Tuesday, August 31, 2010

Not ALL Economists Agree

A headline from yesterday's USA Today boasts that "Economists Agree: Stimulus Created Nearly 3 Million Jobs (HT: Jeff Tucker). Citing economists such as Mark Zandi, chief economist at Moody's Analytics, Alan Blinder, and Christian Romer, the story's main point is that "the consensus among economists is that the stimulus worked in staving off a rerun of the 1930s."  It also notes that "conomists at Goldman Sachs, IHS Global Insight, JPMorgan Chase and Macroeconomic Advisers. . .say the stimulus boosted gross domestic product by 2.1% to 2.7%."

Well all economists do not agree. I don't, but no one asked me. Here again we have evidence of the bad economic consequences of confusing GDP with our economy. As I've said before
Was the increase in GDP during 2009 and early 2010 really indicative of economic progress? If so, why was it dependent on government subsidies? Perhaps the increase in GDP is merely indicative of an increase in government spending.
It is not hard for the government to "create jobs." All it needs to do is spend a lot of money to hire them as bureaucrats of give someone else a lot of money with the understanding that they will hire them. As I've noted before, however, this begs two very important questions:
  1. How do we know the jobs are productive or ultimately a waste of scarce factors of production and time?
  2. What about the jobs lost because of capital consumed as a result of the stimulus?
These questions are rarely asked by such studies, because, while it is easy to count government created jobs, it is much more difficult to account for jobs lost or not created because of capital consumption. It is hard to count them because many of them never existed and other lost jobs are easily written off merely as casualties of the recession.

Expansionist monetary and fiscal policy do not contribute to prosperity, because neither creates the saving and investment in capital accumulation necessary for real economic expansion. Neither do they aid entrepreneurial activity or foster the development of the market division of labor. By thwarting these engines of prosperity, interventionist macroeconomic policy hampers real recovery and at best, provides us with prettier GDP numbers even while a plethora of people remained unemployed.

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