I understand that the following might not be exactly in tune with President Obama's desire for increased civility in Washington, but then I'm not in Washington.
It would appear, based on news reports, that House Minority Whip Eric Cantor is objecting to part of the economic stimulus plan for a reason that strikes me as a bit odd:
Cantor said Republicans worry that much of the plan that Democrats are pushing "does not stimulate the economy." He singled out a provision for weatherizing poor people's homes, causing it a worthy goal but saying it does nothing to create new jobs.
That's right. According to the Distinguished Gentleman from Virginia, weatherizing buildings creates no jobs. This is something that I did not know, and I thank the Congressman for correcting my misperceptions. Up until today, I thought of weatherizing as a job that is typically carried out by people who are - what's the word - paid to do the work involved in installing things like insulation and double-paned windows in older buildings that lack such features.
It turns out that this isn't the case. Apparently, weatherizing is something that happens by magic. Or maybe the pink foam faeries take care of things if you burn cash in tribute to them. Or we're inventing a species of bio-engineered anti-termites that fill holes instead of making them.
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You mean those were robots who came to my house to blow the insulation in?? Wow.
Our technology is much more advanced that I realized.
And my electric company says demand for those home energy audits and the follow-up treatments are way up since I did mine.
And all androids. Who knew?
Androids! I can't believe I left androids off the list of non-job creating weatherizers. And they're so much more parsimonious an explanation than magic.
But I still think it's the pink foam faeries.
The poor would see lower energy bulls, more comfort at home, and less frequent and less severe colds, none of which stimulates the economy. If we want to build energy demand, build demand for more blankets, and make the poor sicker, we should pay people to run around breaking their windows.
Um, yes - people are paid to do that. That being said, how does it create jobs? The people currently being paid to do that will just be paid by the federal government to do it. It doesn't incentivize job growth.
I suppose that spending $44 million on repairing the USDA headquarters creates jobs? Spending $600 million on cars for the federal government creates jobs? The bill is a joke.
Nope, has to be magic, someone would have to make the androids. On the other hand, we could put the big 3 to work doing something more useful.
The repairs are of course performed by androids (as pointed out above) and the cars are also built by androids. So it creates jobs on Altair b where the androids are built (the real reason the government lies to us about UFOs is that they don't want us to know where our jobs are really going ...)
To be fair, it's not really sustainable job growth, which may be what he was talking about. It's absurd to say there's no stimulative effect, but there's clearly a difference between creating temporary construction related jobs and longer term jobs through, for instance, research investment.
I think I see Cantor's logic. If you weatherproof the houses of the poor, they get sick less often. This increases productivity, so fewer people are needed to do the same job, thus cancelling out the gains made in the size of the insulation industry.
Probably.
Of course it'll create new jobs, because the general contractors who would be doing this, are some of the folks hit hardest by the double-whammy of the Real Estate and credit collapses. Even if the work is only temporary, it could keep a number of contractors employed until the economy recovers enough for contracting jobs to be in demand, and shift money being used to heat/cool homes back into the general economy.
When you compare that to unemployment, it's a bargain. Unemployment wages means no work gets done, and less money goes back into the rest of the economy.
Well, in my case cozy living and money-saving created additional demand. I blogged about the process and the money savings. I got on local TV. My electric company told me that demand skyrocketed for this service once people understood it. I know (because people told me in person) that they got their homes insulated because I had demonstrated how it works and what the benefits were. I know that it had downstream consequences as people in their circles did it too (again, I have this data). I continue to save 20-25% on my power bills. And I know other people have too.
And there were at least 6 people in my house involved in this process--from the electric company guy to the energy auditor to the project manager to the guys who drilled holes and put in the insulation. I know that they don't have enough people to keep up with the demand now.
I don't understand why people think this is make-work. There are a lot of buildings in the US that need this. And a lot of warmer families today--who are saving money that can be spent in other areas.
In defense of Cantor, he's really talking about the multiplier effect of money.
http://www.investopedia.com/terms/m/multipliereffect.asp
" If, for example, the reserve requirement is 20%, for every $100 a customer deposits into a bank, $20 must be kept in reserve. However, the remaining $80 can be loaned out to other bank customers. This $80 is then deposited by these customers into another bank, which in turn must also keep 20%, or $16, in reserve but can lend out the remaining $64. This cycle continues - as more people deposit money and more banks continue lending it - until finally the $100 initially deposited creates a total of $500 ($100 / 0.2) in deposits. This creation of deposits is the multiplier effect. "
Can you see one problem with this at the moment? I can. The government lends the bank $100. The bank then refuses to lend and sits on the money earning interest.
In a normal economy, lending to the bank makes more sense, but when the bank refuses to lend, then the government may employ people directly.
I would say that there are many infrastructure projects, both physical and intertubes, where America could use an update which would help the country economically in the long run.
Thank you to my econ teacher.
Phil: But I don't see how that ever argues for giving money to the bank.
If you give $100 directly to people, that's $100 they have, which they then presumably spend, and then whoever they buy from puts $100 into the bank, which then loans out $80, etc etc.
Which creates $500 in deposits, above and beyond the $100 the government gave to the first guy.
Now, I may have slipped and the amount may only be the SAME, but even then I hardly see how it can be better to give to the bank.
There'd be an increase in the making (magicking into existence?) of the foam for the fairies, which probably means more androids. Or wizards.
Less fuel would be burnt at the power station, so maybe less androids are needed there? Perhaps more likely, less deadly exhaust is spewed into the atmosphere, so fewer people are killed, so fewer androids are needed to replace them. And, of course, it would have any effect at all on AGW, oh no. None. Nope.
There'd be further effects, such as, maybe, less need for oil et al., harming the profits of ExxonMobil and reducing the bribescontributions to certain senators. Oops! This is gonna hurt⦠And we can't have that, oh on. Nope. Never.
If I remember correctly, the multiplier effect is higher for an extra $100 spent than for an extra $100 invested.
Michael: I think the fiscal and the monetary approach both have merit and would probably be best put together. The truth is, the bailout was just a badly written law - the banks were given WAY too much leeway in what they could do with the federal government's money (our money) and they continued to cover their own butts like they always have and in the manner that got us into this mess.
Fiscal policy can work better or see similar shortfalls - remember our stimulus checks? $600 for no good reason? Most people paid visa bills and it's not like visa passed on the multiplier.
In this case, the idea is to pour money into whatever - and honestly, it doesn't matter what. Buying new cars for USDA (especially considering they're required by law to have American made fleets) will certainly help the American car makers - if not actually stem lay offs, then shorten the time between job loss and creation (although I'm pretty sure GM and Chrysler are sinking ships who haven't bothered to make cars anyone wants in decades) and in the meantime allow them to buy raw materials, which supports steel workers and upholstery makers. Weatherizing, even if it's the same number of contractors doing the work, allows them to have more income - which they spend at Walgreens, Best Buy, and Home Depot. Who of course employs people. Ok, beating a dead horse at this point...
What I was saying about monetary AND fiscal policy - if you can create business for the contractors, they're going to be in a better position to borrow money from banks to buy another truck and do even more weatherizing...credit has a place as much as increased revenue does.
I may be naive, but wouldn't it be a good idea to try and prevent more companies from going out of business and/or laying off people? And wouldn't projects such as weatherizing houses, building roads and such help keep some companies in business (and hopefully even lead them to hire more employees)?
In the long (even mid) range, it doesn't create jobs, and may be a bad thing for overall employment.
The contract for the work will be taken by an existing company.
The company will hire extra people, since right now nobody has the capacity for such a large-scale project. This will, temporarily, create jobs.
Jobs that will be filled by people who are now unemployed, and who will go into the construction/home-repair business, instead of looking for another productive job.
Then the repairs will be over, and there again won't be a need for any more people working in construction and home-repair than there was before. So all these people will be laid off again, and return to being unemployed.
Except that they will all then have training/experience in house construction and repair, something there is little demand for (I expect with the current housing issues there are going to be a lot less new houses being built in the near future), and they will lose the time that they could have used to learn another profession, or enter another long-term job...
Not sure if it's a particularly good case, but it's a case.
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A few things:
1) I think that some people here are confusing the Keynesian multiplier with the concept of the money multiplier in fractional reserve banking. They're not the same thing. Since traditional monetary policy has hit a dead end, the Keynesian multiplier is the one we're interested in.
2) Yaron's description of the case against a stimulus is probably the most sensible case, but I think it leaves a lot to be desired. It would be a much better criticism if we were employing our resources effectively right now, but we're not.
For example, people who are trained in construction and who would normally have jobs (not "normally have jobs in a housing bubble" but "would have jobs under typical economic conditions) are sitting at home and doing nothing. They're not producing useful stuff for the economy, they're not paying income taxes, and they're not buying stuff from other producers. If you can put those people and their equipment to work instead of wasting them, you're ahead in the game.
Of course, government investment *could* cause a "bubble" in those industries, but I suspect it woudl take a lot of money over a long period of time to do so. Basically, we're choosing between suboptimal allocation done by the government and *no allocation at all* done by seized-up private investment.