Westborough Taxpayers Association

Princeton Professor Thinks Job Growth Needs

MORE GOVERNMENT SPENDING????

6-21-11

Hi Conservatives,

Feel free to fax Professor Blinder with your own thoughts—this guy needs a 2x4” upside the head for what he’s inflicting on students.

Len

FAX:  To ALAN S. BLINDER Fax: 609-258-5398

Princeton University, Center for Economic Policy Studies
Department of Economics
105 Fisher Hall
Princeton, NJ 08544-1021  Phone: 609-258-4023

RE:         Your Assertion That Democrat Spending Creates Jobs (Article 6-21-11 below)

Dear Professor Blinder,

What you and Paul Krugman know at Princeton just “ain’t so.” 

Your belief that Democrats know best how to spend money earned by productive citizens to create jobs has been proven wrong so many times one has to assume you don’t care to learn from history and common sense.  The fact that you cite the failed policies of Keynes in your supposed role as an academic scholar is even more depressing.  One has to assume you are poisoning your students’ “knowledge” of economics with this view as well.

You live in a capitalist society.  But, of course, from your ivory tower you are largely untouched by the reality the rest of us unwashed citizens deal with here on planet earth.

If you really aspire to give advice on job creation, let me suggest you try creating some jobs yourself (and NOT a “job” in government or one spreading falsehoods as a professor funded by government grants which we – the unwashed taxpayers – pay for.)  Try meeting a payroll, try meeting a sales quota, try running a profitable business facing the current destructive Obama regime.

My suggestion for you to start is try running the night shift at McDonalds.  My suspicion is you wouldn’t last one shift.

Regards,

Len

Len Mead

Unwashed Conservative

OPINION JUNE 21, 2011

The GOP Myth of 'Job-Killing' Spending

Drastic expenditure cuts would imperil a shaky economy that still isn't generating enough jobs.

By ALAN S. BLINDER

It was the British economist John Maynard Keynes who famously wrote that ideas, "both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else." Right now, I'm worried about the damage that might be done by one particularly wrong-headed idea: the notion that, in stark contrast to Keynes's teaching, government spending destroys jobs.

No, that's not a typo. House Speaker John Boehner and other Republicans regularly rail against "job-killing government spending." Think about that for a minute. The claim is that employment actually declines when federal spending rises. Using the same illogic, employment should soar if we made massive cuts in public spending—as some are advocating right now.

Acting on such a belief would imperil a still-shaky economy that is not generating nearly enough jobs. So let's ask: How, exactly, could more government spending "kill jobs"?

It is easy, but irrelevant, to understand how someone might object to any particular item in the federal budget—whether it is the war in Afghanistan, ethanol subsidies, Social Security benefits, or building bridges to nowhere. But even building bridges to nowhere would create jobs, not destroy them, as the congressman from nowhere knows. To be sure, that is not a valid argument for building them. Dumb public spending deserves to be rejected—but not because it kills jobs.

The generic conservative view that government is "too big" in some abstract sense leads to a strong predisposition against spending. OK. But the question remains: How can the government destroy jobs by either hiring people directly or buying things from private companies? For example, how is it that public purchases of computers destroy jobs but private purchases of computers create them?

One possible answer is that the taxes necessary to pay for the government spending destroy more jobs than the spending creates. That's a logical possibility, although it would require extremely inept choices of how to spend the money and how to raise the revenue. But tax-financed spending is not what's at issue today. The current debate is about deficit spending: raising spending without raising taxes.

A second job-destroying mechanism operates through higher interest rates. When the government borrows to finance spending, that pushes interest rates up, which dissuades some businesses from investing. Thus falling private investment destroys jobs just as rising government spending is creating them.

There are times when this "crowding-out" argument is relevant. But not today. The Federal Reserve has been holding interest rates at ultra-low levels for several years, and will continue to do so. If interest rates don't rise, you don't get crowding out.

In sum, you may view any particular public-spending program as wasteful, inefficient, leading to "big government" or objectionable on some other grounds. But if it's not financed with higher taxes, and if it doesn't drive up interest rates, it's hard to see how it can destroy jobs.

Let's try one final argument that is making the rounds today. Large deficits, it is claimed, are creating huge uncertainties (e.g., over what will eventually be done to reduce them) and those uncertainties are depressing business investment. The corollary is a variant of what my Princeton colleague Paul Krugman calls the Confidence Fairy: If you cut spending sharply, confidence will soar, spurring employment and investment.

As a matter of pure logic, that could be true. But is there evidence? Yes, clear evidence—that points in the opposite direction. Business investment in equipment and software has been booming, not sagging. Specifically, while real gross domestic product grew a paltry 2.3% over the last four quarters, business spending on equipment and software skyrocketed 14.7%. No doubt, there is lots of uncertainty. But investment is soaring anyway.

Despite all this evidence and logic, some people still claim that fiscal stimulus won't create jobs. Spending cuts, they insist, are the route to higher employment. And ideas have consequences. One possibly frightening consequence is that our limping economy might have one of its two crutches—fiscal policy—kicked out from under it in an orgy of premature expenditure cutting. Given the current jobs emergency, that would be tragic.

Yet it is undeniable that we have a tremendous long-run deficit problem to deal with—and the sooner, the better. So it appears we're caught in a dilemma: We need both more spending (or lower taxes) to create jobs and less spending (or higher taxes) to tame the deficit monster. Can we square the circle?

Actually, yes. Suppose we enacted a modest fiscal stimulus program specifically designed for maximum job creation. My personal favorite is a tax credit for firms that add to their payrolls, but there are other options. And suppose we combined that with a serious plan for reducing future deficits—and enacted the whole package now. Then we could, in a sense, have our cake and eat it, too.

A package like that is not fantasy. I believe that a bipartisan group of economists, if given the authority, free of political interference, would design some version of it. But that's not how budget decisions are, or should be, made. And as long as one political party clings to the idea that government spending kills jobs, it's hard to see how we extricate ourselves from this mess. As Keynes understood, ideas, whether right or wrong, have consequences.

Mr. Blinder, a professor of economics and public affairs at Princeton University, is a former vice chairman of the Federal Reserve. Alan S. Blinder has been on the Princeton faculty since 1971, taking time off from January 1993 through January 1996 for service in the U.S. government—first as a member of President Clinton’s original Council of Economic Advisers, and then as Vice Chairman of the Board of Governors of the Federal Reserve System.

Copyright 2011 Dow Jones & Company, Inc. All Rights Reserved

Comments (790)

(A small sampling of the reader comments hooting at Binder’s egg headed views!)

Any spending that is done comes either in the short term or the long term from the producers of this country and thus destroys jobs. Also, every dime spent on unemployment is an extra incentive to make sure the recipient continues to be idle and create no wealth. That doesn't mean no one should get unemployment, but that we should understand the direct impact that check has on a person's incentive to work.

o   Kenneth Lenz wrote:

Mr. Blinder's comments and loyalty to the failed Keynesian theory which prolonged the Great Depression (as even Lord Keynes acknowledged later in life) not only violate the academic rules of logic and critical thinking, but are also disturbing, considering that he is a former vice chairman of the institution which has destroyed most of our money's value over the past century.

His first argument is the "straw man" argument (how can hiring denote job loss?). This fails to account for new, expensive employer regulatory burdens generated by the many overpriced bureaucrats hired in the prior two years. To cover that additional cost employers who cannot raise prices in a bad economy must cut labor instead. Blinder's second argument uses factual error (government could not possibly be inept at spending, contrary to vast historical proof). Inductive fallacy uses that unsubstantiated (and factually false) premise to project an unsupportable conclusion (the stimulus was helpful, contrary to the observable harm it caused).

The next inductive argument assumes that government cannot crowd out business investment because of low interest rates. However, if nearly all available funds are absorbed by government borrowing, then no cash is available at any artificially low price. Even the Obama administration acknowledged this with its bank bailout and small business lending bills. The final argument is a questionable cause one. Because business purchased assets (another unsubstantiated premise which is not supported by observation in most communities), therefore jobs must have been created. Since jobs were lost, a more logical explanation would be that any asset purchases were used to automate jobs and/or set up infrastructure overseas at lower cost locations.

Finally, the entire opinion article is a generic fallacy, with overtones of an emotional appeal fallacy. Mr. Blinder and his fellow Princeton economists were taught that Keynes must somehow be right, in spite of almost a century of solid contrary evidence. Therefore those who do not accept this same worldview (in this case, those who reason that the stimulus failed to create jobs) should be wrong, whether they actually are or not. This is an emotional appeal fallacy. You should believe what I prefer to believe so I can like you. But the best solutions are logical and can be substantiated using a scientific approach.

It would be far more helpful to everyone if liberals would attempt to use critical thinking skills to develop a logical solution. The massive job losses since 2006 (when a Democratic Congress began to follow Keynesian ideas) plus many decades of similar results in the past show that government spending drains our economy and standard of living, as many great economists like Hayek, Rothbard, Freedman, Laffer, and others have explained in logical detail. The logical response to our current situation is to reduce the economic drag which government puts on the job-creating private sector. I agree with Mr. Blinder that we need to cut taxes. However, it is illogical to boost wasteful government spending at the cost of more private sector jobs. The logical response would be to cut government spending substantially so government is less of a barrier to private job creation and productive use of funds. Therefore it would be dangerous to accept Mr. Blinder's request that we turn over our economic future to a group of unaccountable, unelected academic economists who insist on pursuing illogical economic fallacies. As Keynes and Blinder both agree, such wrong ideas have bad consequences.

o   Ron Hansing wrote:

Is this article black comedy?
The flaw is that you can't isolate "just spending" and not correlate it with all the side effects. Simple logic.. "illogic" more like it.
Yes spending creates jobs... but the side effects outweigh those jobs created and results in overall net job reduction.
In additions, we have numerous historical examples of excess spending and job lose.
If it walks like a duck, quacks like a duck, it's not a monkey.

ron hansing