"The Keynesians Have Lost"

Published on July 7, 2010 By dan_l In Blogging

Something else I came across in my efforts to figure out the anti-unemployment angle. Pretty brutal:

First taking a big bite out of Barry O:

The good news is we have avoided another Great Depression. But it seems ill-advised for Barack Obama to stand up on a Friday morning in early July and say that the economy is "headed in the right direction" (even if, as he said, "we are not headed there fast enough") and to highlight "the sixth straight month of job growth in the private sector." The employment-to-population ratio has been flat since November. Over the past six months--since the downturn ended--the U.S. economy has not been recovering from its near-depression, and not been putting a greater and greater portion of its potential labor force to work. Rather, it has been bumping along the bottom. There is a big difference between the economy getting "better" and the economy "no longer getting worse rapidly."

So far, it seems the Obama administration has, at every stage, made honest forecasts within the bounds of consensus opinion. But it has been making policies appropriate to the 80th percentile outcome--to the situation in which we have quite good luck. It should have been making policies appropriate to the 20th percentile outcome—in effect, buying insurance against the possibility of bad luck. And we have had bad luck.

And then:

But Congress is balking. Republican legislators from states with double-digit unemployment have put party above country. Blue Dog Democrats, who think that they can marginally improve their chance of gaining more terms in office if they publicly worry about the deficit to the exclusion of all else, have put self above country and party. And, significantly, the Obama Administration has never offered a grand bargain for tax increases and entitlement caps in the future in return for more spending now to restore full employment.

Just a general ideological issue turned into a political calculation? I guess I really never put unemployment in the category of Keynesian thinking--probably because, at least in my life time, unemployment benefits were a secondary artifact of the economy never a tool. True enough, it is a Keynes thing, but it's almost like I've never seen it evoked as it is now. Privilege of being under 30, I guess.

All things considered, not that unbelievable.

Comments

Dr Guy

on Jul 07, 2010

Unemployment has never been a "keynsian" thing. It boggles my mind that people (Brad Delong) so ignorant on a subject can get a forum to demonstrate their ignorance. But I guess that is the Internet, where anyone with a puffed out ego can pontificate on issues they are totally clueless on.

Let's be clear on one point. The actual name of the program is the Unemployment Insurance Fund. See the key word insurance in that title. Itis not a government handout (at least not until congress starts making it like a welfare program). It is an insurance fund that employees, through their employers, pay into while employed. For the purpose of reaping benefits should the company fall on hard times. it is not meant to supplant the income the employee had, but to provide them with a bridge fund while they pursue re-employment. IN other words, it was always meant to be temporary. Not permanent. 2 years is permanent. And actually it is not 2 years for all, since the feds cannot do anything without a cats cradle of strings attached and many states said no thanks to the cats cradle.

Contrary to Pelosi's rantings, unemployment is not a stimulus. Even making it welfare is not a stimulus. Has welfare ever been a stimulus? It is a handout and an abused one by politicians and people (and for some actually used for its intended purpose). But a stimulus is a not a zero sum game (in other words, robbing peter to pay Paul does not create jobs, it just shuffles money from one person to another). A true stimulus grows the economy by creating jobs through investment (a dirty word to this administration and the reason they have been abject failures at the recovery). A dollar may feed a family for a day, but then that dollar is done. But a dollar used to buy a machine that makes widgets starts an employment cycle that makes sure the family is fed for days, not a day.

As long as some continue to look at Unemployment as their paycheck and demand congress do something about it, they will be no better than welfare recipients. The insurance lasts only 26 weeks. AFTER that, it is nothing more than a welfare program.

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