Two wise men, Nader and Shiller, make the same point several days apart

On Sunday, I happened to catch Ralph Nader on CSPAN talking on a range of topics. He spoke with great knowledge and wisdom on each issue, and I agreed with everything he said. (I wish I could have watched more, but my boy came and insisted on watching “Dinosaur Train.”)

One of the callers asked Nader’s opinion on how corporations use language to shape our thinking. Nader noted that most economic statistics frequently cited by the (corporate) media — like the Dow Jones Industrial Average and S&P 500 stock index — relate to producers, not ordinary people.

A recent article by one of my favorite economists, Robert Shiller, makes the same point, with a very specific call to target stimulus spending not at boosting GDP but at creating jobs:

On a Wyoming highway [my friends] saw a sign that read “Putting America to Work: Project Funded by the American Recovery and Reinvestment Act” and prominently featured a picture of a worker digging with a shovel. Out on the road, there was plenty of equipment, including a gigantic asphalt paver, dump trucks, rollers and service vehicles. But there wasn’t a single laborer with a shovel. That project employed capital, certainly, but not many human beings.

Like many such stimulus projects, it could be justified if you accept the idea that gross domestic product, not jobs, is central — a misconception rooted in economic theory, or at least in the way that Keynesian economic theory has evolved.

The conventional concept of “recession” has been defined in terms of G.D.P., not unemployment, which is perceived as a “lagging indicator.” It is widely assumed that jump-starting “the economy,” as measured by G.D.P., is the most fundamental move we should make….

Why not use government policy to directly create jobs — labor-intensive service jobs in fields like education, public health and safety, urban infrastructure maintenance, youth programs, elder care, conservation, arts and letters, and scientific research?

Would this be an effective use of resources? From the standpoint of economic theory, government expenditures in such areas often provide benefits that are not being produced by the market economy. Take New York subway stations, for example. Cleaning and painting them in a period of severe austerity can easily be neglected. Yet the long-term benefit to businesses from an appealing mass transit system is enormous.

Posted by James on Tuesday, August 03, 2010