Home > Business, Economics > Jones/Rothschild: ARRA and Unemployment

Jones/Rothschild: ARRA and Unemployment

Here is the blogfather Tyler Cowen and here is Kevin Drum, both commenting on this paper by Garett Jones & Daniel Rothschild (and this paper as well). All are interesting and easy reads.

First of all, this is an excellent example of drawing two different conclusions from the same data. Cowen leans libertarian, hence his skepticism towards the stimulus, whereas Drum writes for Mother Jones, so he is more of an optimist.

Both guys have excellent points, and I guess the feelings you have about whether the stimulus “worked” or not have a lot to do with where you set the goal post. The way that the numbers sound to me, I have to say that I was a little underwhelmed (only 42% of the job offers created went to people who were unemployed, and it is ambiguous how much of the ARRA funds went towards payrolls instead of purchasing capital, retiring debt, or saving for a rainy day). Of the already employed people who found a new job thanks to ARRA, did the jobs they leave disappear, or did it lead to extra hiring to fill those spots (hiring that is not included in the analysis)?

I do not think that this is evidence against stimulus, but I do see it as evidence for smarter stimulus. I also see it as evidence for more stimulus, regardless of how smart it is. The stated intention of the stimulus was to save and create jobs. If only a fraction of the money spent did this, I say we should be more careful in how it is spent. Then again, the stimulus is working (however half-assedly), and this study should be enough evidence to shut up a lot of the Republican supply-siders who say stimulus is inherently useless (sadly, it will not be enough to shut them up).

This could just be my bias from reading Cowen’s blog, but I tend to think that structural changes within the US and the globalization of the labor market mean that higher unemployment is here to stay, given the current lack of any political solutions in the pipeline. If it is true that no jobs are truly shovel ready, and that labor market polarization has made obsolete or unnecessary the old jobs of the unemployed, is it worth it to reemploy these people using political measures (aka stimulus)? I don’t think that throwing money haphazardly at the private sector is the most efficient way to alleviate unemployment. How about a national strategy to address the foundational problems in our economy? The manufacturing jobs don’t seem to be coming back anytime soon, maybe we should start a trillion dollar project for clean, renewable energy, and train the unemployed for jobs in this sector of the economy. Not only does this help employment, it also gives us an energy policy that is more than just foreign policy, and I think that is the kind of investment that will generate high returns for decades to come.

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Categories: Business, Economics
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