Arnold Kling  

The Business Reporters We Have

Mainstream Views of the Gold S... Antitrust Kills...

Once again this week, the Washington Post Outlook section is an exercise in feeding its readers' anti-market prejudices. One prominent feature is an article by Jia Lynn Yang, a business reporter.

The nagging problem with the consulting worldview, however, is that it easily loses sight of the human costs of business efficiency....they've rarely been asked to assess how a company fits into society, what its purpose is beyond raising returns for shareholders or what happens after an employee is laid off in the name of efficiency.

A reporter who understood economics could enlighten readers instead of reinforcing their ignorance. How does a company fit into society? A company tries to create sustainable patterns of specialization and trade by using resources to fill consumer needs. In general, when a company succeeds, society is better off. When a company (or a government, for that matter) tries to hold onto unsustainable patterns of production, in general society is worse off.

Elsewhere in the Outlook section, we have Jonathan Alter assuring us that it is a "myth" that the stimulus did not create jobs. He cites the usual suspects--econometric modelers--as if their foregone conclusions based on simulations were facts.

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COMMENTS (14 to date)
david writes:

Pecuniary externalities!

Michael Bishop writes:

I think the claim that the stimulus did not create jobs is a myth. We have to make assumptions to estimate how many jobs it created, but are there reasonable people who actually deny that it created some? Do you deny it Arnold?

ThomasL writes:

Ms. Yang's view places an extremely high cognitive burden on the business. To "assess how a company fits into society" is easier said than done, much less to know "what happens after an employee is laid off."

Certainly not all business would be assessed to have exactly the same place in society? If so, the assessment step would be superfluous. If they aren't the same, what criteria is used to asses their place?

Likewise it can't be expected that exactly the same chain of events happens after any employee is laid off, or there would be nothing to evaluate. But it seems a high aim that the business owner should be able to predict the individual chain of events that would occur for each employee, and make his employment decisions based upon this soothsaying power.

Turn these obligations to the individual and they make no more sense. How should I go about assessing my place in society? What is it? I can't say that I know the answer, or even how to answer, that question.

What would happen to me if I quit my job? Well, for a time my income would go down. I can predict that much. But what would come of that? Anything worse than some lean days on unemployment? Who knows... I don't. What job would I do instead? What people might I come in contact with on my search? As often as you hear the opposite, you hear people say, "I didn't realize it at the time, but losing that job was the best thing that ever happened to me." How am I to know which one of those outcomes is in play--or maybe neither?

It is a standard in philosophy that one cannot have a moral obligation to do what is impossible--you were never to aim at impossibilities. If it cannot be done, no one can acquire the responsibility to do it. Assessing one's place in society and predicting a contingent future both fall squarely in the realm of impossibilities, and so cannot be moral obligations to perform.

Ken B writes:
Once again this week, the Washington Post Outlook section is an exercise in feeding its readers' anti-market prejudices ... A company tries to create sustainable patterns of specialization ... by using resources to fill consumer needs.

Stroking readers' prejudices is precisely the way the WaPo fills its consumers' needs. That is an important part of the business model of the press in general.

jseliger writes:

I saw a New York Times article with similar problems: "Preservation Push in Bohemian Home Stirs Fear of Hardship," which mentions all kinds of things relating to development in the East Village—except for how an increase in the housing supply will result in lower prices if all else is held equal. I actually sent a letter to the editor on the omission, but I don't think it was published.

Rick Hull writes:

Michael Bishop,

Regarding the effects of stimulus on job creation, I think Arnold's position is that one-time stimulus does *not* create patterns of sustainable specialization and trade, and those that clamor for "jobs" actually want PSST.

That is, a job created outside of PSST is not in fact desirable, in that the costs of creating the job outweigh its benefits.

Ken writes:

Michael Bishop

The stimulus did not create any jobs.

Arnold Kling writes:

Rick, you did give my views.

Michael, look at it this way. If the government had not borrowed money to fund solar companies that went bankrupt, someone else might have borrowed that money to fund companies that created real, permanent jobs. I do not claim to know whether on net jobs were created or not. The people who do claim to know are frauds.

Costard writes:

Thomas: "Ms. Yang's view places an extremely high cognitive burden on the business."

If this "cognitive burden" is rewarded with a subsidy or a loan guarantee, then on the contrary, it might be seen as comfortably low.

On the other hand, your view places an extremely high factual burden on Ms. Yang, who after all is not a scientist or lawyer but a mere journalist.

Michael: Should the administration and those who peddled the stimulus not be held accountable to their own standards? The issue in soccer is not whether the ball goes in the right direction, but whether it enters the goal. If the better part of a trillion dollars could be spent without creating a single job, then undoubtedly we would all agree that yes, this is pretty incredible. But is that really the argument? Given that the $787 billion was borrowed, and that in any event governments do not create demand, the question being asked is whether the stimulus created net jobs, or whether it simply substituted cronies for actual workers. I have to say I'm bemused by the notion that the same assumptions used to argue a policy can be used to "prove" its effectiveness. Clearly facts are an onerous burden for more than just WaPo reporters.

Julie writes:

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Julie writes:

Strongly agree with Michael Bishop--the stimulus did in fact create jobs.

[banned url removed.--Econlib Ed.]

Russ Roberts writes:

Michael Bishop,

Yes, you have to sometimes make assumptions to estimate things. But if you can't verify the estimates, why would you call what you're doing scientific? There are many economists who are skeptical about whether the stimulus created more jobs than there would be without stimulus. But I wouldn't use "estimation" to prove that point either.

Shayne Cook writes:

Referencing Dr. Kling's response to Micheal, above, there is an embedded misnomer and attendant misconception - that the DOE "invested" in solar companies. Loan guarantees are not investments! Not ever! Investments, by definition, have an upside expected return, as well as a known downside loss. A Loan guarantee only has a known downside loss!

I found it enormously comical that DOE likened its loan guarantee program/actions to Venture Capitalist's support of new technology development in testimony before Congress in the wake of Solyndra. Venture capitalists don't do loan guarantees! No investor does loan guarantees! There are no ETF's offered on the NYSE that promise high returns on the basis of loan guarantees! There is no upside to loan guarantees! And I doubt that John Maynard Keynes ever meant or even hinted at loan guarantees.

To illustrate the significance of this, let me propose an alternative Solyndra story...

The claimed "benefit" of Solyndra (and other firms like it) was not that it would build better solar panels, but that they had an experimental process that would build cheaper solar panels - at least cheaper than then-current market prices. Fine. By all means invest in that!

Had DOE used the $500 Million of taxpayer dollars to BUY some promised cheaper solar panels, as a forward delivery contract with Solyndra, at least the taxpayers would have both recourse and claim to remaining assets when and if Solyndra failed to deliver on it's promise/contract. That's in the worst case. At best, both the Taxpayers and society-at-large would have actually gotten "cheaper" solar panels. The intent and upside of the investment.

As it happened. Solyndra didn't fail because it couldn't build solar panels at all. It failed because it couldn't build solar panels cheaper than subsequent market prices - that dropped dramatically after Solyndra got started. Point being, Solyndra could still have delivered on it's contractual commitment to the Taxpayers by just purchasing solar panels on the open market! - Even if its promised experimental process failed!

And I can absolutely guarantee that any bank would have fully funded the initial capitalization of Solyndra, in consideration of its signed Government contract, just as readily as with the Government as co-signer of the note!

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