Home > economics, political-economy > Mark Thoma goes biblical on jobs…

Mark Thoma goes biblical on jobs…

Mark Thoma brings us the updated version of the injunction, “Let him who has TWO coats give to him who has none”, in a post titled, Government Can and Should Create Jobs . Luke manages to make this point in 12 words, but since Thoma is an economist, he seems to require more than one hundred times that many words to get to the point.

In a town in a country suffering through a recession, a wealthy person just happens to live next door to an unemployed worker. The worker has experience in a variety of trades, and is quite competent, but despite his skill and reputation, there are no jobs to be found. And it isn’t for lack of trying.

Seeing this, and having a kind heart, the wealthier of the two — much, much wealthier — decides his neighbor needs a job, so he sets about creating one. The first option he considers is just to find something for him to do, it doesn’t much matter what, digging holes and then filling them up, whatever. He decides that if he goes this route he will ask his neighbor — wink wink — to watch his grass grow. Both of them know this is a ruse, a made up job to justify the payment, but somehow having the ruse in place allows the unemployed neighbor to keep his dignity in a way a direct cash payment would not. It’s a job not a hand out — he does have to look out his window a few times a day to make sure it the grass is growing like it’s supposed to. But practically it’s a means of support for the neighbor and his family that allows him to continue his diligent search for a job.

Let’s ignore, for a moment, that Thoma has just demonstrated that his entire field has progressed no further than the thinking of early Christianity for all the fine chart porn and fancy equations. Let us, instead, watch as he painfully labors to force this biblical morality into the cold logic of economic calculation – so that, in the end, we do unto others only on the expectation that we can make a buck off that doing.

Having tossed out the idea of paying his pauperized neighbor to watch his grass grow, our wealthy neighbor opts for some productive exchange:

… why not hire the unemployed neighbor to do something useful with his talents? Sure, it will make it harder for him to look for another job if he’s working hard here all day, but he’s a good builder and there must be something I need.

After much thought he decides to replace his fence. Offering this agreement with his impoverished neighbor, unfortunately, requires the wealthy man to purchase the labor power of his neighbor – who, of course, has no choice but to take the deal or starve – only after the wealthy neighbor has decided what he needs done, plans it, and purchases the material. (Did we not explain that the pauper has only his mind, hands and muscle, since economic events has robbed him of any other tools? He is a pauper in the double sense of the word: without means to life, and without means to produce the means of life – tools and material.) But, despite these inconveniences, they agree to undertake the wealthy neighbor’s project.

When Thoma looks more deeply into this problem he discovers that the wealthy neighbor has a massive hoard of idle saving – just sitting there in the bank with no possible productive investment outlet. Since, he has no useful, profitable, investment opportunity, Thoma suggests that he might spend a little more of this idle cash fixing up his place. If the fence is only recently replaced, perhaps he can get a diamond studded, solid gold, fence covered in the thinnest gossamer of fairy wings. As Thoma explains, the wealthy neighbor must increase his consumption, because he cannot increase his investments! If it were otherwise, the wealthy neighbormight, for instance, employ his pauper neighbor to build a factory, and then hire the pauper’s fat wife and noisy filthy kids to turn out tube socks for the local Wal-Mart. Unfortunately, for our pauper, the wealthy neighbor has sent all of his tube socks making operations to China. He has all that idle money sitting in the bank because of this insightful business decision.

Thoma then asks:

Why does having government involved make any difference? Government can act as an intermediary, take the money from the wealthy person, and use it to finance projects such as new infrastructure. This type of social insurance creates jobs just the same as someone can create a job when they hire a neighbor to build a new fence or repair one that is falling down.

By making this argument Thoma unknowingly demonstrates the entire purpose of Keynesian economic policy: In order for it to work, there can be no productive result from the spending of government monies! If there were a productive investment to be made, our wealthy neighbor would have done it. The sole purpose of government spending is exactly what it might have been had the wealthy neighbor hired his pauper acquaintance: to consume the idle savings of the wealthy neighbor unproductively on projects to build diamond studded, solid gold, fairy wing covered fences for everyone.

Fiscal policy can create jobs and provide other types of help just like a wealthy, benevolent neighbor. Yes, if you are able, if you are one of the fortunate ones, the presence of social insurance requires you to pay to help those who in need. But even if the money isn’t used to finance something you want, or if it is essentially given away through make-work to people you don’t think deserve it, people that you care nothing about and that aren’t your responsibility in any case, you will still benefit.

But, the wealthy neighbor is not nearly as stupid as Thoma assumes in this parable. He knows he has two choices: he can be taxed for the government’s lavish, wasteful spending, or he can lend it to the government and collect on a new revenue stream from the government’s incredible waste of social resources. All of this pleading by Mr. Thoma, therefore, goes so much easier, of course, when the government borrows the idle cash of the wealthy neighbor, and pledges to pay it back by taking a portion of the worker’s wages to repay it over time. Now the money sits in two places: as an asset in the account of the wealthy neighbor, and as a promise to repay undertaken by the government. Ideally, the worker will them be required to work off that debt for a period of weeks, months or years – until, of course, another recession hits.

Once that happens, the wealthy neighbor will find his assets are worthless, and the government’s promise carries no more than this value as well.

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