Economic ignorance is widespread in the United States. People think they know something about the subject, but few do. My mother is convinced that China is the cause of all our economic problems. When I challenge her, she doesn’t think it matters that I have spent forty years studying and teaching the dismal science. If Lou Dobbs says it’s so, it must be true. I once taught classes for automobile workers who were employed at a General Motors plant near Pittsburgh. A man insisted that recessions were caused by the media. Newspapers and television were apparently so pessimistic and intent on presenting only bad news that the public became too demoralized to spend money. It never occurred to him to ask why the media, which depend on us spending money for their existence, would want this to happen.
Had my UAW student argued that the media were a constant source of economic misinformation, he would have been on to something. Every day I watch that talking heads on television and read the columnists in our newspapers and I marvel at the stupidity that passes for wisdom. Dick Morris, the prostitute-loving former presidential advisor and current Fox News savant, sagely advised nearly every night during the Obama-McCain campaign that economic recovery would not be possible unless the capital gains tax was eliminated. There is no evidence remotely consistent with this view, but analysis seems irrelevant to Morris and his Fox friends. To any suggestion that it might be necessary for the federal government to temporarily nationalize some troubled banks, most of which are now insolvent, Fox’s wise men and women screamed “socialism.” Never mind that this would be socialism for the rich, with the wealthy reaping the rewards of a boom but the public pays for the losses in the downturn. Their answer is always that markets will regulate themselves, though there is even less evidence that this ever happens. They also say that during a recession, taxes should never be increased. But if the taxes are levied on the highest incomes, the recipients of these incomes can pay them without reducing their spending at all. That is, they can pay the taxes out of their savings, money they wouldn’t have spent anyway. Then if the government uses the taxes paid out of money that wouldn’t have been spent in the first place to do things like build public transit systems or housing for the poor, total spending, output, and employment will all rise.
“Well,” you say, “That’s Fox.” Let’s hit the remote and tune into CNN. You might catch the demagogue Lou Dobbs blaming immigrants, again without proof, for all our economic woes. If you are really lucky, you’ll see newscaster Wolf Blitzer. Here is a man with an empty head.
A few weeks ago, I saw something on his show that amazed even me. He was interviewing Michael Steele, who had just become the first black person to be selected to chair the Republican National Committee. Steele was a constant presence on Fox News during the recent presidential campaign, and like almost all Fox commentators, he said plenty of stupid things. Not as many as Sean Hannity or Ann Coulter. But no one would mistake Steel for a bright guy.
The topic of the exchange between Steele and Blitzer was the economic stimulus package proposed by the Obama administration. The U.S. economy is in the midst of its worst crisis since the Great Depression. Legendary Wall Street investment banks have failed, as have scores of commercial banks. Millions of homeowners have been either foreclosed or are expecting to be soon. Credit is frozen, as lenders don’t trust that borrowers will pay them back and borrowers are so strapped with debt that they cannot take on new loans. The unemployment rate is at 7.6 percent and heading toward double digits. This translates into 11.6 million people, and these do not include the 7.6 million people who want full-time work but can only get part-time jobs and the 734,000 workers too demoralized by the lack of employment opportunities to look for work. If these two groups were counted as suffering labor market distress the same as the officially unemployed, the unemployment rate would be 13.1 percent. State governments across the country are facing serious tax revenue shortfalls and have or will cut their spending, which will cause spending, output, and employment to fall, and exacerbate the crisis. Economic misery has spread to every corner of the globe, and this means that U.S. exports, until recently the one bright spot in our economy, have started falling and will continue to do so, increasing unemployment still further. There is not a hopeful sign on the horizon. Not one. Over the past year or so, the Federal Reserve and the Treasury have pumped a couple trillion dollars into the financial system with little result. The Fed has pushed its target interest rates to near zero without getting banks to lend or businesses to borrow.
Many mainstream economists, including Joseph Stiglitz and Paul Krugman, have concluded that only direct and massive fiscal stimulus, in the form of federal government spending can plug the hole in spending now plaguing the economy. Obama’s economic team proposed a trillion dollar stimulus plan, since enacted into law, albeit with too many tax breaks for business and not large enough to compensate for the enormous drop in private sector spending. Included in the legislation is aid to state and local governments, which will help them to maintain employment and social services in the face of declining tax revenues. Monies are provided for the unemployed, as well as for infrastructure spending. Our roads, bridges, ports, sewage systems, schools, hospitals, communications and energy networks, and public transit systems are all in need of repair, upgrade, and expansion. Federal spending on these, especially those that are already in the planning pipeline, will have a dramatic impact on spending and employment.
When Blitzer interviewed Steele, the plan had yet to be voted on by Congress. I paraphrase but Steele said this about it: “The government has never created a single job.” I did a double take. What??? Not one job? So the $787 billion dollars the Congress had just approved won’t put anyone to work? It is bad enough that monetary policy hasn’t worked. Now fiscal policy won’t do the trick either, according to Mr. Steele. Oh my, we are really in a bad way.
But wait a minute. Do you know a police officer? A firefighter? A public school teacher? A secretary at the local college? An air traffic controller? A career military officer? A clerk at the state liquor store? A janitor in a federal office building? A mail carrier? Do you have a son or daughter on duty in Iraq? All of these are public employees, hired directly by local, state, or federal government. The Bureau of Labor Statistics (BLS) collects employment data every month in a survey of hundreds of thousands of private and public establishments. The BLS produces among the best labor market statistics in the world. It is a creation of the government, and all of its workers are public employees. For January 2009, the BLS estimated that there were 134,580,000 non-farm employees in the United States. Of these, 22,539,000 were public employees, 16.7 percent of all employment, divided as follows:
Federal government employees: 2,792,000
State government employees: 5,187,000
Local government employees: 14,560,000
I hate to tell Mr. Steele, but every one of these jobs was created by the government. And this does not tell the whole story. For three decades, governments have been busy privatizing, that is, contracting out public services to private businesses. Everything from local transit services to prisons to college food services to security forces in Iraq. The workers are private employees, but they are paid from public funds. What is more, all of these workers, direct and indirect public employees, spend their paychecks every month and this spending generates a lot more employment. These wages amount to at least 1.5 trillion dollars, which will support plenty of spending on outputs that someone has to produce.
When the Obama plan is implemented, it probably will not end our current economic crisis. But one thing is certain: the money spent will cause employment to rise. The government will create jobs, just as it has always done.
We could put Steele’s statement to a test. If we put the most charitable light on what he said, perhaps he meant that public employment always “crowds out” private employment. A public worker just replaces a private one but doesn’t add anything to total employment. This is an argument conservative economists have used to say that public investment just takes the place of private investment, which would have occurred but for the public spending.
Therefore, if Steel is right, we could eliminate every single government job and employment would not fall at all, because private employment would rise by he same amount that public employment fell. To put it so baldly tells us just how preposterous Steele’s remark was. What mechanisms would cause the private sector’s demand for labor to rise by more than 20,000,000 persons? Would falling wages from all the new unemployed scrambling for and willing to labor for next to nothing do the trick? How could it when the massive public layoffs would cause the demand for private sector goods and services to drop drastically? Employers don’t hire when demand for what they make collapses. Steele and his fellow nitwits think that what another nitwit, Ronald Reagan, called the “magic of the marketplace” will somehow right our economic ship. This is not only a foolish idea. It is a dangerous one.
After Steele made his statement, Wolf Blitzer had a golden opportunity to challenge it and educate his audience. Instead he said nothing. He just moved on to his next question. It was as stunning example of the depths to which journalism has sunk as you’ll ever see. That a jackass like Wolf Blitzer has a prime spot on a major news outlet anddraws a very large paycheck every month is enough to make me sick. I hope it makes you sick too.
Addendum: I just watched Louisiana governor Bobby Jindal (he calls himself Bobby after a character on the Brady Bunch) give the Republican response to President Obama’s speech to Congress. If Steele is a nitwit and Blitzer a jackass, Jindal is a dolt.