I should give this better treatment than I am about to but the basic point needs to be addressed.
From Steve Moore to Russ Roberts to Kevin Williamson one of the basic lines of arguments that you hear from conservative econ folks is about how stimulus/government/socialism is bad at creating value. Therefore they seem to reason, none of those things could be a solution to the Great Recession.
The thing is that the Great Recession is problematic not because we aren’t creating value but because we don’t have enough jobs. I know. I spend all semester saying we work to live, we don’t live to work. However, you have to hear me out on this.
Compare for example the depths of the Great Recession with peak of the 1990s in terms of GDP per capita.
You can see that even at the worst of the worst, using an updated data set that shows how truly awful the Great Recession was, we were still wealthier than we ever were during the 90s. That is, there we were making more per person in America than ever during the boom years.
Compared to the 90s that everyone loved, we were a value creating machine.
Ok you might say, but we were living high on the hog then. Now everyone has to cut back out of fear of being laid off. That’s the real pain. Is it? We can’t actually live as well as we did back then.
OK, so lets compare Personal Consumption per Person (this includes the unemployed remember) now versus then
Not even close. Now blows then away. We are consuming way more per person now than in the go-go 90s.
But wait. Tyler Cowen regularly reminds us that we are not as rich as we thought we were. That’s what the Great Recession was all about after all – that sudden realization. Well, lets look at net household assets. This data captures the massive run-up debt during the 90s as a negative, as well as the collapse in the housing and stock markets as negatives.
Now we come close but still no cigar. Even at the depths of the recession, with our mortgage debt sky high, our housing values in the toilet and our 401(k)s ruined, we were wealthier per person than at the height of the dot-com boom.
Yet, there is one measure that doesn’t even come close to matching that during the 1990s and that’s employment per capita.
Now that looks bad, bad, bad. Much below that 90s peak. If that’s the stat that matters then its easy to see why the 90s were freaking awesome and now just blows.
But that stat isn’t production, it isn’t consumption, it isn’t wealth. Its jobs.
The reason this time is so painful is because there is a dearth of jobs, not value. Why people care so much about jobs is a complex story. But the important point for now is that jobs are the issue, not the creation of value.
Lack of jobs is why everyone feels bad, not because they have less or are poorer or the country isn’t producing or consuming as much. And, not to get to meta – in what I hope is an easily readable post – but an economy that makes lots of people feel bad is by definition a bad economy.
Moreover, the feeling that you have now about the economy is not the feeling of lack of value creation. Its not the feeling of socialism.
I wish I had more time to go into this because “what socialism feels like” is an important concept. However, my more conservative readers will may readily get the following example.
Have you ever been pissed off at the fact that your neighborhood school doesn’t teach any of the stuff you want and it feels like your kid is just wasting her valuable time going to all of these pointless classes for no reason. THAT, is what socialism feels like. That is what the lack of value creation feels like.
Its not that you are afraid of losing what you have or that budget constraints are pinching. Its that the stuff which is available to you sucks. It – in extreme cases – is a world where everyone has a job but where no grocery store has fresh milk. It’s a world where everyone gets a pay check but no one can find shoes that fit.
That is what socialism feels like. That is what government getting in the way of the market feels like. In many ways it’s the exact opposite of the way this feels.
Because you know I can’t resist: When you are waiting in your doctor’s office and she is 50mins late and proceeds to be rude to you and not give you “permission” to go buy the drug that you are dying to buy because its finally been “approved.” That’s what socialism feels like.
And, it has nothing to do with whose paying for your insurance and everything to do with the fact that you will go to jail – that place with bars and guards – if you refuse to follow the proper protocols for obtaining drugs.
That’s what failure to create value feels like.
The Great Recession: that’s a problem with jobs, with labor. And, its very different in kind. When we think about what’s going wrong here and how to fix it, we have to keep that squarely in mind.