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July 12, 2010

Comments

JFTR,

Since no one else is commenting, let me just say this is a very good post. Zombies would improve it, of course.

It's hard -- for this audience -- to take issue with the above. Most here probably advocated for some version of the above when Obama's first Zombie Eradication Program was under consideration. Teeth gnashing followed as Obama instead proposed his Bipartisan ZEPLite, which program was subsequently pulled into smaller pieces by Zombie Fifth Columnists.

Warm, fuzzy projects suck up money the way Bounty sucks up water. With Bounty, at least, you have the utility of a dry surface.

Yeah, I wasn't expecting much in the way of controversy. This is more like a concrete set of ideas to point to next time we get into it over spending. "There are specific investments worth making, they are listed here, any questions?"

I really don't like direct consumer spending stimulus like the cash for clunkers deal and the housing credit. It doesn't target the people in need, in fact in its effects it is regressive by giving money to people with money to spend, it burns money that is needed elsewhere, and it has only temporary effects because it mostly just shifts some spending forward, but doesn't last long enough for that to make a difference.

On the other hand unemployment insurance and support for states for jobs (which I mostly did not mention here) are both worthwhile. Unemployment payments go to consumption but it's basic welfare consumption - housing, food, healthcare. State supports are really just a way of federalizing the state budget deficits that states should be running right now.

I could be persuaded by a payroll holiday (employee side) - even though much of it wouldn't be spent right away and would be used to pay down debt, thereby essentially swapping public debt for private - for one very simple reason: everyone else got a damn bailout, why not working households?

But I'd rather spend on things that are real investments.

Warm, fuzzy projects suck up money the way Bounty sucks up water.

Yes, that's the idea.

There isn't enough money going around out there. Lots of people are unemployed and suffering because of that situation. We can choose to let it continue, and most likely get worse, or we can choose to do something about it.

If we choose to do something about it, we can piss away the money on worthless consumption stimulus that will leave us with no lasting gain and more in debt to China, or we can spend it some expensive but useful investments in our own future.

Since so far we are on the "let it continue and see if it gets worse" medicine, this is academic, but if, as I suspect, things are starting to look apocalyptic again by the end of the year, we might want to think about how we can spend some money on something useful.

Jacob,

Not even Keynes was a "full-on Keynesian" with respect to digging holes. He thought hiring people to dig holes was better than NOT hiring people to dig holes, during a recession, but that's as far as his endorsement went.

Hiring people to build, educate, heal, and clean is of course much better than hiring them to dig holes, except for one problem: not everyone has the skills to do those things, whereas everyone has the skill to dig holes.

Two other things everyone has the skill to do: NOT dig holes, and spend money. The second thing is the important one. Hiring people to not dig holes allows them to be CUSTOMERS in The Free Market. Customers is all an economy really needs; The Invisible Hand can take care of efficiently allocating resources, including idle labor, from there.

You'd think The Guvmint is as good a customer as anybody as far as The Invisible Hand is concerned. If government shows up with $100B and wants to buy a Shinkansen line, the market will gladly supply it. If government gives the same $100B to 10M people and tells them "Buy whatever you want with it", the market will gladly supply that instead. Maybe even MORE gladly, since the market can more easily use existing plant and existing skills to supply the typical wants of 10M people, than to supply a high-speed rail line.

More important, though, may be the fact that government, like any other customer, gets to own what it buys. To a certain kind of freedom-lover, government owning a high-speed rail line is probably even more objectionable than the $100B expenditure.

So I suggest that there are two kinds of possible objections to your very reasonable program. 1)You need to hire the unemployed you have, not the unemployed you wish you had, and The Free Market may know how to do that more efficiently if you just give people money; and 2)Even if government can efficiently hire the unemployed we actualy have to build stuff we collectivelly need, it's government that ends up owning the stuff.

I'm not saying those are MY objections. I'm just trying to figure out what objections might exist.

--TP

My reply to Tony P.'s suggested objections would be:
1) Construction workers are a rather high percentage of the unemployed, and much of our contructive capacity is going unused as it depreciates, and both would certainly benefit from new large construction projects. These employees would again become good consumers. Everyone gets a tangible and economically useful resource out of the deal.
2) We would own it. It would be a public asset. Government would indeed run it, but if voters wanted to privatize it (or even if they didn't) it could easily be sold of to private business.

You'd think The Guvmint is as good a customer as anybody as far as The Invisible Hand is concerned. If government shows up with $100B and wants to buy a Shinkansen line, the market will gladly supply it.

The problem is that the government pays "prevailing wage" on construction, which is basically the same as "too much."

I am currently doing a side job selling construction services, and we only bid on government backed projects. We are a union shop. We are simply uncompetitive for civilian construction. So, we look for anything that is paid for by fed, state, or local government which will recuire paying the higher wages of our workers.

We do good work, we have good workers, but we are about twice the cost of a similar non-union shop (for civilian jobs-the non union guys can compete for gov jobs and pay the same wage as we do on gov jobs. Basically their guys get a windfall working for the gov).

I think the structure of government construction projects is an example of why government costs too much: the same project would often cost much less for a non governmental agency. I am not against the project, just against paying more than Microsoft or Walmart would pay for the same building.

jrudkis, the question I see is: is 'too much' really too much or is it just compared to slave wages (caused in part by use of 'illegals')? Also, why do Scandinavian countries manage to keep below the cost estimate on a regular base while almost everywhere else cost overruns are the standard not the exception. Okay, I know the answer to that one: absence of fraudulent competitive bidding where everyone knows that the bids have no connetion to reality. I guess your company has that problem too, honest bids based on realistic estimates have no chance on the 'free' market.
---
Education etc. are the responsibilty of the states and unfortunately we all know that spending money on public schools, teachers etc. are anthema in large parts of the country leading to the extrem that federal funds get rejected due to unwillingness to match them even in part with money from state taxes. Looking at the current GOP, the crusade to kill public education gains followers every day.

The Amsterdamse Bos was built during the Depression. Although the primary motivation for building it when the decision was made in 1928 was to expand the amount of 'green' near the city, it provided a welcome relief for the unemployed (Dutch).

Trips by international rail in Europe are actually quite expensive. It quickly becomes cheaper to go by car if you're with a few people if you can't buy discount tickets or special offers.

This area is where I'm disappointed with Obama, though maybe this area is also where he has the best excuse for disappointing me (Republicans). I didn't expect much on civil rights or anything else, but I did think he was going to be more of a Keynesian big spender and in particular, for some reason I thought there would be massive investment in trains. (No idea why I thought that.)

This is more like a concrete set of ideas to point to next time we get into it over spending.

And very good ones too. I just don't think such a list has any chance as long as we do infrastructure the way we currently do it: without a long-term plan, starting fresh in every budget cycle, and letting projects be determined by lobbying and congressional logrolling. (Which is partly a function of the federal government not having separate capital and operating budgets, which pretty much every other government entity does have). If we had something like a national infrastructure bank with a dedicated funding stream, it could actually engage in rational need assessment and priority setting, and we might see fewer I-99s and bridges to nowhere.

jrudkis: I am not against the project, just against paying more than Microsoft or Walmart would pay for the same building.

I take your point, but I'm inclined to think that what private industry can pay for construction is too cheap because of union-bashing, immigrant labor, and unemployment that never gets low enough to push up low-end wages.

I'm not necessarily sold on prevailing wage regulations, because I see the role of government employment (of this type) as the sponge that keeps private employment tight, which will naturally keep wages higher.

(Although if we persist in describing increasing wages for workers as "wage inflation" as opposed to treating that as the natural condition in a growing economy, I despair that we'll ever understand what constitutes full employment.)

The other point to make is that even if the government overpays somewhat, at the end of the day you get valuable and productive public infrastructure from it. You don't get that with tax cuts or consumer stimulus, there is no long-term payoff. I guess I'm old-fashioned in that I think when you spend a lot of the public's money, they should get something for it.

Looking at the numbers for ARRA, it was actually quite a bit better in priorities than I remembered, although again I think the mistake was in not directly targeting unemployment as opposed to trying to do things indirectly with subsidies and tax cuts. But the proposals for a second stimulus have been much worse (and far too small of course).

(The too-late comeback to "warm, fuzzy projects suck up money" should have been "yeah, not like those cold, brutal military operations that are so cheap and efficient". A day late and a dollar short, as usual.)

jrudkis, the question I see is: is 'too much' really too much or is it just compared to slave wages (caused in part by use of 'illegals')? Also, why do Scandinavian countries manage to keep below the cost estimate on a regular base while almost everywhere else cost overruns are the standard not the exception. Okay, I know the answer to that one: absence of fraudulent competitive bidding where everyone knows that the bids have no connetion to reality. I guess your company has that problem too, honest bids based on realistic estimates have no chance on the 'free' market.

This is a new venture for me, so I can't claim a lot of experience in it. So far what I have seen is that we do get underbid by firms that plan to make profit from change orders. We also get underbid by firms that don't know what they are bidding on, and will end up losing a significant amount of money (or more likely just fail to complete the work). We also lose bids to briefcase bidders who have no equipment and no workers, who then hire us to do the work. The system does not seem to provide for a contracting officer having experience with a firm that does honest work and coming in on budget getting an advantage, except that the contracting officer can design project sizes, set-asides, and requirements that can make a company more competitive. Basically I have a "sweet spot" for project size where I am most competitive. If you are building a road, for example, the contract can be for the entire road, where only mega companies can bid, or done in pieces where parts of it would be in my range.

The system of set-asides is another area where we have to manuever ourselves into various relationships with disadvantaged businesses that can bid projects, and then hire us to do the work.


I don't think that the options are prevailing wage or slave wage. Most of the major construction around here paid well, just not the premium guaranteed by the government process. Now that there is no civilian construction happening, the same tax payer dollar amount could put more people to work and get more construction completed if the system allowed for competitive pay.

From a company perspective, the prevailing wage system does not hurt us (since it applies to everyone), and we like to be able to pay our workers well. The union system also means that when we don't have a project, we don't have to pay workers at all (they just go back to the union hall). If we win a bid, the hall sends us the workers we need. It keeps our overhead low when there is no work, and our workers can go work for another company that does have work.

If the intent is to get infrastructure built and people to work, though, prevailing wage might not be the best use of money now.

The union system also means that when we don't have a project, we don't have to pay workers at all (they just go back to the union hall). If we win a bid, the hall sends us the workers we need. It keeps our overhead low when there is no work, and our workers can go work for another company that does have work.

So making union shops competitive through prevailing-wage requirements promotes liquidity of labor and reduces your overhead at the expense of paying (probably better trained) workers more than they would otherwise make. The offsetting factors make it less clear that more workers could be put to work. Then consider the greater numbers of indirect jobs supported by those workers larger paychecks, and it becomes even less clear in the bigger picture that more people could be put to work without prevailing wage.

So making union shops competitive through prevailing-wage requirements promotes liquidity of labor and reduces your overhead at the expense of paying (probably better trained) workers more than they would otherwise make.

It promotes liquidity of labor for union members. The unions we work with are not taking new members because there is so little work.


It promotes liquidity of labor for union members.

And the companies that hire them. But if liquidity is improved for part of the labor pool, all other things being equal, liquidity is improved in aggregate. Fewer union workers would mean less liquidity.

The unions we work with are not taking new members because there is so little work.

Which is why it would be good to have more and better-targeted public spending, as opposed to diffuse tax cuts.

Which is why it would be good to have more and better-targeted public spending, as opposed to diffuse tax cuts.

Sure, but I am not arguing for tax cuts. I just want more to show for the money we spend: More infrastructure, more people working, same money.

I just want more to show for the money we spend: More infrastructure, more people working, same money..

Me, too. (Who wouldn't?) I'm just not as sure as you that prevailing wage is a big impediment to that.

"More people working, same money" is "lower wages" by simple arithmetic. I'm not categorically opposed to lower wages, but it's not something to pine for.

Across the whole economy, where the main thing most people have to sell is their labor, do we want lower wages or higher ones?

--TP

Given the goal of the program would be to restore employment, the wage rates aren't very important. It's not like the government employing unemployed people at even minimum wage would "undermine" wages for other workers. The mere presence of the unemployed is a far greater undermining. So in that sense I agree, although I'm not sure how large the effect is; but if the price of getting these things done would be paying prevailing wage, it would still be worth doing, and much more worthwhile than vague tax subsidies that don't compel the spending of the money distributed.

(I realize now, "Clean" should have been "Restore". I'll never be a Presidential speechwriter.)

Prevailing wage would apply only to those jobs for which unions can provide skilled workers at the prevailing wage, would it not? So in your vision, welding would face that issue, but likely cleaning would not. The issue would be one of political sustainability - if the government were providing a stimulus effort that tended to pay far better wages than workers in the private economy were receiving due to depression, it seems to me the backlash would be swift and severe. In normal times, government employment and public works contracts are justified on an actual public need/public good basis, and hence prevailing wage is accepted with equanimity or at least only opposed with idle resentment. But with economic recovery as the fundamental justification for these government programs (even if we may tend to think they'd be justified anyway), workers in the private economy who are seeing their wages ravaged by a glutted labor market would be sure to react strongly to massive public works that are employing workers at wages far above their own (even if it helped the economy recover best). In my mind, this tends to argue either for simpler projects requiring less skilled labor (not to say ditch digging necessarily, but much of the work of the CCC for example amounted to not much more than that at least in terms of unionizable skills), or else a comprehensive if temporary suspension of prevailing wage laws on projects associated with the recovery effort (of which fat chance under Democratic control of Congress and the Wh, the only scenario in which this type of recovery effort is a plausible scenario).

"More people working, same money" is "lower wages" by simple arithmetic. I'm not categorically opposed to lower wages, but it's not something to pine for.

That depends on whether the wages are the dominant cost driver. There e.g. may still be examples where humans can replace machines with actual saving of costs. This would imo be especially true for projects on a moderate scale. In most cases you are probably right though.

And few people are full-on Keynesians to the extent of believing in digging holes

Thanks for noting this. Direct short-term government employment in the context of widespread unemployment is often described as, basically, pissing money away just to get people spending. In reality, there is a hell of a lot of useful work to be done.

But "digging holes and filling them up again" is the shorthand that gets used.

Unfortunately, every proposal in your list will be ferociously opposed, because they all involve the government, and government involvement in the economy is capital-B Bad.

A significant portion of the Congress is in thrall to the idea that (a) the federal deficit is currently the single greatest economic threat to the nation, and (b) government is the problem in the first place, so let's not expand its scope in any way, shape, or form.

As long as that is so, ideas like Jacob's, regardless of their merits, are dead in the water.

Incidentally, we already have a payroll tax holiday program in force. It's called the HIRE Act, and it gives small businesses payroll tax exemptions and other tax breaks to hire people who have been out of work for more than 60 days.

So far it has not made a significant dent in the unemployment rate.

Businesses will not hire people because they can have their labor at a modest discount. They will hire people if doing so will make them money. If nobody is buying their goods and services, new hires will generate no new revenue.

There is, as always, some marginal area where a discount in the form of tax breaks will get some folks to do some hiring, but it's not, remotely, enough to change the direction of the employment picture.

One thing that I note is missing from this list is any programs or incentives aimed at improving our balance of trade. We seem intent on requiring our own labor force to eat its own dog food. There are other markets in the world, many of them quite large. We should be figuring out what we need to do to be competitive there.

Points off any proposal that relies on beating down domestic labor costs to do so.

I don't think we need to worry much when vast numbers of the unemployed are paid to dig holes and fill them in.

It's when vast numbers of the unemployed begin volunteering to dig holes for the sheer vengeful joy of digging holes and haven't quite decided what they want to fill them in with that we need to worry.

There are other markets in the world, many of them quite large. We should be figuring out what we need to do to be competitive there.
Points off any proposal that relies on beating down domestic labor costs to do so.

Unfortunately, as far as manufacturing goes, I think that that time has past. I mean, in an age when shipping is cheap and factories are everywhere, I don't see any way to make basic manufacturing jobs pay 10x the 3rd-world wage. Other than protectionism, that is.
And Im not even sure Id want to fix that- why should someone is Malaysia get 2k a year for a job that someone here gets 30k for?
That doesn't rule out high-skilled manufacturing jobs of course.

Ive heard Brad DeLong say something that makes sense to me: take the money that we collectively save from globalization, and spend some of it (via taxation) on helping the 'losers' of globalization retrain into new jobs. eg we face a perennial nursing shortage.

Of course that doesnt stop us from being competitive in non-manufacturing markets eg software, movies, internet sites. IP is great that way- write once, sell a hundred million times, spread the high salaries across a 100M user/moviegoer/etc base.

russell: One thing that I note is missing from this list is any programs or incentives aimed at improving our balance of trade.

Like how?

Lower the dollar to encourage exports by increasing the deficit? Which aint gonna happen with the Euro trembling on the brink.

Raise tariffs and start an international trade war? Nope because 25% of our exports are dependent on the health of the Chinese economy. YUM won't be so yum-yum if we embargo Chinese goods, worse if they yank the trillion or so dollars they have invested in US debt.

What options are left? We could get involved in a REAL war, like WWII, when we nearly obliterated Japan and Germany, and then rebuilt them from the ground up with massive influxes of American companies and labor and products.

I know, wishful thinking: never happen with Hamlet-like presidents in office, you'd need a Richard The Third or a Lady MacBeth in the oval office.


"Points off any proposal that relies on beating down domestic labor costs to do so."

There is an obvious solution that would RAISE domestic labor costs, and put significant numbers of Americans back to work: we need to accelerate the removal of the Mexican illegal work force, and reduce the number of Border Crossing and working visas -- by 60 or 70%. That will dramatically lower the unemployment rate, especially in the Southwest, providing thousands of jobs for Americans now out of work, and restore the hourly wage in numerous sectors that have been artificially depressed for decades because of the surplus of cheap labor from south of the border.

But again not much chance of that happening when you have an administration in office that cares more about the welfare of Foreigners from Latin America then it does about our own out-of-work citizens.

Like how?

Not my job dude.

I'm just pointing out that our economic health is dependent on Americans buying stuff. There are other people in the world, too, maybe they'd like to buy some stuff from us.

Right now I see a little bit of policy from Obama to try to encourage that, but nothing in Jacob's list.

That's all.

There is an obvious solution that would RAISE domestic labor costs, and put significant numbers of Americans back to work

This is called a "threadjack". Sorry, not interested in playing.

cw: "take the money that we collectively save from globalization, and spend some of it (via taxation) on helping the 'losers' of globalization retrain into new jobs. eg we face a perennial nursing shortage."

Good idea. But you're going to have to spend a lot of that 'losers' money to do it -- nursing school drop-out rate is 60% or more.

Thanks for playing, Jay. Be sure and let us know when you've found another unblocked IP to post from, ok?

Unfortunately, as far as manufacturing goes, I think that that time has past.

Andy Grove on the loss of American jobs.

russell: One thing that I note is missing from this list is any programs or incentives aimed at improving our balance of trade.

Yeah. Unfortunately I think the only thing that would help there is the reintroduction of hefty tariffs on imports from low-wage countries, and for a variety of reasons ranging from entrenched business interests, the free-trade consensus among economists, and the powerful bindings of trade treaties, I don't think that's likely.

Now, I also think that it will be possible to get to full employment in the US and have sustainable economic growth even with a large trade deficit, but we have to understand that doing so requires budget deficits. Requires. You cannot import far more than you export without sending a lot of dollars to foreigners. You cannot send a lot of dollars to foreigners without running a budget deficit.

My hazy-fuzzy feeling is that the worst shocks of globalization may have already passed. There is an enormous labor force still working subsistence agriculture in the fields of the world, but it is a much smaller percentage of the total than it used to be, and its assimilation into the global industrial economy will not be as brutal and gigantic a shock as China was. China is going to head towards being a massive consumer-demand society full of exactly the same sort of lazy consumers as the US - people who don't dream of working 12 hour days 6 days a week and living in a factory dormitory. The gains from production in China vs. the US will diminish - transportation costs and delays, political risk, lack of understanding of the US market, and lack of highly-skilled labor will play a larger role - and the competitiveness and productivity of American business will recover.

But that may take a while. I favor short-term smaller tariffs to ameliorate the negative effects of trade in combination with a domestic policy of full employment. I don't see how to extract ourselves from the mistaken trade treaty with China, and I don't think at this stage it would be a good idea - we want to trade with China once they get richer, we just didn't necessarily want to subsidize their getting richer through massive deindustrialization and job loss.

that time has past

[pedant]passed[/pedant]

What we need is a new service mark similiar to "Dolphin Safe" that indicates "Human Safe." Products that earn the "Human Safe" product mean that they meet the environmental, OSHA, living wage, fair trade standards that would be required if manufactured in the US.

Then, the Malaysian factory worker may still be a cheaper employee, but it would have fewer external costs, and on many things US manufacturing could be competitive.

And I am not looking for a tariff, just a consumer mark that provides easy knowledge and choice. Either working conditions and environmental concerns are raised overseas, or more jobs stay in the US, or both.

Do all of Jay's personas have jobs?

That'd be job-hogging, wouldn't it? We could fee up six or seven jobs just by providing Jay some schizophrenia medicene.

Maybe three of him have jobs and the other four are collecting unemployment.

I could use some spelling pills, my own self.

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