Jeff Madrick has a good review of Bill Clinton’s new book in the New York Times. The punchline of the review is that Clinton doesn’t offer much except for very cautious (Clintonesque?) proposals to combat the current jobs crisis and instead mostly highlights his own own efforts at bringing the federal budget deficit into balance in the 1990s while calling for this to again become a focus of economic policy.
This desire to return to the 1990s when the economy was generating much better (though bubble-fueled) outcomes is understandable, if misguided. But this desire helps illustrate a quick and dirty test that should be used to grade anybody’s policy prescriptions for combating the current jobs crisis: Are they just re-packaging policy ideas that they think would be a good idea anytime, or do they recognize that the economy’s exceptional troubles today require exceptional measures?
If it’s just re-packaging, you can generally discard them as serious solutions to the jobs crisis. So, when GOP members of Congress put out a “jobs plan” that relies on tax cuts and blocking regulation – it’s fair to ask when are they not in favor of tax cuts and deregulation? After all, if the exact same policies that they think are good ideas when the unemployment rate is 4 percent are also the only ones offered up to spur job creation when the unemployment rate is closer to 9 percent, doesn’t this imply that nothing special needs done about job creation today?
Take EPI, on the other hand. We don’t urge Congress every single year to pass hundreds of billions of dollars of debt-financed fiscal support. We do urge Congress to do this when the unemployment rate is historically high – because utterly boring textbook macroeconomics says that this is the proper medicine to treat an economy with very large amounts of productive slack, even after the Federal Reserve has exhausted traditional recession-fighting tools.
There are, obviously, more long-running policy debates that we have strong opinions on – we think the minimum wage should be raised and indexed to keep its value from eroding over time, and we think labor law should be reformed to allow willing workers to form unions. We don’t, however, claim that enacting these “perpetuals” are things that will yank down the overall unemployment rate in the next two to three years. They’re good policies for boosting the long-run economic performance of low- and moderate-income households, but they’re not serious job creators, per se. So, when simple job creation becomes a top priority, we put other things on top of that particular to-do list.
Also, we’re generally in favor of more public investment, in good times or bad. There’s a good reason for this – public investment has been lagging in recent decades and aids long-run economic performance. But even here we recognize different economic environments – when the unemployment rate is historically high and the economy needs spending power, we argue that public investments should be debt-financed. If the unemployment rate fell to very low levels even while the public capital stock needed upgrading, we’d argue that the case for financing these investments with taxes makes more sense (actually, for very high-return investments, one can imagine a case for debt-finance either way, but we wouldn’t argue for debt-finance on job creation grounds if the economy was performing well).
The figure below will help us recap: a good quick-and-dirty test for how sensible somebody’s top policy prescriptions for job creation are is simply asking if they were arguing for the exact same policies at point A (i.e., before the Great Recession) and point B (i.e., at very high rates of unemployment). If so, these policies probably are not going to do much for jobs.