When I use a word [number],’ Humpty Dumpty said, in rather a scornful tone, `it means just what I choose it to mean — neither more nor less.’ From ‘Through a Looking Glass’ by Lewis Carroll.
The endless repetition by the Obama administration about the near magical effects of the stimulus package brings to mind this passage from Lewis Carroll. Clearly, nonsensical jibberish has a long pedigree. The administration has gone to extreme lengths to justify/rationalize the stimulus package. For some inexplicable (to me, anyway) reason they have latched onto a concept they call jobs saved. Latched may be understating their devotion to it. There are two objections that come immediately to mind about it. The first is well stated by Professor Allan Meltzer of Carnegie Mellon University : “One can search economic textbooks forever without finding a concept called ‘jobs saved.’ It doesn’t exist for good reason: how can anyone know that his or her job has been saved?” Simply put, this is something the administration has created on the spot. The second objection is empirical, which is to say the evidence that has been used to support the 650,000 jobs saved figure is laughable in the extreme.
It is disgraceful that a) the administration should expect their economic advisors: Larry Summers, Christina Romer, et al. who are very good economists; to go along with this nonsense and b) that they do. One can forgive Joe Biden for mouthing it, since he has a knack for getting things wrong and being arrogant about it. (One can stomach someone who is competent for being arrogant, but incompetent and arrogant is unforgivable.)
The growth or non-loss of jobs since February has been all in the government sector. Private sector jobs have shrunk every month. The only positive thing that has been said is that the rate of loss has slowed down. Whoopee, let’s hear it for that second derivative turning in our favor!
Now the Wall Street meltdown could, in my opinion, have been mitigated with much less pain if the Geithners’ of this world would having been willing to have a big bank or other financial institution go bust on their watch. Let them go bust on Friday and on Monday they’ll open for business under a new name. Life would go on. The keys in all of this are that in the private sector there are substitutes for everything, competition would force corrective actions to take place, and this episode was of a cyclical not secular nature.
The situation is diametrically the opposite in the public sector where the bulk of the stimulus money has actually gone. In this arena the problems are of a secular nature. Time isn’t going to cure them. Four or five years ago Business Week had an article about the coming public sector pension disaster. Politicians granted pensions and other retirement benefits that far outstripped their ability to deliver. These mistakes and the bloated labor forces have become albatrosses in more than a handful of states.
This current crisis would have been the perfect time to address these problems. Instead, the Feds slipped a two-year supply of methadone to these junkies so that they could avoid making the hard decisions that need to be made. A year and a half from now the problems will be that much worse and the adjustment that much more painful. Adjustments don’t have to mean people being laid off. They do mean that when a person resigns or retires the slot is eliminated and productivity increases. It means that raises are eliminated or reduced just like in the private sector for those who are still employed. It means that defined benefit pensions are frozen as of now and all future pension accruals are in the form of defined contribution plans, just like the private sector that has to keep topping off the public sector defined benefit plans even as their own 401Ks are tanking. This all could have and should have been done if the goal is to make our economy productive and competitive again.
In New York State where I live, the governor has sounded the alarm over and over again about the catastrophe otherwise known as the state budget. The legislature, led by Sheldon Silver, act as if nothing is wrong. They are out there re-arranging the deck chairs on the Titanic. Wall Street provided something like 40% of the State’s income tax revenue. That’s history. Goldman Sachs notwithstanding Wall Street won’t be as profitable as it was for many years to come if ever. Rich people have fled the state. Only someone seriously deranged or subsidized beyond recognition would open a business or expand one in NY. Most prosperous locales are living examples of Schumpeter’s creative destruction: some businesses, the less efficient ones, close, while new ones continually open. In NY businesses close but they aren’t being replaced by new ones.
This is the cost of “saving” jobs in the public sector. It prevents new ones from be created in the private sector and, ultimately, it won’t save the public sector ones either. The politicians in the states need to be held responsible for the terrible choices they have made in the past. Letting them off the hook will only serve to make the day of reckoning more severe. How will the administration explain those losses: jobs that didn’t disappear two years earlier because we increased the Federal deficit one more time?
Posted by JIm