The worst is yet to come

See:  The worst is yet to come

I agree with Noriel Roubini that the worst is yet to come, but even Roubini falls prey to the figment that a fiscal stimulus involving “shovel-ready” infrastructure spending “creates jobs”:

There's really just one hope for our leaders to turn things around: a bold prescription that increases the fiscal stimulus with another round of labor-intensive, shovel-ready infrastructure projects, helps fiscally strapped state and local governments and provides a temporary tax credit to the private sector to hire more workers. Helping the unemployed just by extending unemployment benefits is necessary not sufficient; it leads to persistent unemployment rather than job creation.

In the past, I have also recommended infrastructure spending or workfare instead of just a livable poverty-level dole.  But upon reflection, and watching the way our government malfunctions, I have become more conservative.  I don’t trust the government to spend my money on anything other than humanitarian aid for my fellow citizens.  And “extending unemployment benefits” is not an adequate answer to the abject lives that Americans confront when they become unemployed long-term (most Americans don’t even qualify for unemployment benefits, to begin with). 

I don’t know any other commentator who is singing my song, which is that the current collapse of effective demand is a distributional problem, to solve which quantitative easing and fiscal stimulus are a fool’s tools.  If the problem is distributional, the solution needs to be as well.

Provide spending power to the disenfranchised and let the system self-organize.  That’s the one thing markets do well.  I never bought John Stuart Mill’s argument that redistributional strategies always ultimately fail.  As I recall it was tied up with that marginal productivity fairy tale.  The rich in America have done very well redistributing income and wealth in their own direction via manipulation of corporate compensation and personal taxes.

The more that government is involved in job creation, the more worthless the resulting jobs will be, generally.  Otherwise, I don’t object to workfare in principle, I just think it will be botched and disagreements (pork-squabbling) over what jobs to create will be used as an excuse for delaying direct humanitarian aid.  People on a livable dole can engage in search for jobs that use their actual skills, rather than just blistering their hands with a shovel.  Or they can engage in training for real jobs.  Government jobs create vast Sargasso Seas of waste in the economy that tend never to go away.

Tax credits for hiring new workers, or as Yves referenced recently, mandatory short work hours per the German solution make a lot of sense (although they don’t have a prayer of being tried here). 

But there will be no excuse for letting our fellow Americans fall into a life on the streets when the next collapse occurs.