The Washington Post (a.k.a. Fox on 15th Street) Wants 15 Million People to Be Unemployed
The Washington Post, which gained worldwide fame for its effort to sell corporate lobbyists access to its reporters and Obama administration officials, wants 15 million workers in the United States to be unemployed. Of course that is not exactly what they said; the Post argued against another stimulus package. But 15 plus million unemployed workers is the certain effect of the Post's preferred policy.
We will go through the Post's logic, but the simple fact that the Post opposes the policy should pretty well establish its usefulness. After all, the Post has a near perfect track record of being completely wrong on the economy at every turn.
Remember back in January of 2008 when the Post told readers that: "There is not yet any proof of a recession, .... Nor is there any consensus that a recession, if one comes, will be severe."
And then one week later we got the line: "timely, targeted and temporary." This is a paper that had no space for those warning of the dangers of the stock bubble in the 90s and the housing bubble in the current decade.
In short, given its near perfect track record of being 180 degrees wrong on the economy, the Post's opposition to more stimulus makes a compelling case for its merits. But, let's look at the argument.
The Post argues that most of the stimulus has not yet gone out the door, so we should wait to see its full effect. The point that we have not yet seen most of the spending misses the point that it is the rate of spending that matters, not the amount.
The stimulus is currently being spent out at a rate of close to $30 billion a month. This is pretty much its maximum speed. The fact that we will continue to spend out at this rate for the next year and a half doesn't mean that the impact will be greater in 6 months or 1 year.
Suppose that we would spend out at this rate for the next 10 years. By the Post's warped logic, we would want to wait 5 years or so to see the impact. Argghhhhhh, can't the Post find anyone who understands some basic economics?
The Post is also worried about the deficit, telling readers that there is a limited supply of capital in the world and that we are borrowing too much. Actually, for practical purposes there is not a limited supply of capital in the world when the United States and most of the other wealthy countries are seeing double-digit unemployment. We can pretty much spend whatever we want without coming up against resource constraints. (Unemployment -- means excess labor supply, get it?)
There is also a really great measure that economists use to determine the relative scarcity of capital. It's called "interest rates." At the moment, the interest rate on 10-year Treasury bonds is about 3.25 percent. That's more than 2 percentage points lower than during the days of budget surpluses at the start of the millennium. In other words, the evidence suggests that we have an enormous glut of capital right now, not a shortage.
It is truly a shame that the Post's editorial writers and so many other people responsible for this entirely preventable economic disaster still have their jobs at a time when millions of hard-working and competent people are unemployed. It will be a great day when this situation is reversed.
Worker-ants for Porkulus 2.0 gradually marching out of the nest...
July 12, 2009 1:13 PM | Reply | Permalink
... when this situation is reversed.
It'll take a half decade or more for most middle class people to get back to even after things are reversed. The actual lifetime losses are gone forever. Regular wage earners who had their 401k whacked in the tech meltdown and now this have no chance to recover their losses and will suffer in retirement.
The stimulus is going to help but it's only keeping the entire thing from going dramatically south. And if things go true to form a healthy piece of the stimulus will end up in the pockets of people who could get by just fine without it.
Which means that some number of people who could really use it will go down the tubes. I doubt any recovery will be touching the larger population much before the end of 2010.
Pressure on wages is going to make it a very slow recovery. Which is messed up in light of the fact that major financial institutions are doing everything they can to protect wages in their industry. But they're spending our money. If it was coming from executives or shareholder pockets I am sure the picture would be different.
July 12, 2009 1:13 PM | Reply | Permalink
HALLELUJAH! Finally some discussion of the need for a second stimulus -- and NOW -- from an economist at TPM Cafe! And refuting these arguments, it should be noted, goes well beyond just the Washington Post. These same canards have been appearing in the Wall Street Journal and elsewhere repeatedly. (And, although I haven't heard the NY Times come out against a 2d stimulus, as advocated by Krugman and others to their credit, some of the ARGUMENTS have been echoed there). (My blog has a slew of linx on the issue, and yet more are coming, that I am still collecting).
Beyond refuting the various arguments, or at least some of the main ones and the most perverse -- also noting that they were the ENORMOUS deficits of WWII that got us out of the Great Depression, after budget concerns led FDR to pursue policies that led to some of the worst years of the Depression in 37-38 -- there are lots of other issues that need to be discussed.
First, we need the stimlus NOW and not just maybe in six months or so -- many states are facing fiscal peril in the very short run. There is also just how big should be second stimulus be? How much money will be needed specifically to prevent and even reverse the basic hemorrhaging of jobs/spending/regressive taxes in state & local venues THIS FISCAL YEAR? I don't know but some economists might. What other kinds of spending are fast moving and not wasteful? How much would be needed for to stanch the tidal wave of foreclosures while not throwing money at those who were the most fraudulent etc in their borrowing? How fast could and should this money be spent, and how designed? And what about students and public higher education?
There are TONS of issues in the formulation of a 2d stimulus as well as in general defense of the idea -- and this is where I think that the discourse of progressives could have a significant impact.
I would also be interested in what the Progressive States Network folk have to say about this (though I understand they are still in the midst of hiring the relevant economist).
July 12, 2009 2:22 PM | Reply | Permalink
Your article is interesting in as far as you're opening an argument over a second stimulus. It's much less interesting as a polemic against the Washington Post. And that's not even taking into account the hyperbole in the headline. You strike me as the kind of person who'd headline an argument over highway speed limits with "State Police want you to DIE!!!"
July 12, 2009 5:33 PM | Reply | Permalink
Dean -
Thank you for stating the real consequences of the mistaken opposition to a real jobs and recovery program, which is what a new stimulus would primarily need to be.
I hope that the leaders of America's largest labor organizations get to read this post before tomorrow afternoon's White House meeting with President Obama. And also read this from catchlightning:
http://www.dailykos.com/story/2009/6/18/738900/-The-Coming-Battle-for-Jobs-and-Recovery
July 12, 2009 6:10 PM | Reply | Permalink
UK Unemployment
Commenting on the rate of unemployment among 18-24 year-olds (16.6%), TUC General Secretary Brendan Barber said:
It took a while, but the Conservatives, who have always understood the implications of high unemployment and how it affects their bottom line. Will see profits rise as labor costs go down. Since labor will become a commodity to be exploited. More workers than jobs, creates a nice profit for the corporate owners.
Top that off with a dumping of healthcare costs, a system designed by the Corporations onto the worker. Cha Ching
The Royalists have reconquered America. It only took 233 years.
July 12, 2009 8:52 PM | Reply | Permalink
So many things to be pissed off about....so little time...sigh..
C
July 12, 2009 8:59 PM | Reply | Permalink
Actually, for practical purposes there is not a limited supply of capital in the world when the United States and most of the other wealthy countries are seeing double-digit unemployment. We can pretty much spend whatever we want without coming up against resource constraints. (Unemployment -- means excess labor supply, get it?)
Yes, if we assume that labor is the only resource in the world, and that the only problem is people not working because we are not consuming enough (the Keynesian formulation). If you assume that there are other resources constraints, and that coordinating the resource use properly is a constraint (certain jobs require input materials that first must be manufactured; if you put more people to work in one industry without putting enough in the previous complementary industry, you'll get a shortage).
There is also a really great measure that economists use to determine the relative scarcity of capital. It's called "interest rates."
Yes, if money were sound. If you are going to bring this up, at least consider the possibility that our fiat money supply might distort this measure somewhat.
At the moment, the interest rate on 10-year Treasury bonds is about 3.25 percent. That's more than 2 percentage points lower than during the days of budget surpluses at the start of the millennium. In other words, the evidence suggests that we have an enormous glut of capital right now, not a shortage.
This ignores the fact that money creation by the central banks influences interest rates. Part of the reason that interest is so low is because the Fed and other central banks are churning out new money to keep them low.
In fact, that's the whole fulcrum of the Austrian theory of the business cycle; that the ability of banks to artificially create money by expanding credit distorts the signal that interest rates send.
To use interest rates as a signal of the availability of capital without even noting the main caveat to doing so seems to me to leave something out of the analysis.
July 12, 2009 9:50 PM | Reply | Permalink
Recommended.
In a fiat monetary system there's always as much "capital" as the Fed and its banks may wish to print. On the other hand if "crowding out" is not taking place, why should we care?
Post-recession sterilization problems? Future interest costs? What?
July 13, 2009 9:06 AM | Reply | Permalink
On the other hand if "crowding out" is not taking place, why should we care?
The assumption that there is no "crowding out" is based upon the assumption that there are no resources that matter other than labor, and that all labor is interchangeable, so as long as there is unemployment there is no "crowding out."
It is conceivable that there can be heavy unemployment and yet still be a shortage of workers in particular job sectors, if those particular sectors are jobs that most people are innately incapable of doing (e.g. not everyone is capable fo being trained to be a nuclear physicist or a medical doctor) or if being able to do those jobs requires a time investment (for example, it takes years of training to become a doctor, a shortage of doctors cannot be solved by lawyers, physicists, etc. suddenly switching professions; there needs to be a lead time).
July 13, 2009 8:59 PM | Reply | Permalink