I think there is a tension between libertarianism, which assumes markets work perfectly, and some strains of capitalism that assume government intervention is necessary to help increase productivity and economic growth.
Basically, I think there are plenty of avowed capitalists that believe that there are market failures - places where government needs to get involved to help the market function. A good example of this is infrastructure. It is hard to argue that our railroads, highways and energy system didn't help feed rapid growth.
But to me the best example of a government expenditure that contributed to economic growth is public education. In fact, some academics (I can't find the studies) say that our public education is the best explanation for our amazing growth over time as compared to other countries with similar natural resource wealth.
I wonder if you can see where I am going. Right now, we have a pretty good education system. I think there is room from improvement generally, but in a lot of places we are doing a good job of educating our children.
But in some places - mostly places of high poverty - we are doing a terrible job. And I fundamentally believe we need to spend more money to see real gains. Now, most of the time we talk about the need to improve these education outcomes as a fairness issue. I agree that it is that. But I think it is also an economic growth issue.
When I think about the number of youth that are denied a decent education, I think about the waste of valuable resources. So many of those youth could develop major improvements that lead to real productivity increases and a better quality of life for everyone. It could be the next Apple or maybe just the next Canon (or anything - look around you). But we won't ever see those improvements unless we give them a real education.
I compare this to the time when women were not being educated. In that situation, you had a whole class of people that were not being allowed, simply because of their gender, to contribute to society through education and self-determination.
The same thing is happening to some of our youth. Simply because of where they are born, they are deprived of a good education and are not able to contribute to society.
I truly believe that if we significantly increased education spending in those areas, we would see a meaningful return on that investment as that many more people would be available to create the next big thing and all the rest would create lots of small things - all of which will make the economy grow and our lives better.
And more importantly, their lives will be much better as well.
Saturday, February 04, 2012
Economic Recovery?
So we got some good news on the economy Friday - we added 243,000 new jobs in January. It seems from reading most economists that unless something big happens (Euro crash, really bad fed policy / government policy), this could be the start of a decent recovery. This assumes not that job growth is consistent at this level (because if it was, it would take 7 years for us to get back to pre-recession employment) but that job growth is now accelerating.
So let's assume that the recovery has started. What does this say about our economic policy arguments? Liberals - or New Keynesians - thought that much more needed to be done to move the recovery along. We called for things like large fiscal stimulus or more aggressive and open monetary policy (more aggressive than QE1 and QE2, which themselves were somewhat aggressive).
Conservatives called for nothing. They thought stimulus would / did slow the recovery and that monetary policy would lead to runaway inflation. During my more cynical moments, I thought the Republican politicians were doing this to prolong the recession and ensure Obama would face reelection with bad jobs numbers. But during my more trusting moments, I thought the conservative economists at the least did not believe in fiscal stimulus and did not agree with the fed's dual mandate. They were unconcerned with unemployment and only concerned with inflation.
Anyway, if the recession is ending, what might we have learned? I think we can mostly agree that the bank bailouts and the first stimulus prevented a deeper recession. But recovery did not depend on further stimulus or more aggressive monetary policy. At best we could say that fiscal stimulus might have sped up the recovery. Or that austerity prolonged the recession some. But the lack of further stimulus and the actual government austerity did not prevent a recovery.
Also, we didn't need to increase inflation in order to get the recovery going. Although again, maybe even more aggressive fed policy could have sped up the recovery some.
Granted, New Keynesianism doesn't say that recovery won't happen without these things. But for months we have been calling for these things with the specter of a lost decade if we don't. And if the recovery moves along, than we won't have had a lost decade.
On the other hand, the somewhat aggressive federal reserve policies did not lead to inflation. At all. And the current policies, enacted over objections of conservative members, have likely helped the recovery.
If this is all the case, what should we do in a similar future crisis? It seems we could wait it out, and in time we could recover. Although I will say there is no guarantee. Japan had a real lost decade and I don't know enough to understand the differences between them and us.
But considering all of this, I still might favor more aggressive action. Aggressive action did not hinder the recession and might have sped it up. And in the case of Japan or a situation similar to theirs, it could avoid a lost decade whereas limited action would not.
Again, this is all resting on the assumption that the recovery has in fact started and continues to ramp up and that we will be satisfied with the pace of it. We might find out that it doesn't accelerate as quickly, in which case, maybe I am being a little too hesitant towards the more aggressive policies I have called for.
So let's assume that the recovery has started. What does this say about our economic policy arguments? Liberals - or New Keynesians - thought that much more needed to be done to move the recovery along. We called for things like large fiscal stimulus or more aggressive and open monetary policy (more aggressive than QE1 and QE2, which themselves were somewhat aggressive).
Conservatives called for nothing. They thought stimulus would / did slow the recovery and that monetary policy would lead to runaway inflation. During my more cynical moments, I thought the Republican politicians were doing this to prolong the recession and ensure Obama would face reelection with bad jobs numbers. But during my more trusting moments, I thought the conservative economists at the least did not believe in fiscal stimulus and did not agree with the fed's dual mandate. They were unconcerned with unemployment and only concerned with inflation.
Anyway, if the recession is ending, what might we have learned? I think we can mostly agree that the bank bailouts and the first stimulus prevented a deeper recession. But recovery did not depend on further stimulus or more aggressive monetary policy. At best we could say that fiscal stimulus might have sped up the recovery. Or that austerity prolonged the recession some. But the lack of further stimulus and the actual government austerity did not prevent a recovery.
Also, we didn't need to increase inflation in order to get the recovery going. Although again, maybe even more aggressive fed policy could have sped up the recovery some.
Granted, New Keynesianism doesn't say that recovery won't happen without these things. But for months we have been calling for these things with the specter of a lost decade if we don't. And if the recovery moves along, than we won't have had a lost decade.
On the other hand, the somewhat aggressive federal reserve policies did not lead to inflation. At all. And the current policies, enacted over objections of conservative members, have likely helped the recovery.
If this is all the case, what should we do in a similar future crisis? It seems we could wait it out, and in time we could recover. Although I will say there is no guarantee. Japan had a real lost decade and I don't know enough to understand the differences between them and us.
But considering all of this, I still might favor more aggressive action. Aggressive action did not hinder the recession and might have sped it up. And in the case of Japan or a situation similar to theirs, it could avoid a lost decade whereas limited action would not.
Again, this is all resting on the assumption that the recovery has in fact started and continues to ramp up and that we will be satisfied with the pace of it. We might find out that it doesn't accelerate as quickly, in which case, maybe I am being a little too hesitant towards the more aggressive policies I have called for.
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