Thursday, June 23, 2011

More on "Job Killing" Government Spending

Andrew Samwick:
Why has the opposite view begun to take hold? In part, Samwick argued, it's thanks to the efforts of congressional Republicans, who want budget cuts and lately have hammered home the view that government spending has stymied growth. "You have the Speaker of the House talking about job-killing government spending," said Samwick, now a professor of economics at Dartmouth College. "But they have not been tasked with making clear exactly how the government is killing jobs."
If the conjecture means that employment goes up when government spending goes down, you would have to persuade me that a person is more likely to be employed if the government stops spending money to purchase things that he would make if employed.  That makes no sense.
If the conjecture means that employment goes up when there is a revenue-neutral reduction in government spending, then that could be true, depending on whether the government spending or the private spending that might occur with a lower tax burden is more labor-intensive.  But that hardly seems like the context for the question.  Alan Blinder provides a more articulate response to the conjecture in yesterday's Wall Street Journal.
I am not saying that any government spending is justified merely for the sake of employing labor and capital.  It is justified if it serves a need that society has and that the government is typically responsible for meeting.  In that case, the current economic environment is one in which the need could be met on the cheap, precisely because the costs of employing labor and capital are lower than they are likely to be in the future.  This is nothing new -- it is what I have been saying for nearly 3.5 years.
The Republican argument makes no sense, and yet, much of the country buys into it.  I don't know what they think happens to government spending, does it get put in a crate and sent to China?  If you want to look at spending that doesn't grow our economy, look at money spent on oil imports.  That money ends up in other countries and only gets recycled back through Treasury purchases.  In other words, that money goes to other countries, then returns to be used in the same government spending the Republicans say is job-killing.

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