U.S. economy

According to The Washington Post, this was the reaction of House leaders to President Obama's proposal to use tax credits to expand employment:

The administration also wants to put an additional $100 billion toward an immediate jobs bill. One of the most significant ideas would award tax credits worth as much as $5,000 per new hire to employers that expand their payrolls this year. By the administration's calculations, the tax credit would create 600,000 jobs at a cost to the government of about $33 billion.

That is my reaction as well.  If the Federal government could administer a problem this intricate, I doubt we would be in the shape we are in.  We are over two years into these discussions of stimulus and bailouts, and it is disappointing to continue to see these gimmicks being discussed.  What are we going to have next, "Cash for Coworkers?"  The basic lesson does not seem to have sunk in -- when you are relatively poor, you must be more careful with your money, not less.  You should be spending your money only on what you need and not spending it on what you don't.

Reports of strong growth in the fourth quarter of 2009 were a welcome addition to the positive growth in the prior quarter, but I remain concerned about the sustainability of that growth.  The recession took down the financially weakest firms and weakened the rest.  Without robust growth in the rest of the economy, we will see the financially weakest of the remaining firms contract as well.  My home institution of Dartmouth is a case in point. 

For those not following the local news, the College has tasked itself with trimming $100 million from its annual expenditures over a two-year window.  The number comes from the simple arithmetic of having lost a billion dollars of endowment (which, at a 5% spending rate, is $50 million) and from making a prudent decision to reduce its spending rate down by 2 percentage points to about 5% (creating the other $50 million, when applied to the remining $2.5 billion).  The College's president has stated, correctly, that this cannot happen without reductions in staffing. 

At the Economix blog on Thursday, Catherine Rampell posted a must-read analysis of the composition of the unemployed population.  But I think her conclusion is too pessimistic.  She writes:

Whatever the underlying cause, the result is disconcerting: compared with previous recessions, many more of the employment gains in this recovery will have to come from new jobs.

That is much easier said than done.

Workers whose entire occupations — not just the previous payroll positions they held — are disappearing (think: auto workers) will need to start over and find a new career path. But the new skills they will need take a long time to acquire.

Even if the employment gains in this recovery will have to come from new jobs, it is not necessarily the workers whose entire occupations are disappearing that will have to fill the new jobs in emerging fields. 

Donald Marron calls it "sobering," and James Pethokoukis gives nine reasons why it is "bad news" for Democrats.  Mark Thoma discusses the story beneath the story, which is that the decline in labor force participation kept the unemployment rate from rising despite the loss in jobs.  Menzie Chinn also discusses some subtle aspects of the report.

The Free Exchange blog at The Economist posted yesterday about "the stimulus that should have been."  The complaint -- too little infrastructure spending:

It's even more frustrating that this is so when one considers that substantial infrastructure investments will be necessary in any case, as stimulus or not. And it's outright maddening when you recall that massive economic slack and falling resource prices, thanks to the recession, would allow a given dollar of infrastructure spending to go a long way indeed.

But there was felt to be a limit to which money could be allocated to the infrastructure cause, based on shovel-readiness; if too few projects could take advantage of the available funding while the economy was still weak, then that funding would make for poor stimulus and could be better used elsewhere.

There is no use crying about it now.  After all, it's not like anyone proposed serious alternatives to firing money out of a cannon while blindfolded (a.k.a. timely, targeted, and temporary) as a way to stimulate economic activity.  Two years ago, where were the people proposing a better way to deal with downturns or a budget that plans for the future by taking such a long-term view of infrastructure investment?

So what should our elected officials do about it today?