The Great Recession wiped out what amounts to every U.S. job created in the 21st century. But even if the recession had never happened, if the economy had simply treaded water, the United States would have entered 2010 with 15 million fewer jobs than economists say it should have.
Thanks to Tyler Cowen for the pointer. Read the whole thing. I love it and I hate it.
What I love is that he looks at the entire decade, not just the last two years. I have been trying to make that point, also. In addition, he focuses on the employment/population ratio, which I think is a better indicator than the unemployment rate.
What I hate are sentences like this:
Before we can fix our jobs machine, we must figure out what broke it.
How many things bother me about the sentence? Start with the “we.” Then go to “fix…machine.” When you think of the economy, think of a rain forest that you live in and study, not a machine that you fix.
Finally, economic progress is not really about creating jobs just to create jobs. It is about exploiting ideas, comparative advantage and the division of labor. The benefits of progress include more leisure and a reduction in the danger and unpleasantness of work.
I don’t think any of us knows where this reconfiguration is leading. My bet would be that Robert Fogel is correct, and that health care, education, and leisure are the future growth sectors. But I doubt that we will get to where we are going any faster by pumping up aggregate demand. Demand policy reminds me of an old Bill Cosby joke about trying to fuel a car by pouring gasoline all over it and hoping it will seep in somewhere.
READER COMMENTS
Randy
Jan 21 2011 at 10:25am
“When you think of the economy, think of a rain forest that you live in and study, not a machine that you fix.”
Excellent! And I think the same way about “society”.
fundamentalist
Jan 21 2011 at 11:01am
Great quote by Cosby! Thanks! I’ll re-use that a lot!
One thing to consider: the growth in healthcare, education and leisure has been driven by the baby boom. What will the economy look like when all of us boomers are dead? I think it will be very different because the next generation has different values.
Boomers worshiped education. Younger people not so much. Boomer moms all worked. No so much with my children’s gen. Boomers demand health care and there are a lot of us, but I’m guessing there will be a huge oversupply of healthcare workers in the next generation.
Also, state spending drives both healthcare and education. But all states are broke. Their bankruptcy means a much slower growth in both healhtcare and education in the future.
Thomas DeMeo
Jan 21 2011 at 11:23am
Isn’t the reconfiguration being driven by global imbalances? We have massive numbers of very poor workers finally starting to produce and compete with first world labor, but not consume in balance. I would think future growth will come from them, not us.
B.B.
Jan 21 2011 at 11:33am
You make a lot of good points.
But Scott Sumner’s points remain. If the Fed pushed nominal GDP level back to the level it would have been if the pre-2007 trend had continued, and if the Fed continued that trend, what would happen to jobs?
Do you argue the Fed does not have that ability? Or do you argue that we would just get higher price level with no additional change to real GDP? Or do you argue that real GDP would be higher but just from higher productivity, not higher jobs?
Silas Barta
Jan 21 2011 at 12:02pm
Demand policy reminds me of an old Bill Cosby joke about trying to fuel a car by pouring gasoline all over it and hoping it will seep in somewhere.
… and then lighting a match over the car, reasoning that: “historically, good car performance has required significant combustion in close proximity, and our latest data show an excessively low level of combustion — something we need to reverse if we intend to get this car moving.”
gnat
Jan 21 2011 at 2:22pm
“Finally, economic progress is not really about creating jobs just to create jobs. It is about exploiting ideas, comparative advantage and the division of labor.”
It is not clear that the current trade relationships reflect comparative advantage but rather (as Roach has said) labor arbitrage by US corporations. You may believe that the economic purpose of the U.S. economy is not to create jobs but it certainly raises political difficulties. It is not clear that markets can cross political boundaries when the result is depressing the income of the lower 70 percent.
parviziyi
Jan 23 2011 at 8:40am
“When you think of the economy, think of a rain forest that you live in and study, not a machine that you fix.”
Not bad. But nearly everyone who studies the economy, including Arnold himself, does so with a motive of finding practical applications for the knowledge gained. E.g. Arnold himself says just a few sentences later: “Economic progress is about exploiting… [certain very specific things in the forest].” And “I doubt that we will get to where we are going any faster by pumping up aggregate demand [though it can be entertained as a reasonable possibility].”
James Oswald
Jan 24 2011 at 2:40pm
You criticize the “economy as engine” metaphor, and then use it yourself. As you say, the economy is not an engine and there is no such thing as economic gas.
If you don’t like monetary or fiscal stimulus, you need to address advocates’ argument that more spending is good or make the claim that we can’t create more spending. What should the rate of spending be? How should we get there? Given the reality of a fiat currency whose quantity is centrally planned, you can’t just say free market. Nominal shocks do matter.
Also, I don’t understand why you claim to disagree with Scott Sumner. Stabilizing spending does not make PSST harder, it makes it easier. How are firms going to cope with forming webs of trade when the central bank is continuously changing the value of their money?
Michael Strong
Jan 28 2011 at 8:47pm
Health care and education are the two areas of our economy which are essentially socialized, i.e. government controlled, rather than entrepreneurial and free market. In sectors of the economy that are largely controlled by government, we don’t see ongoing creative destruction, and therefore we don’t see new patterns of sustainable specialization and trade coming into being.
Fogel is correct that health care and education are growth areas for the 21st century, but in order to see productivity gains in these areas we need the freedom required for entrepreneurs to constantly identify new niches and thereby exploit new ways of satisfying human needs and desires. While Fogel’s third growth area, leisure, is also relevant, I would add community as the more important third growth area.
Fifty years ago development economists other than Bauer were oblivious to the fact that entrepreneurs and economic freedom were crucial to economic development. Today most economists are oblivious to the fact that entrepreneurs and economic freedom are crucial to exploit 21st century needs for improved health care, education, and community. PSST as a concept is obviously more relevant here than is GDP.
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