Friday, September 9, 2011

The Government Is Us

By Lewis Sage


In the past week or so, we’ve been treated to a lot of public analysis of the President’s jobs plan – what might be in it, what should be in it, when it might be presented, what the timing of its presentation might mean, why the words “infrastructure” and “stimulus” were absent from the speech, what this all portends, etc. ad nauseam.  In the end, the plan is a fairly predictable 60-40 mix of short-term temporary tax cuts and expenditure increases coupled with a combination of long-run tax increases and spending cuts.  It’s a recipe for stimulus now, when we need it, and fiscal restraint later, when we can afford it.
But that’s not what I want to get at today.  Instead, I want to examine two simple statements about job creation that I heard this week, the first from one of my Economics Principles students, the second from a caller on a radio talk show.  Student first.
Toward the end of a brisk discussion sparked by the NYT Op-Ed essays How to Bring the Jobs Back (09/07/11), the talk turned to various tax incentives for employers to hire more employees.  At that moment, a student with some real world entrepreneurial experience, speaking from the employer’s perspective, said, “I don’t care if I get a 70% tax cut; I’m not hiring until I see my demand go up,” or words to that exact effect.  But product demand only increases when we spend more.  And most of us only spend more when our incomes rise and we are reasonably confident that they won’t recede like the falling tide.  And our incomes come from our jobs… and we’re back to that pithy statement, “I’m not hiring until I see my demand go up.” That’s the real point, isn’t it?  We can’t make it better until we make it better. 
The government does not exist to do things for us.  The government is an instrument through which we can do for ourselves.  That’s not just a semantic difference.  We can use the fiscal authority of government as part of the repair process, but so long as we see ourselves as supplicants rather than responsible participants, we will continue to blame the President, Congress, the state legislature, the town council, … and the recovery will be doomed to limp along.
The radio listener, no doubt responding to current talk of further “quantitative easing” by the Federal Reserve, suggested that, rather than buying bonds, the Fed should consider spending on jobs.  Maybe I misheard: I was on the turnpike and my hearing isn’t as good as all that.  For the sake of argument, let’s say I got it right.  The caller seemed to want to divert money from the (undeserving?) financial sector to task of putting Americans back to work.  Ignoring any pedantic discussion of what the Federal Reserve is legally allowed to do, there’s a serious problem here.
The Federal Reserve is, ultimately, our central bank.  When it undertakes quantitative easing, it’s increasing our money supply, driving the interest rate down, and lowering our federal government’s cost of borrowing.  That allows us (as the government) to spend more on jobs and less on interest payments.  Recovery is not a competitive sport.  It's a cooperative effort.



Dr. Lewis C. Sage likes intersections. Since 1991, he has taught Law and Economics, Mathematical Economics, and the Economics of Healthcare. A former Fulbright Fellow (Bulgaria 1995-6), he teaches an interdisciplinary Honors seminar, Enduring Questions, and is studying strategy in the NFL draft with faculty and students in Sports Management and Psychology. E-mail: lsage@bw.edu

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This blog lives under the auspices of the Department of Economics whose mission has been to hold high the lantern beaming an "economic way of thinking" onto the world. Selfishness, rationality and equilibrium have been central to the teaching of an economic way of thinking rooted in the Renaissance. And, in this regard, the department has faithfully stayed the course. The intent of this blog, thinking out loud..., however, is to entertain exchanges which may challenge the centrality of economics as we teach it.