Arnold Kling  

Which Jobs to Save?

Momentum in Employment... Taking Dean Baker Seriously...

Tyler Cowen writes,

In a highly specialized modern economy, it is much easier to prevent jobs from being destroyed than to create them again, at least assuming those are "good" jobs in the first place. (Yes, people thought they knew this but it's an even stronger difference than had been believed.) The U.S. auto bailout, for instance, worked better than did most of the stimulus program. Most of the Austrians would disown this point, but you can pull it right out of Lachmann's Capital and its Structure.

Tyler strikes me as engaging in Krugmanesque intellectual combat here. First of all, he pulls a quote out of context, giving only the first sentence of a paragraph from the New York Times article that reads

A vast expansion of a program paying to keep workers employed, rather than dealing with them once they lost their jobs, was the most direct step taken in the heat of the crisis. But the roots of Germany's export-driven success reach back to the painful restructuring under the previous government of Chancellor Gerhard Schröder.

Second, he says that the auto bailout "worked better than did most of the stimulus program," which leaves him plenty of wiggle room to say, "I did not say that the auto bailout was a success." Finally, when he says "assuming those were 'good' jobs in the first place," he leaves himself room to wiggle out of being accused of advocating keeping unsustainable jobs around.

On the larger point, keep in mind that in an ordinary non-recession month 4 million jobs are destroyed and about 4.2 million jobs are created. Suppose that in a bad month of a recession, 4.0 million jobs are created and 4.5 million jobs are destroyed. Which of those 4.5 million jobs ought to be saved, because they might come back in a stronger economy? No one in Washington knows.

Trying to save existing jobs is a fool's errand, comparable to trying to keep defaulting mortgage borrowers in their homes. When a firm lets an employee go, it is making a cost-benefit calculation that takes into account the cost of rehiring for that position when the economy turns up. The firm is unlikely to be making such a large mistake that government should try to change the decision.

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The author at Economics in a related article titled Save this job writes:
    TYLER COWEN reads a New York Times piece on the roots of Germany's (considerabe) recent economic [Tracked on August 15, 2010 1:15 PM]
COMMENTS (12 to date)
Average_One writes:

Erudite post. You make it look so easy to crush Tyler Cowen's Krugmanelles!

Tyler Cowen writes:

Which jobs to save? In this context my answer is simple and already provided: cut the payroll tax and let the market decide.

Troy Camplin writes:

In that case, the jobs aren't being saved by government.

The bottom line is the government has no business picking and choosing. They don't know what people want. We need to clean up the mess made by crypto-Keynsean policies, which is what a recession does. Continuing with Keynesian, neo-Keynesian, pseudo-Keynesian, or idio-Kaynesian policies have only mad ethings worse and kept this recession around far longer than it should have been.

Hyena writes:

Likewise, trying to save individual soldiers in a war is a fool's errand because we have no idea which ones will survive to the end regardless.

We also certainly shouldn't invest in our own human capital. Woe betide he who thinks they can predict what the market will desire by the time they're done.


The entire "we can't know which jobs to save" argument is beside the point. The concept is to preserve the jobs long enough that shedding them isn't painful because other sectors are moving ahead.

Troy Camplin writes:

The more the government tries to help that way, the longer the economy takes to recover from the recession. The problem is misallocation of capital. Keeping such capital misallocated longer doesn't help. It only makes things worse and last longer.

Hyena writes:


I'm aware and I don't disagree in a frictionless pace. However, what you should be considering is the price that social instability enacts through the political system.

Each point of unemployment creates additional dissatisfaction and disillusionment. If you believe that we're going to pull out of this anyhow, then avoiding these factors is critical as they lead to long term policy proposals which are extremely bad. Stuffing businesses with money, on the other hand, is our best bet at creating one-off policies.

Seriously, someone should do "mathematical Marxism" and find out how close each point of immiseration brings us to worker's revolution, hence how much we should be willing to spend to avoid 50+ years of "workers paradise".

bjk writes:

"Which jobs to save? In this context my answer is simple and already provided: cut the payroll tax and let the market decide."

An escape hatch for any occasion! "I agree with you but you're less right than you think" affords front and rear exit, inflatable slide not included.

fundamentalist writes:

I have to agree with bjk. Cowen merely changed the subject. The subject was the guv's bailout of GM. And I disagree with Cowen that it saved any jobs. GM still had to enter bankruptcy and shed a lot of workers in order to become a viable company again. Had the guv not bailed out GM, it would still have entered bankruptcy and shed the same workers.

Sandwichman writes:

"Trying to save existing jobs is a fool's errand..."

Hardly. It may be that taking heroic measures to try to save doomed jobs is a fool's errand. But there may well be many, many quite vulnerable jobs whose vulnerability is no fault of their own. In other words, there may be room for judgment on the matter.

It's all very well and good to say "the market" will sort out which jobs deserve to be saved and which don't but what market are we talking about. The ideal purely competitive market that only exists for the purpose of theoretical analysis. Or the actually-existing markets in which every adjustment and accommodation is ALREADY in response to a vast structure of deeply embedded distortions and market failures.

Troy Camplin writes:

Stuffing businesses who should fail with money is the problem. That's further misallocation of funds by government. We would be over this by now if the government had done nothing at all. Instead, the more and more government tries to do, the worse things get. The government created the problem, and how has perpetuated the problem. And the solution is more government? The definition of insanity is doing the same thing over and over and expecting a different outcome each time. Another definition is to give more power to the ones causing the problem in the first place, or expecting them to fix it. Asking the government to help fix the economy is like asking a known serial child rapist to be a counselor for your child after they have been molested. If all the problems with the economy are due to government action, the solution isn't more government!

Pitchfork writes:

Precisely which GM/Chrysler jobs were "saved" by having Bush/Obama throw taxpayer money down the hole? GM, as others point out, did in fact go through BK, but the guv made sure that the UAW got slightly more than they would have otherwise and made sure that the bondholders got slightly less. AND, they spent lots of taxpayer money for DIP financing and on operating costs to see them through the restructuring.

All this begs the question: DID the guv in fact "save" any jobs? Maybe they did. But this requires plausible explanation. And at what cost? Most pro-bailout folks are content to suggest that the entire US auto industry would have been wiped out, were it not for Obama and the wisdom of govt intervention. Surely it's murkier than that.

rental_unit writes:

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