Back in the 1960s, Daniel Patrick Moynihan once offered this solution to the economic problems of black America: restore Sunday mail delivery.
The line was sort of a joke, but sort of not. The Post Office of those days really did provide secure employment to large numbers of black Americans, and a seventh delivery day would require the employment of still more.
Government can always create direct employment. It’s often said that the three biggest employers on earth are the Chinese Red Army, the Indian state railways, and the UK’s National Health System, government enterprises all. When I was in the UK last month, I took part in the BBC’s Question Time program. During a discussion of youth unemployment, a member of the audience raised her hand to argue that it was very, very important that the British government hire counselors to help young people find jobs. There’s not a lot of reason to think that such counselors actually enhance youth job prospects. The eager way in which the woman phrased the question did however strongly indicate that she regarded the creation of more such positions as a great boost to her own job prospects.
Yet when Joe Stiglitz–or for that matter, President Obama–talks about government investment as a way to rescue the American middle class, they are contemplating something more interesting than merely expanding the government payroll. They are suggesting that government action can generate productivity improvements that will translate into rising wages in new economic sectors.
The analogy most often heard is the Internet. Government helped create its infrastructure, which in turn spurred all kinds of wealth-creating innovations.
Yet it’s precisely since the advent of the Internet that the gap between rich and poor has widened most spectacularly and that the wages of the middle have stagnated. I’m not claiming that the Internet drove those trends, but pretty evidently it did not prevent them.
If anything innovation seems to be accelerating the trends toward rising wages for high-skilled workers in China and India and declining wages for low-skilled workers in America. It’s hard to see why, say, cost-effective solar panels would be any different. And yet on that hope, so many are building an argument for a more intrusive and interventionist government. Unfortunately the downsides associated with intrusive and interventionist government cannot so easily be wished away.