Should the Government Ban ATMs and Create “Spoon-ready” Projects?
At the Britannica Blog today I note President Obama’s concern over ATMs, Hillary Clinton’s support for the candlemakers’ petition, John Maynard Keynes’s simple solution to the problem of unemployment—and how Bastiat refuted all their arguments more than 150 years ago:
And there’s your question for President Obama: Do you really think the United States would be better off if we didn’t have ATMs and check-in kiosks? . . . And do you think we’d be better off if we mandated that all these “shovel-ready projects” be performed with spoons?
In his 1988 book The American Job Machine, the economist Richard B. McKenzie pointed out an easy way to create 60 million jobs: “Outlaw farm machinery.” The goal of economic policy should not be job creation per se; it should be a growing economy that continually satisfies more consumer demand. And such an economy will be marked by creative destruction. Some businesses will be created, others will fail. Some jobs will no longer be needed, but in a growing economy more will be created. . . .
Finding new and more efficient ways to deliver goods and services to consumers is called economic progress. We should not seek to impede that process, whether through protectionism, breaking windows, throwing towels on the floor, or fretting about automation.
On Government Spending and Job Creation
The standard Keynesian policy proposal for a weak economy is to have the government spend more money, and run deficits to do so. Clearly much of current government spending is being financed by borrowing. So current conditions are not subject to the New Deal critique that it was mostly paid for by taxes, as during the Great Depression. Current federal expenditures have increased about 41% since the housing market peaked in 2006. Has all this government spending generated many jobs? While keeping in mind that correlation is not the same as causality, it is interesting that the trend in government spending and total non-farm employees mirror one another, but not in the way you’d like. The more the government has spent, the more people have lost their jobs. The simple correlation between government spending and jobs has been a negative 0.9. Also worth noting is that both the decline in jobs and increase in government spending began well before the financial crisis of Sept 2008. In fact, almost 2 million jobs were lost between the beginning of the recession in Dec 2007 and the financial crisis in Sept 2008. Again, I won’t pretend this proves anything, however, it does suggest to me that continued massive government spending is not going to turn around the job market.
More Trade, More Jobs
Our friends at the Economic Policy Institute are at it again, issuing another study this week that shows some particular trade agreement has cost X thousands of jobs over a certain number of years.
The latest target of EPI’s flawed model is the North American Free Trade Agreement. Enacted in 1994, NAFTA has created a free trade zone comprising the United States, Canada, and Mexico. According to the EPI report,
U.S. trade deficits with Mexico as of 2010 displaced production that could have supported 682,900 U.S. jobs; given the pre-NAFTA trade surplus, all of those jobs have been lost or displaced since NAFTA. This estimate of 682,900 net jobs displaced takes into account the additional jobs created by exports to Mexico.
The report’s author, Robert Scott, claims it foreshadows job losses if Congress passes pending trade agreements with South Korea, Colombia, and Panama.
The EPI model has little relevance to the real American job market. As I’ve pointed out before (here and here), its model is based on an overly narrow view of trade’s impact on the job market. Yes, some people do lose their jobs because of import competition, no news there, but trade also creates jobs through increased exports. And even if we run a trade deficit with a country such as China or Mexico, jobs are also being created by the net inflow of foreign capital, which spurs domestic job creation through lower interest rates and direct investment. The money we save from lower-priced imports also liberates consumer dollars to fuel growth elsewhere in our economy, and cuts costs for import-consuming businesses, boosting their sales and employment.
Next, consider the EPI numbers on their face. Those alleged 682,900 net jobs lost came over a 16-year period. That’s a bit more than 40,000 jobs lost per year. That is a drop in the bucket in a dynamic economy like ours that creates and eliminates about 15 million jobs each year. Even when unemployment is low, 300,000 or more Americans file for unemployment insurance in a typical week. So even if true, the EPI job loss numbers amount to less than one day’s worth of job displacement for the whole year.
When we look at the actual job market performance since NAFTA was enacted, the irrelevance of the EPI model becomes plain. In the first five years after NAFTA’s passage, 1994-98, when we could have expected it to have the most impact, the U.S. economy ADDED a net 15 million new jobs, including 700,000 manufacturing jobs. In the 16 years since its passage, despite two recessions, our economy still employs 20 million more workers than it did the year before NAFTA passed. (Check out the employment tables in the latest Economic Report of the President.)
In my own April 2011 study of trade and the economy, “The Trade-Balance Creed,” I found that civilian employment in the past 30 years has actually grown quite a bit faster during periods of rising trade deficits compared to periods of declining deficits, just the opposite of what EPI’s distorted model would predict.
Talk of Replacing ObamaCare Is a Bit Premature
Now that a bipartisan coalition in the House has voted to repeal ObamaCare, an even larger bipartisan coalition has approved a Republican resolution directing four House committees to “replace” that ill-fated law. House Resolution 9 instructs the committees to “propos[e] changes to existing law” with the following goals:
- “Foster economic growth and private sector job creation by eliminating job-killing policies and regulations.”
- “Lower health care premiums through increased competition and choice.”
- “Preserve a patient’s ability to keep his or her health plan if he or she likes it.”
- “Provide people with pre-existing conditions access to affordable health coverage.”
- “Reform the medical liability system to reduce unnecessary and wasteful health care spending.”
- “Increase the number of insured Americans.”
- “Protect the doctor-patient relationship.”
- “Provide the States greater flexibility to administer Medicaid programs.”
- “Expand incentives to encourage personal responsibility for health care coverage and costs.”
- “Prohibit taxpayer funding of abortions and provide conscience protections for health care providers.”
- “Eliminate duplicative government programs and wasteful spending.”
- “Do not accelerate the insolvency of entitlement programs or increase the tax burden on Americans;” or
- “Enact a permanent fix to the flawed Medicare sustainable growth rate formula used to determine physician payments under title XVIII of the Social Security Act to preserve health care for the nation’s seniors and to provide a stable environment for physicians.”
Three things about the Republicans’ “replace” effort:
Is National Journal Giving ObamaCare a Big, Wet Smooch?
Come September, National Journal will host a policy summit titled “Prescription For Growth,” funded by Eli Lilly, that will probe “the potential impact of recently passed health care reform as an economic engine” and ask whether “health care reform [will] serve as a jobs creator and accelerate growth in health-related industries?”
Oy, where to begin?
I suppose I could start with how a news organization that bills itself as “the leading source of nonpartisan reporting” could lend ObamaCare a positive gloss by calling it “reform” — a term that even NPR declines to ascribe to actual legislation (for that reason).
Next, there’s this inane question of whether ObamaCare will spur job growth in the health care sector. With two new health care entitlements and maybe a trillion dollars of new health spending…gosh, d’ya think?
But then there’s the presumption that creating new health care jobs is a good thing. You’d think it would be. After all, unemployment is near 10 percent. But one of our biggest health care problems is that there are too many health care jobs. The Dartmouth Institute’s Elliot Fisher has quipped, “In theory, we could send a third of the U.S. health care workforce to Africa and improve the health of both continents.” ObamaCare will just make this country’s health care sector even more bloated and inefficient.
Wrap your head around all that this summit aims to accomplish. It could give a boost to an unpopular and embattled law by taking one of the law’s biggest liabilities and dressing it up as an asset. It could create a meme that helps turn around President Obama’s low approval rating on the economy — never mind that ObamaCare is stifling the right kind of job creation.
Of course, I may have this summit all wrong. It may give all these issues a fair hearing.
Did I mention the summit’s sponsor is one of the biggest special-interest beneficiaries of ObamaCare? (Tim Carney, call your office.)
Political Economy in Three Panels
Indeed, every improved product or service may make us no longer value products and services we previously used. That’s what Schumpeter called “creative destruction.” A longer version of the same phenomenon was on the front page of Monday’s Wall Street Journal, in an article about how Wal-Mart’s rivals secretly fund “grassroots local campaigns” against Wal-Mart, organized by political consulting firms, to protect the existing firms’ positions. Every innovator puts somebody out of business, as Agnes’s friend recognizes.
Trade Gap Plunges in 2009, but Where Are the Jobs?
Lost in the buzz last week over health care was the news that the broadest measure of the U.S. trade deficit fell sharply in 2009 from the year before. According to the Bureau of Economic Analysis, the U.S. current account deficit plunged from $706 billion in 2008 to $420 billion last year — the smallest deficit since 2001.
I’ve been waiting for a few days now for the usual trade deficit hawks to hail this development as great news for millions of Americans looking for work.
In years when the trade deficit was rising, it was common practice for the labor-union-friendly Economic Policy Institute to publish detailed studies showing that larger trade deficits caused the U.S. economy to lose hundreds of thousands of jobs each year. For example, according to an October 2008 EPI paper, rising non-petroleum trade deficits from 2000 to 2006 caused a lost of 484,400 jobs per year, while the shrinking deficit in 2007 lead to the creation of 272,500 jobs.
By the EPI’s own internal logic, the past two years should have been a boom time for job creation. Between 2007 and 2009, the non-petroleum trade deficit dropped by $174 billion as the sagging domestic economy cut demand for impost. If that was good news for jobs, somebody forgot to tell the U.S. labor market. Since the end of 2007, the U.S. economy has shed a net 8 million jobs.
Oops, maybe it’s time for EPI to rework its model.
David Goldhill: “A Democrat’s Case For ‘No’”
David Goldhill has done it again.
You may recall his article, “How American Health Care Killed My Father,” from the September 2009 issue of The Atlantic.
Now, at HuffingtonPost, he comments on the health care legislation that may soon face a final vote (of some sort) in the House:
[C]ontinuing our Party’s almost unquestioned conflation of health insurance with health care, the central feature of the proposed “reform” is further extension of our flawed insurance-based system…[D]espite the Administration’s recent heated rhetoric, most of the entrenched health industry interests are quietly or openly in favor of this bill. Should the bill become law, I suspect we will look back at it as an industry bailout…
How…can Democrats in the depths of a recession support a massive tax increase on middle-class job creation…? How…could we justify diverting even more of middle class income to support our broken system of care, further starving families of funds for all their other needs? Most uninsured Americans lack insurance only temporarily; how many of them would trade lesser lifetime job prospects and lower disposable income for the short-term retention of health insurance?…
If the legislation had any real prospect of controlling health care spending, would the pharmaceutical industry be funding the “yes” campaign?
As a former Democrat who hung door knockers for Michael Dukakis in 1988, I know the heavy heart with which he writes. Read the whole thing.
Watch the video to hear Goldhill’s story:
State of the Union Fact Check
Cato experts put some of President Obama’s core State of the Union claims to the test. Here’s what they found.
THE STIMULUS
Obama’s claim:
The plan that has made all of this possible, from the tax cuts to the jobs, is the Recovery Act. That’s right — the Recovery Act, also known as the Stimulus Bill. Economists on the left and the right say that this bill has helped saved jobs and avert disaster.
Back in reality: At the outset of the economic downturn, Cato ran an ad in the nation’s largest newspapers in which more than 300 economists (Nobel laureates among them) signed a statement saying a massive government spending package was among the worst available options. Since then, Cato economists have published dozens of op-eds in major news outlets poking holes in big-government solutions to both the financial system crisis and the flagging economy.
CUTTING TAXES
Obama’s claim:
Let me repeat: we cut taxes. We cut taxes for 95 percent of working families. We cut taxes for small businesses. We cut taxes for first-time homebuyers. We cut taxes for parents trying to care for their children. We cut taxes for 8 million Americans paying for college. As a result, millions of Americans had more to spend on gas, and food, and other necessities, all of which helped businesses keep more workers.
Back in reality: Cato Director of Tax Policy Studies Chris Edwards: “When the president says that he has ‘cut taxes’ for 95 percent of Americans, he fails to note that more than 40 percent of Americans pay no federal incomes taxes and the administration has simply increased subsidy checks to this group. Obama’s refundable tax credits are unearned subsidies, not tax cuts.”
Visit Cato’s Tax Policy Page for much more on this.
SPENDING FREEZE
Obama’s claim:
Starting in 2011, we are prepared to freeze government spending for three years.
Back in reality: Edwards: “The president’s proposed spending freeze covers just 13 percent of the total federal budget, and indeed doesn’t limit the fastest growing components such as Medicare.
“A better idea is to cap growth in the entire federal budget including entitlement programs, which was essentially the idea behind the 1980s bipartisan Gramm-Rudman-Hollings law. The freeze also doesn’t cover the massive spending under the stimulus bill, most of which hasn’t occurred yet. Now that the economy is returning to growth, the president should both freeze spending and rescind the remainder of the planned stimulus.”
Plus, here’s why these promised freezes have never worked in the past and a chart illustrating the fallacy of Obama’s spending claims.
JOB CREATION
Obama’s claim:
Because of the steps we took, there are about two million Americans working right now who would otherwise be unemployed. 200,000 work in construction and clean energy. 300,000 are teachers and other education workers. Tens of thousands are cops, firefighters, correctional officers, and first responders. And we are on track to add another one and a half million jobs to this total by the end of the year.
Back in reality: Cato Policy Analyst Tad Dehaven: “Actually, the U.S. economy has lost 2.7 million jobs since the stimulus passed and 3.4 million total since Obama was elected. How he attributes any jobs gains to the stimulus is the fuzziest of fuzzy math. ‘Nuff said.”
Monday Links
- The massive impact government spending has on job creation.
- Why climate change spurs whining about cold snaps.
- Beware the “Crusader Temptation”: “Afghanistan has become a target of aggressive pro-war activists in America, including feminists who believe in waging war to improve the status of women.”
- What happens when the only self-identified socialist in the U.S. Senate starts to look moderate when compared to his colleagues?
- Podcast: “Bush’s Budget-Busting Binge,” featuring Chris Edwards.
Federal Job Creation
The board game Monopoly first took off during the Great Depression. A different game has become popular during today’s Great Recession. In this game, politicians race against high unemployment to create jobs in order to save their own. The players (politicians) have unlimited tax and borrowing authority, and can call upon friendly economists to help them maneuver. The players even get to keep score, although the media can penalize shoddy scorekeeping. Ultimately, voters will decide which players win and lose in the fall elections.
Okay, I’m being facetious. But as politicians continue to throw trillions of dollars at the economy in a vain effort to create jobs, and the media continues to go along with it by obsessing over meaningless job counts, the entire spectacle has become surreal. If government job creation is a game, the losers have been the taxpayers underwriting it, as well as the employers (and their employees) who are closing shop, laying off workers, or not hiring because of uncertainty over what big government schemes will be next.
Two news articles point to this “regime uncertainty” being generated by Washington.
Trade Not to Blame for a ‘Lost Decade’
For American workers and families trying to get ahead, the decade just behind us was a stinker. As a front-page Washington Post story over the long weekend summarized:
For most of the past 70 years, the U.S. economy has grown at a steady clip, generating perpetually higher incomes and wealth for American households. But since 2000, the story is starkly different. …
According to the story, the Aughts (2000-09) were the first decade since World War Two with no net job creation, and the first in which median household income was actually lower at the end than at the beginning.
It won’t be long before critics of trade will try to blame the poor economic performance on trade agreements and globalization. This has been a standard line of attack, and I address it at length in my new Cato book, Mad about Trade: Why Main Street America Should Embrace Globalization. For now, just a few quick-hit observations:
The two recessions that book-ended the past decade were both “Made in the USA.” The first was triggered by the popping of the dot-com bubble, the second by the bursting of the housing bubble. Trade was not the cause of either recession. In fact, trade and globalization were charging ahead full steam in the 1990s, when everybody agreed the economy was doing well.
There is also the temptation to extrapolate short and medium trends into a long-term decline in living standards. As the Post reporter Neil Irwin rightly noted,
The miserable economic track record is, in part, a quirk of timing. The 1990s ended near the top of a stock market and investment bubble. Three months after champagne corks popped to celebrate the dawn of the year 2000, the market turned south, a recession soon following. The decade finished near the trough of a severe recession.
The U.S. economy has endured equally long stretches of poor performance in the past. For example, the Dow Jones Industrial Average was actually lower in 1982 as it was in 1966—16 years stuck in neutral. Real median household income was lower in 1983 than it was in 1969—14 years of no net gains. Yet the economy recovered and scaled new heights.
During difficult economic times, trade helps us weather the storm by offering lower prices and more choice to consumers struggling to make ends meet. When domestic demand sags, U.S. companies can find customers and profits in more robust markets abroad. Foreign investment in the United States helps to keep interest rates down, keeping more Americans in their homes and keeping credit markets open.
Our policy makers will only make our economy worse if they reach for the snake oil of higher trade barriers.
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