Direct Job Creation: Why? Why Not??

Why hasn't the administration been able to do more on job creation? The constraint is in part ideological.
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A New York Times editorial today suggests that the federal government do some direct job creation to offset the weak economy.

Why don't we? Why won't we? Why didn't we do more of that in the Recovery Act?

Is it because, as a Republican mantra would have it, "the government doesn't create jobs -- only the private market can do that?"

Um... that can't be it. There are over 20 million government jobs, about 17% of the total right now. And remember a few months ago, when temporary Census-taker jobs were boosting the employment rolls? It's true we can't have a robust job market if the other 83% aren't generating jobs. But do me a favor--the next time someone touts that mantra, change the channel, stand up and shout something, or just do whatever it is you do when you hear an untruth.

Why didn't we do more of this in the Recovery Act? We actually did a number of things that are awfully close. State and local aid to states preserves public-sector jobs, and we know that many hundreds of thousands of teachers, police, firefighters and others were kept on the job thanks to the stimulus.

Also, infrastructure spending was contracted out to private firms to build roads, repair bridges, improve airports, water systems, etc. Again, not direct -- the employer was private, not the Feds -- but close.

And summer jobs programs were also part of the Act, and that's direct job creation too.

But why didn't we go further and should we do so now (in my vernacular, this is a should more than a could right now, but put that aside for a moment)?

The constraint is in part, ideological. In today's economics, direct job creation buys a bit into the thinking behind the Republican's mantra. The idea is that since government doesn't face a profit motive and is fraught with politics that are at worst corrupt, and at best, porky (as in, "I'm not thinking efficiency when I suggest we do X, I'm thinking about bringing home the bacon to my constituents, funders, etc."), it will make sloppy, inefficient choices that waste taxpayers much-needed dollars. The government sector simply doesn't face the market discipline to make good choices. It will pick losers, while the private sector will either pick winners and prosper or, if not, the market will quickly punish the privates for their bad choice.

George Miller had a bill a few years ago that got close to direct job creation--the Local Jobs for America Act -- that amplified and extended some of the Recovery Act policies noted above. I raise it because the objections to it at the time are instructive. Miller's bill would have sent well over $100 billion to local governments and non-profits to preserve public jobs and, on the non-profit side, hire people to provide public services, like training, counseling, even cleaning parks and improving local infrastructure.

But while there was some support, there were lots of concerns about local boondoggles. Recovery Act funds were under great scrutiny, and there's a valid concern that the more you unleash them without a leash, i.e., send them to others to dispurse, the more you (the Feds) are going to get whacked when some mayor uses the dough to spiff up his Friday night poker game.

Better to give folks a tax cut, this thinking goes, let them decide what to do with the money, and hope that leads to some jobs.

We did a lot that -- a third of the stimulus was tax cuts -- and the multiplier on them, especially when they go to folks who need the money (and will thus spend, not save it), is pretty high. (by the way, that's why the high-end Bush tax cuts make for lousy stimulus.)

There are also implementation constraints. Back in the New Deal era, there were fewer hoops to go through to get a big government project up and running, and considerably less scrutiny regarding environmental impact, hiring rules, and so on.

And again, do not dismiss the scrutiny factor. We were deeply committed to making sure this money wasn't wasted, and that dog never really barked for a reason... it couldn't find hardly any bones to pick. But that also meant projects had to be pretty obviously worth it (it also meant there was a tradeoff here between speed and oversight).

So is the NYT wrong?

No, I think they're right. And while I share the concerns regarding boondoggles, corruption, and the mayor's poker-game risk, I think we should try to do something in this space. If anything, I think the notion that you can only count on the indirect multipliers -- give people and firms money and hope their spending creates jobs -- is way too limiting. We should do it, but it shouldn't be the whole, or even the half, of our efforts.

I've even got a project for you: repair, insulate, and green-up the nation's public schools. The benefits range from good jobs in a sector with very high unemployment, energy savings, a great public service for one of society's key institutions, and this kind f thing has even been found to reduce racial test score gaps.

Details to follow, but read this, and tell me why this "should" shouldn't become a "could" if not a must.

This post originally appeared at Jared Bernstein's On The Economy blog.

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