purchase of a home, paying off a mortgage, buying down a mortgage)..... 20% must be used in the auto industry (IE: paying off a car note, purchasing a new energy efficient vehicle). .....10% must be used in investments (IE: stocks, bonds, savings, CD's). .....20% used to pay off personal debts, continuing education, new purchases or vacations after reading I signed it because the more I thought about it if we all did this it would boost the economy way up there people would more disposible income than any other era in American history. That would mean more spending at the stores so more products having to be made so lots of jobs to be had at every retail outlet in America every production factory would need workers to be able to handle the demand the housing market would flourish the unemployment rate would plummet the automakers would be saved with out us having to worry about another AIG incdent(no worring about wild party at the hotels that we funded) no more boom in forclosures then there would be all the state and federal taxes on all that spending and income form the jobs that could go toward roads schools job training bridges and the list goes on......our govt has too much of our money and they waste it worse than we do. give it back and et us get this economy back on track. just think if you put that 10% in investments and all that spending drove the stock market thru the roof then they can get some of that money back from us in taxes so the govt can keep running and we all have nice little retirement nest eggs.
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