Arnold Kling  

David Wessel's Economic Questions

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He wants to ask them to Republican candidates for President, not me. But my answers are in italics. All below the fold.

1. The unemployment rate is stuck at 9.1%. The U.S. isn't adding enough jobs to keep up with the growth of the labor force. What's done is done -- the fiscal stimulus, the Federal Reserve's quantitative easing, etc. What specific policies would you adopt today to quicken the pace of economic growth and hiring?

Shut down all attempts to rig the housing market. Only when buyers see that it is a free market, as opposed to a market that is rigged to keep prices high, will the market get unstuck. Reduce pay for Federal workers, and encourage state and local governments to do the same for their workers. This will allow scarce tax revenue to go farther, in terms of employment and services. Shut down the Department of Energy's policies of picking winners and losers. With reasonable environmental protections, allow the oil and natural gas industries to develop resources in this hemisphere. Look for ways to reduce credentialism and allow greater flexibility in the delivery of health care and education services.

2. If raising taxes would be bad for the economy, how would cutting spending and eliminating government jobs now be good for the economy?

That's a rhetorical question. You do not need to eliminate government jobs. You can instead cut salaries. As I said, this would allow tax dollars to stretch further. There might be some government jobs that you could eliminate that would help the rest of the economy. I am thinking of jobs that involve rigging the housing market or trying to rig the energy market. But those are relatively few jobs.

3. Housing remains a major drag on the U.S. economy. About one in five Americans with a mortgage owes more than the value of his or her house. More than half Americans with equity in their home have a mortgage with an interest rate above 5%, but hasn't refinanced. Home-building is at historic lows. Can government policy do more to rescue housing? If so, what?

The situation is analogous to the 1970s, when government tried to "solve" the problem of high oil prices by putting on price controls. Now, we are trying to solve problems by monkeying around with mortgages and housing subsidies. The problem is more likely to be solved if government stops trying to implement solutions.

4. Several of you have expressed displeasure with Federal Reserve Chairman Ben Bernanke? Who would you prefer to see in that job?

Scott Sumner
5. Will the middle class have to bear some of the burden -- either in higher taxes or fewer government benefits -- to bring the federal deficit under control?

That is another rhetorical question. Relative to the promises that are embedded in a totally unrealistic budget, somebody is going to get hurt, because the promises do not add up. It's not warfare against the middle class, it's math.

6. Are there any tax increases of any kind that you would accept over the next decade?

Tax reform, with lower rates but fewer deductions and special breaks, should be on the table.

7. What's the best way to slow the growth of health care costs in the U.S. over the next quarter-century?

Have consumers spend more of their own money and rely less on third-party reimbursement.

8. Mitt Romney backs the imposition of U.S. tariffs on Chinese imports if China doesn't allow its currency to float freely on international markets. The Senate is taking up similar legislation. Do you support the pending Senate bill?

No

9. The living standards of our children and our grandchildren's generation depend on investments we make today that pay off in future productivity later. What, if anything, should the government spend money on today with that objective in mind?

I think that private investors often do a lousy job of making choices for the future. But government technocrats tend to do worse.

10. How specifically, if at all, should government policy respond to the persistent widening of the gap between winners and losers in the U.S. economy?

Stop doing so much to protect the winners. Bailouts and credentialism come to mind as policies that protect winners.


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COMMENTS (11 to date)
Jay writes:

Great responses.

david writes:

So... cutting government job wages and "stretching dollars further" - does he mean employing more of said government workers? If so, this is a funny way of phrasing it.

GIVCO writes:

My dream has always been to ask this:

The job is chief executive of the Federal government, an organization with endless objectives and chronic deficits. Basic accounting skills are critical to running any such organization. Can you describe the basic elements of a balance sheet and P&L statement?

I think we get in trouble when thinking about the presidency as chief of the economy, leader of the free world, head of country. Its not, its president of an organization, like commissioner of the NFL.

Philo writes:

Your answer to #1--not mentioning monetary policy at all--comports strangely with your answer to #4.

Patrick R. Sullivan writes:

With regards to the question about unemployment, I'd frame it thus;

Elementary economic theory tells us that shortages and surplus are resolved by the pricing mechanism. What could you recommend to facilitate that mechanism in labor markets, given the obvious shortage of jobs/surplus of workers?
somebodys_kid writes:

Question #10 seems to be loaded, using the words "winners" and "losers". Your answer did not rise to the bait, thankfully, and makes good sense, too.
I'm curious, though, what do you think the "optimum" amount of government spending (relative to GDP) is?

Arthur_500 writes:

I disagree with cutting back salaries and benefits for public employees. If they are earning more than you can pay them then cut their jobs. You made a promise, now keep it.

However, so many of the jobs in the public sector are unnecessary for the government to be doing. Let a private company run your pools and ice rinks. Let mechanics and engineers be responsible for licensing in their area of expertise. There is simply no purpose for a government worker to carry out these tasks. By eliminating these useless government jobs the employees will be picked up in the private sector at market prices or the job will be deemed obsolete. either way the government will not be footing the bill and you will not be bleeding them by cutting back their wages and benefits.

I really don't want to see Scott Sumner as Fed Chair.

Jim Ancona writes:

You've got my vote!

WRT the "winners and losers", I agree with your answer, but last week's Econtalk podcast brings the unstated premise of increasing inequality into question.

Chris Koresko writes:

Arthur_500: Let mechanics and engineers be responsible for licensing in their area of expertise.

I like the rest of your post, but I have an issue with this one. It sounds appealing enough at first glance, but what seems to happen in practice is that the incumbents write the rules in a way that protects them from competition from outsiders. This is part of what motivates Dr Kling when he talks about reducing credentialism.

Brian writes:

I think from a poltical standpoint I would phrase credentialism diffrently. Not sure most people would know what one was talking about when using that word.

Also, I think rolling back the number on federal payroll would need to be part of any plan. I think many federal jobs actualy cause negitive economic growth even after taking into consideration their salary.

Lastly, I have always thought question 4 should be Arnold Kling.

sighthndman writes:

What's the difference between credentialism and showing qualifications?

When you go in for heart surgery, are you going to rely on Zagat ratings or something else?

Similarly, taxes come from somewhere. Most places get the bulk of their taxes from taxing property, sales, or income (or all three). (It's pretty rare that a country can finance itself by taking property from its owners and selling it to either speculators or settlers [maybe another form of speculator].) Do you do your own taxes? Or do you trust someone else to do yours for you? Just someone with a recommendation? Or someone with credentials?

And what if it gets complicated? Running a business? File your own? Let brother-in-law do it? Hire an accountant?

Legal trouble? I read a book. I can help. Or hire an attorney? Someone with credentials.

Guess what? All the credentials I'm familiar with are a response to a particular problem. Plumber's licenses came about because of gas leaks. And people's deaths. You want to eliminate plumber's licenses, you probably ought to make gas illegal too. (A water leak isn't life-threatening.) Electrician's licenses are because houses burned down. Or does rational economics say people should die because of their mistakes? Government shouldn't protect people?

How about Ph.D.s? Why do I need one of those to get one of those nice cushy jobs at a university?

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