Mark Thoma:
Economist's View: A "Complete Straw Man Mischaracterization of Keynesian Views": I'm getting tired of Jeff Sachs acting like he is the only one telling the truth about the economy, the problems are all structural we are told, despite considerable evidence to the contrary, and -- surprise!!! -- his "truthtelling" somehow leads him to advocate the same pet projects he's been pushing for years….
I'll also note he is, in essence, calling for infrastructure projects which is precisely what many of us in the Keynesian camp have been calling for as well. So unless it's because we haven't specifically named the projects he supports, it's not even clear there's a big disagreement here.
Indeed:
Sachs: America's economic problems are structural and will not be solved by more tax cuts, quantitative easing, or short-term stimulus…. [T]he job market is stuck. Today's unemployed and under-employed workers do not have the skills that businesses are seeking…. Even many new college grads are having trouble finding work, since their college education did not give them marketable skills…. [T]here is no funding for education, job skills, training, apprenticeships, and public investments in infrastructure. Yes, President Obama repeatedly calls for all of these good things, but the Administration has no plans to fund them….
A true recovery should be investment led rather than consumption led. We need long-term investments in human capital (skills) and in key infrastructure… a mix of private investments and public investments, with the mix differing according to the sector in question…. [W]e will need a government that is not subservient to the status-quo corporate interests blocking innovation in key sectors such as health, transport, and energy. Second, we need a government that can strategize, not just improvise. Third, we need to end the nonsensical bluster against government. Our specialist scientific agencies are still doing amazing things right before our eyes this year: exploring Mars and unlocking the complex mysteries of the human genome. We could be doing a lot more to solve our social and economic problems and to re-establish our prosperity if we put our confidence back into science, technology, advanced training, and public-private partnerships.
On the analytical level, Sachs appears to be completely wrong: if the problem were that unemployed workers did not have the skills than firms would be employing their current workers for long hours and would be raising wages as they tried to bid qualified, skilled workers away from their competitors. We don't see this: we don't see any signs of wage inflation. That means that the problem is demand--that firms aren't hiring because households and businesses aren't spending enough to provide work for any more people than firms currently have on the payroll.
On the policy level, Sachs's "neither party offers real solutions" reads to me like a desperate attempt by him to gain elite Very Serious People street-cred by spouting a version of balanced "opinions of shape of earth differ".
What he ought to say is that the Democratic Party's proposals are inadequate and only a partial fix for our short and long-term problems--which they are--while the Republican Party's proposals are absolutely disastrous. That would be a constructive contribution to America's politics right now.
But, for reasons I don't completely understand, he appears to think that it is not cool to support the Democrats…
