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Sunday, September 19, 2010

What Should Have Been Done

My last post was rather bleak.  It paints a picture of our economy that is structurally problematic.  But that doesn't mean government has tools to reduce the structural unemployment problem.  

Monetary policy won't do. Monetary policy has done much to help stabilize the financial sector but it will do nothing substantial to reduce our structural unemployment issues.  

The fiscal stimulus was poorly designed - it's been too bureaucratic, slow, bloated, and not targeted to the problem at hand.  Demand stimulus old-Keyenesian style throws a lot of money at various sectors in the economy that have been previously known to add employment with the increased spending.   As such, much of the stimulus was aimed at a hodge-podge of things: infrastructure, health care, education, tax cuts, unemployment benefits, etc.   IE-the goal was to increase spending and not employment - with the idea that the employment would follow.  And I admit, at the time, I even bought in to this old line a little - I was hopeful.  I was also a sucker.  I'm not anymore. Surely, the stimulus helped a little, but to me the negatives of waste outweigh the nominal employment retention benefits. 

What we should have done with that money is spent the bulk of it on one thing: retooling the workforce.  We should have spent billions on new teachers, temporary work transition programs, partnered with our academic institutions and funded them new monies to create new transitional jobs programs.   That not only would reduce our structural unemployment problem - by speeding up the retooling of our workforce, but it would also invest in the skills of Americans - benefiting the long-run private sector.   Ironically, we instead threw billions out the window while our States' budgets faltered.  As State budgets fail, so do education institutions that receive State funding.

10 comments:

Anonymous said...

So what you are saying is that the unemployment problem is largely structural? I must say, I don't agree. Consider the disinflation we've been having, I'd say aggregate demand is very very low. Which would be consistent with high cyclical unemployment.

Ben

Rdan said...

Hi Garth:

Another question needs answering is what is the re-training to include, or new jobs, given a general depressed number in sectors overall??

And where is the mismatch in skills? Or is it that the capacity of growth and innovation of many sectors dimished overall?

Dan

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