The Shortsighted Keynesians: Another Stimulus Will Not Create Jobs
Last week, I participated in a debate about the Obama jobs plan. The debate, sponsored by Intelligence Squared, was on the topic, “Congress Should Pass the Obama Jobs Plan—Piece by Piece.” This debate took place at New York University’s Skirball Center, where my debate partner was Daniel Mitchell of the Cato Institute. Speaking on behalf of the motion were Mark Zandi of Moody’s Analytics and Cecilia Rouse, now a professor at Princeton University and formerly in the Obama White House.
This was one debate, as I explain over at Defining Ideas, in which the home-court advantage of my being a faculty member of NYU Law School served Mitchell and me naught. New York City was true to its liberal image. The vote was three to one against Mitchell and me when the debate started, and the lopsided sentiment in the audience only grew stronger as the debate dragged on.
The most conspicuous feature of this debate was the restive nature of the audience from the opening remarks. As Elizabeth Weingarten later wrote on Slate, the dominant mood during the debate was one of impatience with the status quo, captured by Obama’s new slogan, “we can’t wait,” and evidenced by the audience’s hisses and boos that often erupted when Mitchell and I spoke. The constant question of the audience members was what could be done for them in the short run. That sentiment was captured by Shaila Dewan, a New York Times reporter present at the debate, who, to great applause, wanted to know “what do you do in the short run” to help the unemployed?
To that question, Zandi and Rouse gave the answer that the audience wanted to hear: adopt the Obama jobs plan, which will jump-start the economy today. Once we take the short-term steps to prevent a double-dip recession, they argued, then we can turn our attention to the larger issue of structural economic reforms that address, for example, serious regulatory difficulties in labor and capital markets.
But Obama’s ambitious program of job creation cannot work, even if we strip it of its obnoxious features. Why? The only way to fix the short-term unemployment problem is by fixing the long-term issues with the economy that have fallen into treacherous disrepair, like minimum wage legislation, unionization, and employer health-care mandates. Once we reform our capital and labor markets, and get an improved business environment, employers will come off the sidelines and start hiring again. I elaborate on these themes in my weekly column for the Hoover Institution journal, Defining Ideas.
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Oct '11
Re: The Shortsighted Keynesians: Another Stimulus Will Not Create Jobs
Isn't the long term a succession of short-terms ? Today's short-term was yesterdays long-term.
Edited on Nov 1, 2011 at 5:05amNov '10
Re: The Shortsighted Keynesians: Another Stimulus Will Not Create Jobs
I hope at some point you pulled a Hitchens and gave that incredibly rude audience the finger.
Aug '10
Re: The Shortsighted Keynesians: Another Stimulus Will Not Create Jobs
This is like being told you have cancer and turning around and asking your doctor "what can we do in the short run?". Uh, there's no 'short run' fix for that!
Sep '10
Re: The Shortsighted Keynesians: Another Stimulus Will Not Create Jobs
The fundamental mistake being made, often by both sides, is to view the “economy” as some kind of mechanical thing that will respond in predictable fashion to various activities. The economy is the product of millions of decisions made by millions of people. The idea that government spending, tax cuts, etc. will have a predictable response like providing more fuel to an engine is a fallacy shared by both sides. The conservative idea that cutting taxes will produce growth as it did during the Reagan years is as false as the liberal idea that more spending will do the same. There are responses to an economic down- turn that are more rational than others, but the idea that certain actions will reverse the down -turn is nonsense. Why is the elimination of accumulate excesses in the economy viewed as a problem that needs to be solved?
Sep '10
Re: The Shortsighted Keynesians: Another Stimulus Will Not Create Jobs
In the short run we're taxed to death; in the long run we're all dead.
Obama 2012: Death and taxes. Its inevitable.
Nov '10
Re: The Shortsighted Keynesians: Another Stimulus Will Not Create Jobs
Once called a conservative economist, Milton Friedman replied (paraphrasing): "There are no conservative or liberal economists, only good ones and bad ones; the good ones think about the long term and the bad ones don't". Would that that most exceptional of minds were still with us. Thank you, Mr. Epstein, for continuing the battle for sound economic policy and ultimately freedom itself. We are in your debt.
Nov '10
Re: The Shortsighted Keynesians: Another Stimulus Will Not Create Jobs
Oh Jim, haven't we been through this before? Economic history shows the two policy approaches to recessions that work are 1. To do nothing, or 2. To remove impediments to growth (taxes, regulation, profligate government spending, and/or capricious monetary policy). Conversely, government spending has never worked (1930's, 1970's, & current era in the U.S., and the past two decades in Japan). No, we cannot engineer an economy. We can, however, get out of its way. This "all approaches are equally invalid" canard is akin to saying throw all the bums out of Washington. We must be a bit more learned and humble in our approach lest we end up ridding ourselves of sound policy or the Ryans & Rubios of the world. Humbly...
May '11
Re: The Shortsighted Keynesians: Another Stimulus Will Not Create Jobs
Keynsian economics has never worked, anywhere, anytime, not once. And, mirable dictu, it didn't work when Obama tried it in 2009. And the lefties' explanation about why it didn't work was the same as always -- we didn't do enough of it. Definition of insanity...
Sep '10
Re: The Shortsighted Keynesians: Another Stimulus Will Not Create Jobs
Don't you mean your interpretation of economic history? I know of no causal relationship that has been consistently demonstrated. I submit that Reagans's demeanor, optimism, leadership and communication skills had as much to do with the recovery in the 80"s as tax policy. His tax policy was the correct one, but if Carter had been re-elected and done the same we may well have not had nearly the same positive effect. People had confidence in Reagan. Carter was viewed a an incompetent. I agree with you that the policies you highlight are the most rational, I do not however view them as the panacea that you do.
Dec '10
Re: The Shortsighted Keynesians: Another Stimulus Will Not Create Jobs
I was listening to a podcast on the American Conservative University feed which was an old Dennis Prager show about the church and science. The author he had on pierced a lot of myths. (Rhetorical question: Can you name any church-persecuted scientist other than Galileo?)
But what struck me is that he pointed out that science really has nothing to do with reason, it has to do with evidence. Aristotle "reasoned" that light objects fall more slowly than heavy objects. This is easily disproven by experiment but no one had done it and this is a typical example of why science stagnated in Europe for centuries. At some point, every scientific theory has to stand up to evidence.
You can do all the Keynesian reasoning you want, but unless you're doing mathematics, you have to test it against real data.
Aug '10
Re: The Shortsighted Keynesians: Another Stimulus Will Not Create Jobs
While I agree with the general sentiment, and certainly advocate reductions in government and regulation, you have to be careful not to simplify the problem. Is lowering taxes a pro-growth move? Not when you have a 1.4 trillion dollar deficit, and one of the impediments to growth is the resulting fiscal uncertainty. In that case, cutting taxes may be a very bad idea if it signals to the market that the government is unserious about the deficit.
The U.S. is one failed Treasury auction away from a fiscal crisis. Taxes are near historical lows. Instead of cutting taxes, the focus should be on cutting regulations and government budgets. Apply the savings to the deficit. Get it under control. Then you can think about taxes.
Conservatives used to care about deficits and debt. Now it seems all they care about is tax cuts. Debt is a tax on your children's future. Cut that.
Jun '10
Re: The Shortsighted Keynesians: Another Stimulus Will Not Create Jobs
Aww, Richard Epstein spoiled the outcome. I was looking forward to watching it and seeing the results. IQ2 posts their debates online.
Nov '10
Re: The Shortsighted Keynesians: Another Stimulus Will Not Create Jobs
Dan.. Agreed Didn't mean to imply the answer always included all impediments on the list, only that at least one of them is usually a limiting factor. I'll venture that most conservatives would agree with you that deficits & debt matter, just not the ones most often quoted or distorted in the media. Jim, no, not a panacea... just steps in the right direction that will create an environment conducive to production and investment. And surely you know that my interpretation of economic history always correlates 99% with reality (at a 95% confidence interval). Cheers All.
May '10
Re: The Shortsighted Keynesians: Another Stimulus Will Not Create Jobs
Pity the audience wasn't as well read as I had hoped.