Why America won’t pay for more stimulus

This morning’s jobs report revealed that 79,000 net new jobs were created in the country in May, nearly 50 percent below the consensus forecast of 150,000. Almost immediately following the release, there were loud and insistent calls for another round of monetary and fiscal stimulus. “Job growth stumbles again, raising pressure on Fed,” the Reuters headline ran. My fellow Reuters blogger Felix Salmon called for immediate federal stimulus funded by more debt issuance. Felix’s rationale, like many others’, is that with U.S. borrowing costs so low, stimulating current economic activity is a higher priority than worrying about paying down the debt in the future. Or to put it differently, a little more debt is preferable to enduring the economic pain of the economy rightsizing itself.

However, economic weakness is concentrated in just a few regions, and the solutions that many are pushing for – additional fiscal stimulus from Congress or further monetary easing from the Fed – are too diffuse to make much of a difference or require a national constituency that is unlikely to materialize. Unemployment fell in 37 states in April, but in California, Rhode Island and Nevada, there are still massive employment problems. The National Conference of State Legislatures reports (emphasis mine):

Unemployment rates were down in 37 states, the District of Columbia, and Puerto Rico in April 2012. Only five states saw unemployment rise and eight states had no change for the month, according to figures released by the Bureau of Labor Statistics on May 18, 2012.

Compared to a year ago, unemployment has decreased in 48 states, D.C., and Puerto Rico. Nationally, the unemployment rate has dropped nearly a full percentage point over the last year.

Nevada continued to lead the states with the highest unemployment rate, at 11.7%, but that is down from 12.5% in April 2011. Rhode Island had the second highest unemployment rates, at 11.2%, with California coming in third, with 10.9% unemployment.

Does higher education spending spur growth?

Conventional wisdom says that to boost economic growth, the nation needs more workers who are highly educated. A 2011 study from Georgetown University’s Center on Education and the Workforce stated:

Over the past century, economic growth in the United States has been tied to technological change. First, it was the assembly line machines of the manufacturing age, and now it is computers and the Internet that have revolutionized skill needs in the workforce. America’s relentless engine of technological development, fueled by increasingly fierce global competition, has required an ever-growing pool of workers savvy enough to integrate these sophisticated new tools into their work routines. The growing need for technical sophistication has been coupled with a reduced need, often the result of automation, for unskilled labor. As an outcome of these technological changes, there has been a persistent and ongoing demand for more postsecondary education and training.

Many studies have proved that higher levels of education lead to higher incomes for workers. But I wonder if any studies have been done that prove economies grow more rapidly when more government resources are spent on education. As a quick check I mashed up data for the percentage of state budgets that are spent on higher education versus the growth of the state economies. There really doesn’t seem to be a direct correlation.

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