Creating a shovel-ready economy

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This presentation accompanied this talk by Garett Jones: http://www.youtube.com/watch?v=dm8S63Zq4IM

The full research on the effectiveness of the Recovery and Reinvestment Act can be found on Mercatus.org:
http://mercatus.org/publication/did-stimulus-dollars-hire-unemployed
http://mercatus.org/publication/no-such-thing-shovel-ready

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Creating a shovel-ready economy

  1. 1. Creating a Shovel-Ready Economy Garett Jones BB&T Professor for the Study of Capitalism, Mercatus Center Associate Professor of Economics, George Mason University
  2. 2. The Next 45 Minutes •What happened •Lessons from the stimulus (Jones-Rothschild) •What next?
  3. 3. Unemployment
  4. 4. And Employment
  5. 5. Recent History• 2008: - Lehman Default - then TARP - then stock market collapse. Activism first, stock collapse second. The reverse of the Great Depression.• 2009: Spike in unemployment: - Unemployment often peaks after growth returns.• 2010-2011: Tepid recovery
  6. 6. Financial Crisis: Hard to Shake• When banks fall apart, recoveries are weaker for years on end. -Not like typical recessions -True around the world, across decades• Why? Controversial, but maybe debt is linked to debt -Ex: Your mortgage pays your bank, which pays insurance policies• Today’s weakness: Largely (mostly?) caused by 2008, not by 2009, 2010, 2011.
  7. 7. Dollar Sales: 5% Below Trend
  8. 8. Why This Matters • 5% fewer dollars to pay for: - Mortgages, Leases, Salaries, Credit cards - Traditional View of Keynesian & Monetarists: • Don’t let total spending fall quickly • Destroys good businesses along with the bad - Collateral Damage to the Economy • One Lesson: Get spending up to old trendline - Traditional channel: Federal Reserve - Key econoblogger: Scott Sumner, Bentley College - Draws on work by Feldstein, McCallum, Woodford
  9. 9. Did ARRA Help? Much?• ARRA: A mixture of temporary tax cuts & government spending• Recent work: Tax cuts work better (in short run) than we used to think. A surprise to me. - Romer & Romer (CEA Chair & author of top text) - Blanchard (IMF chief economist, MIT) & Perotti - Harald Uhlig (U of Chicago)Government spending: Maybe worse than we thought.
  10. 10. Overall Effect of ARRA? • “On the basis of its continuing review of relevant research, CBO has decreased the lower end of its range of estimated indirect multiplier effects from 1.0 to 0.5….” -CBO, 11/2011 • Meaning: $1 of ARRA may have shrunk private spending by $0.50. • Possible: Government grows, private spending shrinks.
  11. 11. The Caveat Page • The high end is still high, according to CBO: 2.5! - If 2.5: Government spending grows private spending - In short-run only: In the long run it shrinks private spending -Keynes’s hope: A man who loved the private sector • Multiplier might be higher in a weak recovery - Probably higher in “recession,” not enough weak recoveries to estimate. • Stimulus after financial crisis? A fog, no good info.
  12. 12. What’s the Normal Story for Stimulus? Should be “targeted, timely, and temporary.” --Larry Summers Focus here: Targeted at weak sectors of the labor market. - Better chance of hiring the unemployed - Don’t hire in “bottleneck” sectors if possible (DeLong, Clinton economist)
  13. 13. Was ARRA Shovel-Ready?• Facts from Jones/Rothschild stimulus studies: -46% of stimulus workers were “poached” from other jobs. This was job shifting, not job creating• Poaching more common for the highly-educated Best person for the job probably has one• Poached workers: Overwhelming got wage hikes Sign of Delong-style “bottlenecks”
  14. 14. What Mercatus Did, 2010-2011 • Stage 1: Interviews with dozens of stimulus- funded organizations - Private & Public sector - Food bank, Construction & Engineering Firms, Community Development Agencies, etc. - 5 regions around the US • Stage 2: Mail-in surveys from hundreds of stimulus-funded organizations and workers
  15. 15. Result: Jones/Rothschild 2011a,b • Coauthor: Dan Rothschild • Mercatus, now of AEI • Media highlights - WSJ op-ed, 9/8/11 - C-SPAN, Jones, 10/1/11
  16. 16. Who Gets Poached?• The educated - People with graduate degrees: 63% poached - People with high school degrees: 38% poached• Lessons: - Spending on doctors  Less short-run stimulus - Probably applies to skilled low-education workers Craft professions: Pipefitters, lab techs, electricians
  17. 17. Didn’t the Poached Get Rehired? • A theory, not a fact - Only so many anesthesiologists around • Signs point to Delongian “bottlenecks”: Government hiring in hard-to-hire sectors - More poaching among the educated - Big wage increases among the poached - ½ of organizations said hiring no easier or harder than pre-recession - Obligatory Solyndra reference
  18. 18. What Interviewees Told Us • The Federal Government told them to hurry - Result: Some firms said quality suffered “The least useful thing…a crane and a forklift.” “Tiny Tiles” - Not as bad as digging and refilling ditches… - This showed up in in-person interviews But not in mail-in surveys. • ARRA $: More red tape than usual - Good intentions driving away some firms • Lesson: Ramping up is hard to do
  19. 19. The Expertise Economy: Hard to Stimulate • High wage jobs: Paid for dexterity and judgment calls. Often ultra-specialized. Helps explain news stories and stats: Hiring bottlenecks for “skilled” workers When you hear “skilled,” think “specialized.” • Low wage jobs: Routine decisions, routine movements: Competing with machines and with workers in less- developed countries.
  20. 20. What Next? • Congress may have little power on demand side, but can improve supply-side • Help workers & firms create relationships with each other - Ex1: 99 weeks of UI to 52: likely creates > 100K jobs, maybe many more. - Ex2: Defer ACA penalties for non-insuring firms • No reason to subsidize history majors (like me) - We’re not developing expertise • More experts probably create more work for non-experts - Create more engineers, scientists—or just let them in. - They’ll need some team members for routine labor—until the machines are cheap enough.

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