Weekend Papers, Part IV: Policy Matters…A Lot

June 9th, 2013 at 12:10 pm

[Uh-oh—the sun is out and I really have no excuse for not digging up weeds and pruning bushes.  So let me be brief here.]

I found this piece on different rates of job growth in different countries to be an interesting survey but it somehow skirted a central point, perhaps because it’s so obvious that it doesn’t need emphasis—though I think it does: these different jobs outcomes all grow from differences in economic policy.

Financial regulation: Why did Canada avoid the housing bubble from which we’re still recovering?  Because their more highly regulated credit system did not inflate such a bubble.

Labor market policy: The piece correctly notes that German employment stayed strong in part due to their work-sharing policy, where instead of laying off people, reduced hours are spread around the workforce and part of the lost compensation is made up through the unemployment insurance system.  The thing is—after considerable legislative squabbles, we know have that same program here in the US!  But it’s only in use in a few states—policy makers would be smart to figure out why it’s not being implemented more broadly and get it up and running.

Trade policy: The piece states: “Other countries have generated jobs on the basis of strong exports.”  True—and again, it’s policy.  Germany imports labor demand; we export it.  See here.

Sluggish US recovery: Obviously, a policy matter.  Sequestration seems clearly implicated in the loss of 45,000 federal government jobs since the automatic cuts began in March of last year.  As noted above, this is why you don’t want your deficit coming down so quickly right now.

There is no laissez faire, no pristine markets generating employment and income gains or losses based on the unfettered free hand guiding supply and demand to their optimal equilibrium.  That only exists in models.  In the real world, it’s all about the policies.  And those with the power to move them their way.

And with that, I leave the economic weeds for the actual weeds.


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3 comments in reply to "Weekend Papers, Part IV: Policy Matters…A Lot"

  1. Mark says:

    I agree to some extent that Canada’s banks being more tightly regulated helped the country avoid the worst of the financial crisis, but I’m not sure about the avoiding the bubble part. A look at the Canadian housing index ( http://www.housepriceindex.ca/ ) suggests that it may be that Canada was able to continue inflating the bubble, while everyone else’s bubble was popping, that allowed Canada to avoid the worst of the crisis.

    Home prices have been climbing steadily since the late 90’s, with only a slight hitch in 2008, but that may be changing, with Vancouver’s prices already heading down.

    The next few years will show whether it was a bubble, or whether the historically high prices are actually sustainable, and also whether Canada’s more tightly regulated banks can come through unscathed.

  2. Kevin Rica says:

    You are right: it’s policy. Policies not only fix problems (or fail to), some of our policies create problems (or sustain them).

    America’s immigration policies are intended to sustain low wages. And they are successful!


    “Comprehensive Immigration Reform” should sustain low wages for decades! And we will all be able to thank Chuck Schumer and the California Democratic Delegation (special thanks to Congresswomen Nancy Pelosi and Jane Harmon for helping out California’s ag lobby).

  3. smith says:

    Stuff in papers echos previous comments:

    1. Stiglitz ties lack of wage increases to unemployment. But he fails to see it’s centrality as a topic no one is discussing, yet the only thing that could generate popular support for creating jobs, or ending the sequester.

    “Third, with so many seeking work and not getting it, employers are under no pressure to raise wages; wages do not even keep up with inflation. Real incomes decline – and that’s what’s been happening to most middle-class American families.”

    2. The Times focuses on the sick spectacle of Wall St. speculators, but seemingly unaware foreclosures are still running over three times the historical average.

    ” the loss of home equity could have been stanched if Congress and the Obama administration had aggressively pursued efforts to keep financially troubled borrowers in their homes, including bankruptcy reform and principal reduction loan modifications.”

    3. Krugman contemplates why the unemployed are ignored, and mentions: talk about a “new normal” of much higher unemployment

    “Another answer is that the unemployed don’t have much of a political voice. Profits are sky-high, stocks are up, so things are O.K. for the people who matter, right?” http://www.nytimes.com/2013/06/10/opinion/krugman-the-big-shrug.html