Silly Job Narratives

Wisconsin had robust job growth in the first six months of last year and suffered a decline in jobs during the last six months. The net has been an increases in both private (13500) and total nonfarm (3200) employment during 2011. Compared to a total work force of 2.74 million in the state, it's safe to say that employment has remained flat.

So what do we make of this?

Partisans on the left want to say that Scott Walker's budget is to blame for the decline in employment over the past six months. This argument will become increasingly important to them as it becomes clear that their earlier claims that the Walker budget would devastate public services turn out to be hysterical.The argument is that it "sucks demand" out of the economy. 

If you give this claim more than superficial attention, it proves too much, doesn't it. It suggests that government creates demand that would otherwise not exist by spending money. How can that be?

In the national context, classic Keynesian stimulus has said that we can "inject" money into the economy by borrowing it during recessionary periods. Whatever the merits of this, the analysis is different on the state level. The state can't borrow money to finance current operations so it's choices are limited to shifting money from the pockets of taxpayers to the recipients of government spending. It can neither inject money into or "suck it out of" the economy. All it can do is move money from one pocket to another. (This criticism is not entirely inapt to national economic policy as well but it's not as simple.)

So, for Walker's budget to be blamed for sluggish job growth, the argument has to be that the money will be more productively spent by those to whom the government will give it than by the taxpayers, e.g., that it is better to let public employees pay little or nothing for their health insurance than it is for homeowners to pay lower property taxes.

If Democrats want to make that argument to recall Scott Walker then God bless them.

Of course the fact that this claim would be a political nonstarter doesn't disprove it. Maybe its true but it's not self evident. The job numbers don't prove it because there are far more substantial items affecting the state's economy than the state budget and the impact on the recipients of state funds and the taxpayers may be timed differently, i.e., state workers see an immediate reduction in take home pay but taxpayers don't see lower property tax bills until December. It is also not clear that the most productive uses of funds will have an impact at the same time as less productive uses. If, for example, it is better to encourage investment than current consumption, the benefits may take longer to realize. We may have to accept a sluggish short term for a more robust long term. (This is one of the criticisms of the argument that "austerity"doesn't work. It might well work depending on how it is executed.)

My own sense - formed after years as both a Democrat (I was once chair of the North Shore Democrats) and a Republican is that our expectation that the government can "create" jobs or fine tune the economy are overstated. Neither the President nor the Governor sits in the basement mouse clicking and turning dials to run the economy. We should assess public policy more modestly and ask whether it has or has not provided a needed public service at the lowest possible cost. If a train makes sense, build it. If schools are underfunded, increase their funding. But do neither of these things because we think that spending the money will create jobs without regard to whether the expenditures make sense, i.e., are superior uses of the money.

On that basis, the Walker reforms look pretty good.