The past week brought news of US double-digit unemployment and the Federal Reserve’s decision to maintain near-zero interest rates. Both pieces of news expose the inadequacy of US economic policymaking. The Obama administration’s stimulus policies are not well-targeted.
During the previous bubble, the US consumer was encouraged to over-borrow. Recreating a new bubble is like offering just one more drink, on the government’s account, to overcome a mass hangover. With budget deficits of about 10 per cent of gross domestic product, government spending needs to be far more consequential than temporary boosts to consumer spending.
The Republican alternative is equally fatuous. For every problem there is a single Republican answer: tax cuts.
OK, so far so good, though it's worth noting that Sachs's characterization of Republicans doesn't apply to all (e.g., Bruce Bartlett).
Sachs goes on to recommend a three part solution:
1) An increased emphasis on exports and infrastructure (makes sense).
2) " " Education (doesn't make sense).
3) " " Green energy (doesn't make sense, except, perhaps if it's limited to nuclear which many environmentalists don't consider to be green. Spain, the world leader in wind power, had 19.3% unemployment as of October).
On education, Sachs writes,
The unemployment rate among college graduates is only 4.7 per cent, while it is 15.5 per cent among those without a high-school diploma. The US woefully under-invests in education outlays for the poor, who drop out of school and then cannot find gainful employment.
First, I'm not sure what Sachs is talking about with respect to under-investment. We spend plenty on education -- 7% of GDP, versus 4% for defense. We spend more per student on primary and secondary education than Japan does.
Second, this is the kind of thing I guess someone might write if he had never gone to public schools growing up and were ensconced in a sinecure at Columbia University. It must make perfect sense from Sachs's perspective: unemployment rates are lower for college grads, so let's just turn those high school dropouts into college grads. It probably has never occurred to Jeffrey Sachs that most high school dropouts dropped out because they didn't have the aptitude for college prep work in high school, let alone college itself.
Sachs seems unaware of the higher education bubble (As Sheila Tone noted recently at Hit Coffee, even last week's Florida shooter had been a participant in it).
Now for Sachs's glaring omission:
The president has lost the economic initiative, weighed down by a tedious fight between two outmoded ideologies: Keynesianism and supply-side tax cuts, as well as by the president’s excessive deference to Congress.
Can you think of another domestic policy initiative that has preoccupied the President this year (Hint: it rhymes with "stealth care")? I suspect Sachs knows that, as Tsinghua University Professor Yu Qiao warned back in April, the administration's emphasis on social spending could "delay sustainable recovery". But he probably is in favor of the Democrats' proposed health care reform and figures that, politically, this is their best chance to enact it, even if it's the wrong priority economically. Hence, Sachs's omission.