Why is America So Bad at Job Stimulus?

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What do the Economist, the Washington Post and Paul Krugman have in common? They all think Congress and the White House are doing a bad job combating joblessness. They say that instead of direct subsidies to employers and big public works projects, the government is relying on indirect infrastructure spending and the extension of meager unemployment benefits. What more could they do? Let's consider.


Here's the Economist on how to Europe-ize our job strategy:

Europe's policymakers, in contrast, appear to have a more coherent strategy: one which uses government money to subsidise a shortened work week, cuts labour costs and, in a few cases, offers tax subsidies to support new jobs. The OECD says 22 out of 29 of its member countries have extended support for workers on furlough, and 16 have cut payroll taxes and other social contributions. The countries doing these sorts of things are disproportionately in continental Europe (see article).

And Krugman on a Works Progress Administration for the 21st century:

You can make a pretty good case that just employing a lot of people directly would be a lot more cost-effective; the WPA and CCC cost surprisingly little given the number of people put to work. Think of it as the stimulus equivalent of getting the middlemen out of the student loan program.

And WaPo's Alec MacGillis on combining tax credits with direct job creation:

The liberal Economic Policy Institute has drafted a plan that, along with a new business tax credit for hiring that the White House is already considering, includes a pure public jobs proposal: giving money to states and cities to hire people to paint schools, board up vacant homes, staff child-care centers and reopen library branches. Workers would be paid the market wage. It would cost $35 billion for a year, not much more than the combined price tag for the homebuyers' tax credit and the $250 checks that Obama has proposed sending to Social Security recipients.

Of course these policies ideas, like all policies ideas, have their skeptics. Some Americans are afraid that European strategies will ossify a lazy workforce that depends on shorter government-subsidized weeks. Zubin Jelveh says public work projects could similarly provide either limited short-term relief (and we would dump the workers when the project ended) or hurt their chances to hop back into the private sector when the recession picked up. MacGillis points out in his article that many states simply don't have enough "shovel-ready" public projects to justify a large scale reinvention of the WPA.

My takeway: Unemployment is both an economic problem (you can't have a consumer-driven recovery when 20 percent is under/unemployed) and a political problem, but the government's response must go through the political grinder. I don't see the political will to pass another large stimulus full of direct infrastructure and public work spending. Moreover, I think that the failure of the first stimulus to control joblessness hurts the case for direct stimulus spending as a job-creator. On the other hand, even think-tank conservatives agree that a payroll tax holiday -- even one that's capped on the first $20,000 of income -- could free up money for employers to spend on employees and employees to spend on goods. A new bill built around a payroll tax holiday and sprinkled with targeted spending on a handful of public work projects in states with high unemployment would be a good policy that even fiscally conservative politicians could swallow.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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