04 November 2010

About the Only Thing We Know for Sure

This matter of job creation is not trivial. I believe that we've hit an inflection point, a point of transition from one economy to the next akin to the transition from agricultural to industrial, or industrial to information economy. Making this transition will require shifts in how corporations, schools, universities, and governments are managed and how policy is formulated.

There are many questions that have to do with the issues of how to create jobs, reverse wage stagnation, and lower unemployment. (These are related but separate issues.)

But in the midst of the uncertainty about how best to lower unemployment we do know at least one thing. Fiscal austerity - deficit reductions - that would result in massive layoffs of government workers and government contractors won't lower unemployment. This is one of the few certainties we have in the midst of so many questions.

And yet, sadly, the Republicans who've just won office seem convinced of only one thing: fiscal austerity - deficit reductions - that would result in massive layoffs of government workers and government contractors is the one thing that will make this country better.

I guess it is just the height of optimism to wish that after the Bush / Cheney / Rumsfeld promises we'd have learned that there is a big difference between conviction and actually being right.

About the only thing we know for sure is that slashing government spending would cause this economy to stall. And yet, this seems about the only thing the Republicans are convinced of.


Damon said...

Austerity worked pretty well for Germany. Perhaps it is a situation where, if applyed right, we can achieve both.


gabby57 said...

There is nothing in the link cited that suggests that "austerity" had anything to do with Germany's "recovery". A basic search yields several articles similar to:


It refers to Germany's recovery is based upon: "Although no breakdown is yet available, most analysts anticipate that a major driver of the German economic expansion was an increase in net exports. Part of this is due to the decline in the value of the euro, which made German-produced goods less expensive, but some of it is directly attributable to stimulus spending in the U.S. and China. When a hypercompetitive, high-end manufacturing base like Germany sees major trading partners increase government expenditure, the optimal policy response is to do nothing. Some of the increase in external demand will translate to increased exports, providing a boost to the domestic economy without a penny of additional borrowing."

If you substitue "Job & Consumers" for "Supply & Demand" in, (albeit) a simplistic balancing systems model of our ecomomy, it is somewhat apparent that reducing spending does not increase demand for goods and services or the jobs that produce them. What is becoming increasingly a problem is that increasing spending on goods actually fuels the economies of those countries that export to us. (see again the quote above)

It appears that if you want to increase jobs there are only so many leverage points you can pull. You can either: 1)repeat the C.E.T.A. program of the 70's to temporarily boost jobs in local gov't, schools and other "civil" projects, 2) stimulate spending in areas where we still have jobs, 3) stimulate new industries/new jobs that are resistant to exporting (knowledge based or infrastructure) or 4)?

Maybe we are at an inflextion point or wave crest from economy to another. If we are just changing how we manage our institutions will not be enough. We didn't just change the management of our education system as we move from an agricultural economy to an industrial one. It completely evolved into something new including being compulsory and based on mass production principles.

Ron Davison said...

Germany's taxes are about 38% of GDP. Ours are about 28%. I'm not sure how much stimulus spending they did during the recession, but I'm sure that I remember their engaging in some. China and S. Korea had stimulus packages that were multiples of ours (as % of GDP).
Why did these countries rebound more quickly? Well, Gabby57's point about exporters benefiting from other countries' stimulus programs is, I'm sure, relevant.I also think that the fact that they were coming from balanced budgets made a huge difference. The Bush / Obama stimulus / bailout plan on the heels of Clinton's surpluses would have been far more effective than on the heels of the Bush deficits. There is a time to worry about deficits; that time is not when unemployment is double-digits.

Gabby57 - You should have a TV or radio show. I completely agree that we've yet to solve this problem of unemployment. I completely reject the notion that a reasonable solution to it is to slash government spending. And I'm incredulous that there is not more thoughtful exploration of issues like the ones you raise. Thanks.