Bill Clinton Visits the Daily Show

Bill Clinton Visits the Daily Show
by Alex Merced

(This is in Reference To This interview on the Daily Show)

 In former President Bill Clintons appearance on the popular satirical news show "The Daily Show" I had to say I was very surprised at Clintons candidness. Clinton, shockingly enough somewhat understood the problems that are preventing the economy from moving foward much better than any Keynes following demand sider I've heard so far. I'm not saying that all of the suddent Bill Clintons an ally or fellow traveler, on the contrary he's very far from what I would remotley call a friend of Free Markets. In that I'd like to respond to many of his points and clarify some of his mistakes.

Worker Mobility

This is actually something I discussed on my series on labor economics, you can read what I wrote about worker mobility here. While Cliton ackowledged that the problem isn't the lack of jobs but the lack of qualified and geographically available labor (the local people don't have the rights skills, and the ones that do are stuck in houses they can't sell). Although what he doesn't venture into is why we have this gap in mobility and skills, cause it then dims the picture on his major policy recommendation... government guaranteed loans.

It's cause of the implicit government guarantees on Freddie/Fannie loans, and the explicit guarantee on Ginnie debt that was the major catalyst for many of these people stuck in these homes which they now can't sell and are less valueable than the loans they took due to price bubbles caused by government guaranteed loans. Easy

It cause of the government guarantee of Sallie May debt that so many people can more easily and painlessly pay lavish tuitions at schools and walk away with degrees in which they learned very few if any practical skills in recession  (My Bachelors is in Popular Culture Studies) and not skills that offer versatility in a changing job market (copywriting, data analysis, marketing, visual arts, programming/web design).

I'm not saying there is no value in a degree in something like ethnic studies and popular culture, but the risk in entering and succeeding in those fields is similar to that of joining the NBA. Essentially, like anything else easy money makes it easy for people to take more risk than they would usually take, if people had to pay higher rates on their loans or didn't get other types of financial aid they'd be more prudent in developing their skills (they'd still minor in their interest, but more than likely major in something like marketing or visual arts which is used in ALL industries). I can attest to this since I would of probably stuck with my original major, Computer Programming, if I was not on a scholarship. Actually I probably would've went to a local community college and transferred later on which would be the more prudent decision.

Bottom Line, since students were willing to take more risk in which skills to invest their education dollars you had a mal-investment or bubble in degrees which could not yield a return on the investment which results in a over supply of labor for some things and shortage of supply for other things. This is essentially mini occurances of the Austrian Business Cycle (easy credit leads to mal-investment which leads to market corrections).

So what would one expect if Bill Clinton had his way and Government Guaranteed loans were made for Small Businesses (it already happens under SBA, Clinton only wants to expand SBA). You'd have more small businesses starting which for sure would create jobs, but only some of those jobs would be sustainable since many of these new businesses might have risky business models that were made possible by this government guarantee (the bank wouldn't loan to a risky model naturally, so the entrepeneur would have adjust his model). The sustainable jobs that are created would've existed anyways since these companies have sound business models that would be able to be capitalized normally. Of the businesses that normally would have not gotten loans only a small chunk might survive which doesn't justify the mis-allocation of investment in the ones that don't survive which then taxpayers foot the bill for.

Construction Jobs

Clinton goes on to talk about green infrastructure and construction jobs because construction is where the most unemployment is (cause the bubble was in housing construction, so many people forgoes developing other skills to participate in the glut of construction demand at the time). Although using the same mechanism of guaranteed loans to create construction jobs is the reason so many people were concentrated in those jobs and are now unemployed in the first place. The 25% unemployment in construction workers isn't a signal that this is an industry that needs stimulus, it's a result of the mal-investment from the housing bubble and sustaining it will make that number bigger in the long run when the bubble re-occurs and even more of the workforce if over-concentrated in construction.

Bottom Line

Tax Cuts for Small Businesses and deductions for particular expenditures is the equivalent of easy credit as far as human behavior, so the solution from the republicans isn't appetizing as well. Although, instead of trying to understand why the situation is what it is, Cliton uses the current state as justification that there is need of more the current government subsidies to different industries.

In Order for the economy return to a sustainable functioning economy, participants need the incentives to make sustainable decisions and that incentive is called "Risk". Loans, Deposits, Insurance, or anything else should not be guaranteed by taxpayer money, and if those moral hazards are removed then people at all levels will be more prudent which means lowering taxes and giving them their money back would make a whole lot of sense since the population will have the right environment to make the right decisions.

Labor Economics #2 - Labor Geographic Mobility

Labor Economics #2 - Labor Mobility
by Alex Merced

 There is usually a decent job somewhere out there waiting, but the ability for someone to take advatage of that oppotunity also has to do with their willingness and ability to move to where the job is located. Like all capital, labor can be mal-invested for many reasons and this problem occurs out of the laborer actions themselves. Capital usally naturally moves to where it's needed, but if it does not in the form of labor or can't it can slowdown growth or a recovery. While many people will always be hesitant to move due to family, friends, and the life they'd leave behind I want to explore how policy can and usally makes this problem well... more problematic.

Problem #1 - Housing

In the US in particular they've made the pursuit of something they like to call an "Ownership Society" where more and more of the population owns homes. Although ownership of the land or house that you live in, can make it quite encumbering to make changes and follow the demand for labor leaving someone stuck in a bad labor market. So while well documented are all the bad loans, derrivatives, etc. from all the housing incentives in the US, less talked about in the media is reduction in mobility caused by pushing for more housing ownership by more and more people.


Problem #2 - Employer Benefits

If your someone who really enjoys the benefits that your current job provides you you may forgoe a better opportunity elsewhere (I guess it wouldn't be better if you didn't choose it). So one thing the government can do to make things worse is to make more and more services that you may have purchased individually intrinsically attached to employment such as what was done with healthcare and retirement in ERISA in 1974. So if legislation and at the time much higher tax brackets cause an overwhelming incentive for employer to take care of you instead of you yourself, then it'd be difficult to cut ties with an employer in order to keep those non-monetary benefits.


Problem #3 - Local Wage Laws and Taxes

Sometimes Labor doesn't need to move where the demand is, the demand can move to where the labor is. A good example of this is where people start web start ups in cupertino cause it's know for having a base of technology oriented labor. Although some businesses may not move their offices or operations to somewhere with a huge supply of labor with certain skills if the taxes are too high or labor laws too penalizing which actually tend to be the places that give labor the kind of government benefits where they wouldn't want to move from (I'm looking at you California), this is a bad combination of mobility reduction.


The interpersonal reasons why one may move or not move somewhere are endless, but government policy can often create harfmful manipulations of these incentives.