Alan Blinder is wonderfully insightful, soft-spoken economist with excellent street cred. He’s a Princeton professor these days but is a former vice-chair of the Federal Reserve. Years ago, I read this book by him and recognized a fellow traveler. (Alan—if you’re out there, we’re way past due for a new edition of Hard Heads, Soft Hearts.)
This AM, his WSJ column carries this subtitle:
Legions of construction workers remain unemployed while we drive our cars over pothole-laden roads. Does this make sense?
I’d add that the real yield on 5-year Treasuries is -0.47 (Blinder mentions this point as well).
Anyway, I recognize that some of us who’ve been making this argument for a long time—more stimulus now followed by a balanced fiscal deal–can sound frustrated and shrill. But Alan does not—this is pure reason, with a liberal…ahem…dash of common sense. And yes, I know reason and common sense don’t win the day today. But if they ever do, Alan should be at the front of the parade.
So read his oped—I’ll be surprised if it doesn’t resonate.
BTW, one of the points he makes is one I’ve touted for a while. Supply-siders and high-end tax cutters constantly make their case based on the need to target investment. But that’s actually the one part of GDP that’s pretty strong right now.
Republicans are right that business investment is the key to growth. Fortunately, business investment has done very nicely, thank you, despite the sluggish economy—growing 8.4% over the past year and at an annual rate of 10.8% over the past two years. (The corresponding growth rates for GDP were about 2%.) So while there’s always room for improvement, business investment is not part of the problem. The best thing policy can do for private investment is to get the overall economy growing faster.
I’ve made a nice picture of this. The left axis plots real business investment indexed to 100 at the beginning of the big recession. The right axis plots the employment-to-population ratio, a measure which speaks to the question: are we creating enough jobs to meet the needs of the working-age population?
Sources: NIPA and BLS
Investment is solidly climbing back while employment rates are solidly not. If you were an unbiased policy maker with the clarity and common sense of Alan Blinder, which one would you target? What if you were a cynical politician who just wanted to cut taxes for rich people?