Let's put this gently: economist Kevin Hassett is no Keynesian.
Hassett, the director of economic-policy studies at the American Enterprise Institute and an economic adviser to Sen. John McCain, recent attacked President Obama's economic plan as "voodoo economics," claiming "the biggest Keynesian stimulus in U.S. history was a bust."
But when I got him on the phone to talk about the unemployment crisis, he struck a different tone. His problem with the stimulus wasn't that government spending inherently fails to grow jobs and the economy. The problem, he said, was that Obama's stimulus was not direct enough.
With the Recovery Act, the White House eschewed direct hiring and aimed instead to raise overall economic output in the hope that more activity would lead to more demand, which would lead to more hires. "Look at the stimulus and the number of jobs we've actually created, and it comes out to a couple million bucks per job created," Hassett told me.
"My idea is simpler. Find the unemployed and hire them."
If the government had spent the stimulus hiring people directly, we could have supported 23 million jobs, Hassett claimed. Hiring millions of unemployed workers directly into government organizations that already exist -- such as the military and the Army Corps of Engineers -- would be a much more efficient use of government funds.
Hassett defended direct government hiring, which the federal government used en masse during the Great Depression, in a conversation about the nature of our unemployment crisis. There is an ongoing debate about whether 17 percent broad unemployment figure is the result of a "cyclical" challenge, due to temporarily weak demand, or a "structural" crisis, due to a fundamental mismatch of workers' skills and employers' needs.
Hassett said the answer was more nuanced than picking one adjective over another. Nearly 7 million Americans have been unemployed for more than six months. Long-term unemployment erodes skills and brands the jobless with a scarlet letter: A for Atrophy.
"Employers don't want to take a chance on some guy without a job for two years," he said. "The cycle is so long and deep that the cyclical becomes the structural." The easiest way for the government to end somebody's jobless spell is, very simply, to end it by straight-up hiring the worker.
"Since the economy has created this class of long-term jobless, the arguments for government hiring become stronger," he said. "If you give the person a job for a while, it helps them get a job later. You remove the stigma."
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