I THINK IT IS MORE OR LESS BEYOND DISPUTE that the economy has been stuck in low gear for far too long. The recession officially ended in mid-2009, but the employment situation has been very slow to improve. While the official unemployment rate in January of this year was 6.6 percent (the February number is due tomorrow) the numbers don’t tell the whole story, excluding those who have given up looking for a job, those who would like a full-time job but can only find part-time work, and so on.
Another gauge of the state of the employment market is the Labor Force Participation rate — that is, the proportion of the working-age population that is actually employed. The data there are similarly grim, with the current participation rate far below historically normal levels — far below, in fact, the lows seen after previous recent recessions.
These realities paint a bleak picture of persistent slack in final demand in the economy.
I’ve pointed this out before, but given that consumer spending is far and away the largest component of demand in the economy, there are basically two ways to add demand to the economy: consumers can take on more debt, which can only go on for so long before either the credit cards are maxed out or payments on that debt start making further spending impossible; and increased spending through increased wages, which in principle — and within certain limits — is more sustainable, since there is no increase in debt.
A commonplace of political economics is that an increase in productivity (roughly speaking, the number of widgets produced by each worker) is good for the economy, because it makes it possible to increase workers’ pay without having to raise prices, which leads to more demand in the economy, which leads to more widgets being sold and thus more revenue for Consolidated Widgets Inc. In short, everyone wins.
What has happened in the last 30 years, however, is that when workers make more widgets per hour, Consolidated Widgets pays almost all of those gains to its shareholders, and ordinary workers see almost none of it.
So, if wages are not increasing, where can increased demand come from? My preferred approach would be some revival of the New Deal’s Works Progress Administration. Given the parlous state of the nation’s infrastructure — bridges, dams, canals, water mains and so on — and the large number of idle workers, it seems obvious that hiring those idle workers to fix all those broken and decaying things would be great for everyone. Workers would get jobs, their paychecks would be spent and add demand to the economy, and the rest of us wouldn’t have to be so nervous while crossing some rusty old bridge that seems to be held together with nothing more than glue, string and hope.
There are other ideas for sparking the economy. One intriguing and seemingly radical way to add demand is to give people free money — and I mean that literally.
Ryan Cooper proposed this in a recent article in the Washington Monthly, but others, including blogger and former economics professor Duncan Black, have been advocating some version of this for years. Noted economist Milton Friedman proposed it as a way of asserting that monetary policy could always resolve lack of demand, even if it took the federal reserve “dropping money from helicopters.”
Cooper describes the essence of his idea as being “Fairly simple.” “Under such a policy,” he wrote, “every U.S. citizen would receive a regular payment, in the form of, say, a check from the Internal Revenue Service. The amount of each check would change depending on the health of the economy, but it could be fairly substantial during times of economic slack. To jar us out of our current slump, for instance, I’d start with payments on the order of $2,000 per person. These checks would arrive on an as-needed basis, depending on the state of the economy. …
“(T)he idea is to address the lack of aggregate demand in the economy in the simplest, most mechanical fashion: if the economy needs more aggregate demand, you give people money to spend, since when people (especially non-rich ones) have more money, they spend more money, and therefore aggregate demand increases. People who don’t spend the money outright might choose instead to pay down debt, leaving them more willing to use credit for future spending, and people who worry that the policy will create inflation will move their money from cash and savings to spending on durable goods. …
“The Fed would then ‘pay’ for it by creating new money. That new money, by the way, would be added to the monetary base, not the deficit. While this concept gets into arcane government accounting conventions very quickly, the point is that the Fed has the power to create infinite cash. Indeed, such mass money creation is hardly new: the quantitative easing program has already been carried out in a similar way — with trillions of dollars in new money.”
Matt Talbot is a writer and poet, as well as an old Benicia hand. He works for a tech start-up in San Francisco.
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Insane Idea. Pure Socialist Liberal thinking. Remember Matt when the government gives it is almost impossible to remove the gift and go back to normal. Remember Matt the public who gets the money must now replace it with wages. You know Matt a job. Given that alternative thse reveiving will not rejoin the work force and will continue to receive. All your saying Matt is thAT
sorry, now completing comment.. All your saying Matt is the government should guarantee a wage during difficult times. Where these folks that you follow come up with these goofy econ odeas is beyound sound thinking. You just advocated a Socialist State and are apparently trrying to destroy incentive to create. Man, stuff like this drives most people crazy.
Great ideas Matt. Keep driving the idiots crazy.
Do Liberal Socialist think thAT
calling folks names get the issues a solution. As far as the person that comments and the folks that want to follow Matt could be considered in my broad way of thinking Socialist. Does 38% ring a bell Matt.. Sorry Matt the commentor is correct, keep on writing as you do. It only isolates the Liberal Socialist political views and hopes for election results. It will not happen. Clear thinking wins everytime and this thinking is not clear nor any good for this country. I guess it works in Cuba.
I agree with your Robert but not sure clear thinking wins every time. It certainly wasn’t clear thinking in 2008 and 2012 when Obama won the white house. It was the worst thing Americans did for this country. Going forward I hope you are correct in that clearer thinking will win. This socialist thinking is a definite dead end for sure.
What do you mean by “socialist”?
look it up
Obama has been the best thing this country has done in a long time. We’ve learned, it seems, not to listen to fools like you and Bob.
Define socialist, or can’t you?
If you can not figure it out it will not matter what I say. Your show curtain is down and you will not an applause.
You lose again Bob. You are getting pounded. Can’t you even use a dictionary?
More name calling by HANk. Hank if you had fallowed us the name tag you put on us would not exist. Live with 38%.
What do you mean by “socialist”? You are the one using the word, name calling with it. If you don’t like name calling then stop calling names. Fool.
Hank you know it as well as I do, it is not name calling. Just identifying your political leaning.
Can’t do it, can you? I thought as much.
Bob said: if you had fallowed us the name tag you put on us would not exist.
Bob, actually you are dealing with people who are mentally fallow, bereft of any production which could conceivably benefit mankind.
You are correct Deennis.
Ha ha ha — way to make something out of Bob’s illiteracy!
Hank i do believe you did say this comment section is difficult . I will take your answer as stated. It did take you three times to get a point across ans even then you failed.. Again hank your only defence is name calling.
I don’t need a defense. I am right and you are wrong. End of story.
We’ll see just how well the ideas line up come November. I think you will see some realignment of America that will be in direct opposition to the thoughts of the OP and the Hankster.
Keep hoping. How well will you do in state races here in California?
We already know the answer to that question but California is only a small piece of America.
No California is a very large piece of America. The largest in fact. And the only one that concerns commenters on this website.
Actually Texas and Alaska are bigger.
In geographical size. Not in population. Are you as dumb as you seem?
Certainly not but it is just fun to mess you with you because you are such a butt head!
I was thinking the exact same thing about you.
Wrong
Right
So, you agree. That’s the first intelligent comment I have seen you make here on the forum. Congratulations!
That you are a butthead? Yes I agree.
Desperate attempts. I get it. Keep trying.
Do you get it, Butthead? Do you really?
Matt stated: One intriguing and seemingly radical way to add demand is to give people free money — and I mean that literally. …to jar us out of our current slump, for instance, I’d start with payments on the order of $2,000 per person. These checks would arrive on an as-needed basis, depending on the state of the economy
Matt, you set your sites too low. Why not go for it all?
And as long as you are printing money let’s do this:
First we need to decide: How much does one need to live on to have a ‘Living income’?
Let’s put the number at $50,000 per year per person (taxes will take 30-35% of that), leaving a net disposable income of about $3,000 per month per person.
So let’s do this: give everyone in the country, with a net worth of less than $1,000,00, a lump sum payment of $850,000, (since we are printing money, this should not be that big of a deal).
We could then end: welfare payments, food stamps, unemployment insurance, college tuition loans, social security and numerous other government programs. The savings would be tremendous! We could use that money for: roads, bridges, public artwork, fast trains to Bakersfield and so much more!
If everyone takes that $850,000 and invests it (as would be required by federal mandate), with a moderate 5-6% annual gain (guaranteed by government backed institutions), each person would have $50K per year. Median family annual income today is about $50,000, so everyone benefits!!
Now, ask yourself this: If the above plan was implemented, how long would it take before we would again have a ‘wealth disparity’ such as we have today?
Reality: The money from the bottom would transfer over time into the hands of the people at the top.
Note: The above is a case of illustrating absurdity by being absurd.