We’re introducing a new occasional feature today, “Easy for Me to Say,” in which readers are invited to pose questions that more or less take the form: “OK – so what would you do instead of this or that politician you’ve criticized?” (Readers who want to ask questions should email them to editor[at]frumforum.com with “Easy for Me to Say” as the subject line.)
Today’s question comes from a reader in California who asks, “What would you do instead to create jobs?”
It’s obviously a big topic, but here’s the policy mix I’d recommend. No special marks for ingenuity here: all these measures are time-tested responses to economic downturns:
1) Cheap money, a low dollar, and moderate inflation.
2) Tax relief aimed at stimulating private consumption, such as a big payroll tax holiday.
3) Income support for people in need.
4) Modest and temporary subsidies to state building projects.
5) An immigration moratorium.
6) Agreement now on a plan to balance federal budget to begin only after such time as unemployment declines below 8% or the 10-year US Treasury bond goes north of 5%.
Most of this program is fairly obvious and intuitive, but a couple of side notes:
A) I don’t worry very much about monetary ease generating under current conditions. Two prior rounds of quantitative easing did not produce inflation. Anyway, a moderate inflation (3-4% – the level that prevailed through most of the 1980s) would be a good thing: it would help reduce the burden of debt on US households.
Excess household debt was the ultimate cause of this economic crisis. Excess debt delays recovery because households are using any cash that comes their way to pay down debt rather than support consumption. A mild inflation would accelerate debt reduction and advance the day when households regained the confidence to spend.
B) I’d like to see the employee-side payroll tax reduced to 0% for the duration of the crisis: a visible pay increase for every worker. Some workers will spend the money. Others will repay debt – hastening the day when they can resume spending.
C) You hear it often said that the US must create X number of jobs per month simply to stay even with the increase in the working population. It’s not stressed often enough that much of this increase is artificially created by immigration. In a time of high unemployment, why make the challenge larger?
D) Government infrastructure programs have a long-established record of failure as counter-cyclical job creators. They come online too slow, and they are usually organized in ways aimed at maximizing the incomes of established workers rather than creating opportunities for more. That said, if workable projects have been planned and costed, now is the right time to execute them.
E) Now is not the time to be cutting support to the unemployed. I’d think that should be obvious.
F) Cut government spending and increase government revenues in good times, not bad. You don’t have to hold with all this new-fangled Keynesian economics to appreciate that one core lesson. No need to panic now that under some imaginary hypothetical future circumstance, lenders will hesitate to buy US paper. They’re buying today. We don’t have so few problems today that we need to commence worrying early about problems that may arise later.