Most of America's economic pundits love a good policy brawl. And the current showdown about stimulus spending could scarcely have any more gravity, as far as the debate's participants are concerned.
Proponents of further stimulus spending showcase their detailed mathematical models and warn that brutal deflation awaits if the government doesn't dole out more funds. Opponents brandish their comprehensive historical knowledge and claim U.S. creditors could bolt at any minute if budge cuts aren't immediately made. How much of an impact the stimulus has actually had on unemployment so far, though, gets overlooked in the dueling prophecies.
But straightforward suggestions that can actually help put the country's record long-term unemployed back to work tend to get far less glory. And one such far-more-levelheaded recommendation comes from Yale economist Robert Shiller: The U.S. government should simply hire workers directly for public services, much as it did during the Great Depression.
One Soldier in Afghanistan or 33 Workers at Home
Bringing aid to those at the bottom of the socioeconomic pyramid -- where job losses have done the most damage -- would hardly break the budget, either. The $30 billion it would cost to hire a million people at $30,000 a pop, for example, would amount to 0.2% of national debt and 4% of the entire stimulus package spending package, Shiller points out.
Hiring a million people at home would cost roughly the same as what Congress set aside last month to send 30,000 more troops into Afghanistan despite an avalanche of recent criticism about the U.S. strategy there. For the estimated $1 million a year it costs to station one U.S. solider in Afghanistan beyond salary and equipment, the country could provide jobs for 33 workers at home.
Much as the vast majority of the American public has suspected, stimulus measures so far have been ineffective at creating jobs. To illustrate this point, Shiller uses the anecdote of a road-construction site funded by stimulus dollars that's packed with steamrollers and heavy equipment but light on workers.
"Like many such stimulus projects, it could be justified if you accept the idea that gross domestic product, not jobs, is central – a misconception rooted in economic theory, or at least in the way Keynesian economic theory has evolved," he wrote.
Other Countries Deal With Unemployment Better
The obsession with GDP in shaping policy responses is evident in results that have supported growth on the macro level while doing little to stem joblessness, compared with programs in other countries.
There's no shortage of discussion about how brutal the Great Recession has been in America. But other industrialized countries have done a much better job dealing with unemployment despite far harsher downturns. And that's in addition to having far more robust social safety nets in place to help cushion citizens from downturns to begin with.
"Although one may expect that these cross-country variations in labor market performance would be related to differences in the depth of the recent recession, this is not the case," research firm Oxford Economics concluded in a recent report. "For example, Japan experienced the sharpest output losses among the G7 economies, equivalent to 8.6% of GDP, while the U.S. was one of the best performing economies, with output declining by just 3.3% of GDP."
Yet the downturn caused unemployment to spike by 5.3 percentage points in the U.S. to 10.1%, but it rose just 1.7 points to a peak of 5.6% in Japan. Other countries also show much shaper job recoveries. Germany has regained almost all the jobs it lost during the downturn, and Canada has picked up 97% amid a sharp jobs boom, according to Oxford Economics.
The U.S., on the other hand, is bracing for more job losses, and the lack of provisions like health-care insurance for the unemployed make the suffering that much worse. But economic pundits keep beating around the bush.
Increasing aggregate consumer and business demand through government spending or somehow making the already massively profitable business sector even more profitable seem to be the only two options that get attention. But Shiller's recommendation for using government funds to simply hire people to do needed work may be a far more effective route.
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