"Barack Obama’s Dangerous Embrace Of Economic Fatalism"
Even as the Obama administration continues to defend the American Recovery and Reinvestment Act from its critics, the White House appears to have sincerely pivoted away from the idea that a higher level of aggregate demand would reduce unemployment and instead embraced the notion that there’s basically nothing that can be done in the short-term. You can see this in Obama’s Today Show interview where he appeared to suggest that unemployment is primarily attributable to technological change:
There are some structural issues with our economy where a lot of businesses have learned to be much more efficient with fewer workers. You see it when you go to a bank and you use an ATM, you don’t go to a bank teller. Or you see it when you go to the airport and you use a kiosk instead of checking at the gate. What we have to do now, and this is what the jobs council is all about, is identifying where the jobs for the future are going to be, how do we make sure that there’s a match between what people are getting trained for and the jobs that exist, how do we make sure that capital is flowing in those places with the greatest opportunity.
Now obviously this is true. One thing that people do is they try to invent machines such that they can then go to businessmen and say, “Buying my machine would be cheaper than paying a worker.” This causes job losses. The invention of the answering machine reduced the need for secretaries. Advances in electronic filing further reduced the need. Cell phones and email have even further reduced the need. ATMs reduce the need for bank tellers. Self-serve checkout machines reduce the need for grocery store clerks. And this is, indeed, one reason why people are unemployed. It’s also the source of progress over the long term. But technological change is a constant. Firms were seeking to adopt labor-saving technology in 1998 and 2006 and 1967 just as much as they are today in 2011. And yet the unemployment rate was much lower in 1998 and 2006 and 1967 than it is today. Indeed, it seems to me that firms probably try harder to find ways to economize on labor when the unemployment rate is low. The fewer unemployed workers there are, the more expensive it is to hire an extra worker and the more desirable labor-saving technology is.
Maybe Barack Obama has some reason to believe that the pace of technological change accelerated in some unaccountable way during his time in office. But above I’ve illustrated my alternative theory of the recession. It shows that the housing crisis and the problems in the banking sector led to a historically unprecedented drop in personal consumption. It also shows that while consumption has ticked back up, it hasn’t returned to its pre-recession trend level. All else being equal, if households spend fewer dollars, then fewer people will be employed in providing them with goods and services. One strategy would be to ensure that all else is not equal and that government spending fills the gap opened up by the collapse in private spending. But that hasn’t happened. Federal spending has continued roughly at trend levels, and state/local spending has also fallen below trend. The result is mass unemployment.