Nobel Economic Recipe: Help States, Add Stimulus

[one...two...tree 2,762]

It's been more than a year since the recession officially ended. The U.S. economy is growing — albeit slowly — but high unemployment rates just won't budge. Traditional economic remedies, such as cutting interest rates, aren't making a dent.

Peter Diamond has some ideas on how to break that logjam — a second round of stimulus and a lot of federal money to keep state and local governments from laying off workers.

And Diamond's got the credentials: Earlier this month he was one of three co-winners of the Nobel Prize for Economics.

Diamond tells NPR's Guy Raz it's not going to be a quick fix, though.

"Getting unemployment down to a more normal level is going to take a long time, as in at least a couple of years," he says.

The big problem: Not enough businesses are willing to expand and hire workers.

"What's critical is not right now the functioning of the labor market, but the limits on the demand for labor coming from the great caution on the side of both consumers and firms because of the great uncertainty of what's going to happen next."

Looking Local

The first part of Diamond's prescription is another jolt of federal help for state and local governments to keep their workers — especially police and teachers — employed.

"The layoffs from state and local government are first of all bad in and of themselves because a lot of what these people do is so valuable. But secondly, when [these people] become unemployed, they spend less and that cuts down the demand."

And Diamond thinks Washington needs to administer another dose of short-term spending, in areas such as construction.

"We've identified a vast amount of need in roads and bridges and tunnels and we should be pursuing valuable expenditures now at a time when the cost to the economy, the cost to society is a lot less because a lot of the workers being employed aren't being drawn away from private projects."

Diamond says investing in public works projects is worth the risk of increasing the deficit.

But Are Politicians Listening?

Diamond isn't the only economist calling for more short-term stimulus, in fact almost every economist Weekend All Things Considered has talked to in the last few weeks echoes that sentiment. But finding common ground with the politicians in Washington and the people on Main Street is another story.

"The first stimulus bill, by all quantitative estimates produced a huge amount of additional employment," Diamond says. "But that stimulus bill has extremely unpopularity with the American public, even though in the eyes of economists it was a great success."

Economists such as Diamond look at the counterfactual — what would have happened without the stimulus bill — and reason that because unemployment would have been much higher, the stimulus bill was a success.

But that's a tough political sell.

Still, Diamond says, "There's so much uncertainty now between the error of doing too little and doing to much. Doing too little seems to me to be much greater risk."

http://www.npr.org/templates/story/story.php?storyId=130955806&ft=1&f=1014

[JohnSmith2007 353]

Thank God this sort of thing is off the table after tuesday. Lets just borrow more money, that is the solution to everything.

[Ban Hammer 13,470]

Thank God this sort of thing is off the table after tuesday. Lets just borrow more money, that is the solution to everything.

exactly - the dem plan must be to throw more money at it until something sticks.

[I AM NOT THAT GUY 5,715]

There is nothing noble about Nobel anymore.

[luckytxn 2,265]

Probably the best thing to get businesses hiring would be for them to know how much of their own money they can actually keep. Not knowing how much the Feds are going to siphon off the top hurt and then the Feds making laws that force them to be care givers and not knowing how much that is going to cost them. They also have competitors they must compete with and need to see if they are affected the same amount. It is tough to be in business especially since your own government sees you as a enemy in class warfare and tells everyone how bad you are.

[Pooky 3,825]

Peter Diamond has some ideas on how to break that logjam — a second round of stimulus and a lot of federal money to keep state and local governments from laying off workers.

There is no Federal money. It's all someone else's money right now. That's a problem.

[luckytxn 2,265]

There is no Federal money. It's all someone else's money right now. That's a problem.

We are the Feds. We allow them to do whatever we tell them to do. The one that offers us the most money from the treasury wins. We will always be this way too. There was a time we elected our Reps by the way they were fiscally responsible but those days are gone.

[Obama 2012 1,714]

exactly - the dem plan must be to throw more money at it until something sticks.

sounds alot like what they do with education...

[The_Dude 1,142]

sounds alot like what they do with education...

Because No Child Left Behind was such a roaring success.