Jan 12, 2012

Economic crisis as debating point

Michael Mandel has a new piece (which I fact-checked) in the latest issue of the Monthly arguing that economic statistics are exaggerating the productivity of American workers. It's an interesting idea, and might be correct; I can't judge that. At the end, though, he dismisses the idea of more economic stimulus:
For example, economists and journalists repeatedly say that the U.S. economy won’t recover and jobs won’t come back until the consumer starts spending again. That seems to imply that the U.S. needs another massive jolt of fiscal stimulus directed toward pumping up consumers. But which producers would really benefit from such a jolt? If U.S. manufacturers have cut back on factory jobs because of higher domestic productivity, then boosting consumer demand will indeed cause the factories to hire back American workers. But if cutbacks in manufacturing employment have come from increases in supply chain productivity, then giving Americans more money to spend on clothing and consumer electronics will simply boost employment in other countries.
This is a basic error. The story behind more stimulus is as follows. The economy was ticking along in 2007. Then we had a gigantic demand shock in the form of a worldwide financial meltdown. Unemployment more than doubled and output crashed. The standard remedy for one of those is Keynesian stimulus in the form of fiscal stimulus from the government, and Friedmanite stimulus in the form of, basically, printing money. Once we're back to within a percent or two of the 2007 unemployment rate, we could tie off the stimulus and start looking at deeper problems.

Critically, that story has nothing to do with Mandel's thesis. It doesn't preclude the obvious fact that the economy of the Bush years was terrible. Growth was weak, median incomes were flat, inequality was skyrocketing, and the government was racking up a huge deficit for no reason. But taking a look at that 2007 economy, it is surely better than the current situation:

Ygesias had something along these lines awhile back:
My view is that the fact that we’re facing a major short-term emergency is not in tension with the reality that we’re also facing a serious longer-term problem. On the contrary, desire in various quarters to leverage the short-term problem as a way to increase the salience of their preferred long-term ideas has become an impediment to fixing the short-term problem. Meanwhile, the existence of a massive short-term problem is creating new long-term problems as unemployed workers and recent graduates lose opportunities for on-the-job training and skill-enhancement and state/local policymakers scrape together emergency budgets.
Italics mine. Mandel's piece is a perfect example of that attitude. I think it's telling that he's been writing essentially this same article since at least June 2007 with only minor adjustments.

UPDATE: More here.

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