osewalrus (osewalrus) wrote,
osewalrus
osewalrus

Stimulus XR

While I would like to see the problem of unemployment solved, I gotta disagree with this Bob Herbert column which calls for massive public works program.

Leave aside for the moment the point that the existing stimulus bill already contained massive public works programs in the form of billions to the states to fund road and bridge repair. There is a more difficult issue here: the fundamentals of our economy are NOT sound.

In the 1930s, most industrial production was domestic in origin. This is why job works programs had such big ripple effects. When construction workers bought new shoes, they created other American jobs. Our current economic structure has outsourced most industrial production. While short term spending on job creation projects has some ripple effect, it is much more modest. You get the local lunch cart and potentially a few more staff at retail outlets. But the new cloths and goods that these stimulated dollars buy now go into other economies. As we proved throughout the last decade, increasing sales at WalMart and other retail outlets does little to increase overall American jobs.

What we need, therefore, is something that alters the economic fundamentals in a way that creates sustainable new American jobs. We did this in the 1990s by promoting the tech sector (which we subsequently outsourced). The stimulus package pushes heavily to create new jobs in new sectors, notably health IT, green energy (including smart grid), broadband, and new transportation technologies. Unsurprisingly, this takes more time to do right and for the jobs to come. But when they do come, they will have a far greater impact for the long term.

Neo-Kynseians, especially of the pundit variety, have not given enough thought to how the economy has changed since the 1930s. Government still has a role in promoting economic growth, but it requires considerably more thought and planning in execution. We may or may not need additional short term stimulus, but the only way to break out of this cycle is to have an extended release stimulus (or Stimulus XR, to borrow the medical jargon) that is designed not just to buck up the economy, but to transform it.
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