Is it possible for the government to reduce unemployment?

By Felix Salmon
September 8, 2010
proposals were essentially ways of front-loading attempts to create long-term economic growth, and that unemployment would come down as and when that growth arrived.

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There was a reasonably interesting call today between various bloggers and Jason Furman, an economic policy wonk at the White House. The main message was that the Obama administration’s new economic-stimulus proposals were essentially ways of front-loading attempts to create long-term economic growth, and that unemployment would come down as and when that growth arrived.

I wasn’t particularly convinced. There’s a colorable case — made today by Brad DeLong — that all of these proposals, coming as they do halfway into Obama’s four-year term in office, are too little too late, compared to the messages that Larry Summers and others were sending at the beginning of 2009.

On the call, Furman valiantly tried to paint policies like cash-for-clunkers and the extension of unemployment insurance as being all about creating jobs, but the fact is that it’s hard for any government to create jobs, beyond simply hiring more people, and the effect of those policies on the unemployment rate was surely minimal at best.

Mike Konczal honed in, with his question, on one of the key vicious cycles in the economy: the high unemployment rate is making the housing market worse, and then in turn the weak housing market is exacerbating the unemployment rate, by making it much harder for people to move to where the jobs are.

Furman waffled a bit, saying that while a couple of years ago it was the housing market which was instrumental in causing the broader economic crisis, now the “direction of causation” is in many cases the other way around, with the weak economy hurting the housing market. Well, yes. But that doesn’t really say much about jobs.

So I asked him again, about jobs in particular, and Furman started talking about the drivers of economic recovery, and how this time around it’s not going to be housing. He did eventually manage to bring jobs in, saying that the infrastructure bill and the R&D credit and the small business bill “taken together would have a meaningful impact on unemployment today”.

But they wouldn’t, would they. Of the three, only the small business bill looks like it’s really targeted at creating jobs, as opposed to stimulating the economy more broadly and hoping that somehow higher GDP is going to feed through into lower unemployment. But the unemployment problem is tough, and sticky, and I’d much rather see proposals really aimed at tackling it head-on, rather than just trying to get there through big-picture macroeconomic effects. Make it easy for people to move out of their underwater houses, for instance.

On the other hand, maybe what we’re seeing here is a White House economic team which is fully cognizant of what government economic policy can and can’t achieve. And while keeping the economy from slipping back into recession is something doable, bringing unemployment back down, even to where it was when Obama first took office, isn’t. They’re not going to admit that in public, but neither are they going to expend too much effort tilting at windmills.

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