Keynes’s Old Tricks Don’t Work Anymore

In “Not Your Grandfather’s (or Keynes’s) Economy” economist Arnold Kling offers rational argumanets why the federal “stimulus” bill is not working and won’t work to create jobs.

Most striking to me was a Bureau of labor Statistics graph showing that as of 2008, manufacturing jobs represent only 6.9% of the American workforce, down from 27.5% in 1948. The Economist Pocket World In Figures, 2008 Edition suggests that agricultural employment in the US is only 2% of the workforce. Forestry, fishing, mining and other primary resource extraction industries do not employ huge percentages of the US population either.

So what do we sell to the rest of the world, to balance out imports from trading partners and to pay for our ever burgeoning foreign debt? Optimists point to a huge and under-counted export in software, engineering services and other intellectual property of our engineering and scientific communities. But the reality is that China, India and other developing nations have millions of smart, aggressive and increasingly well educated scientists and engineers starting to compete with us aggressively in professional arenas we once completely dominated.

If only 10 or 15% of the workforce are needed to produce not only most of the domestically produced stuff we use here in the United States, but also most of the stuff we export, that leaves the rest of the population fundamentally providing services of one kind or another to each other. But there is only so much service a country can afford if we aren’t producing net economic value for export to the rest of the world.

If we look at the largest economic growth area in the last generation, it has been the information economy – microprocessors, computers, software, the internet, telecommunications. Industries that barely existed when I entered the workforce have completely transformed the world, creating massive wealth of opportunity for people worldwide. This incredible creative productive boom has been largely unregulated by government.

It seems to me that a lot of the good jobs the government is trying to stimulate are being destroyed rather than being “created or saved” by excessive government interventions. Until we recreate the dynamic competitive markets that allows us to unleash entrepreneurial creativity and regain traction in world trade, our economic prospects do not appear very bright. Excessive government burdens on the economy aren’t going to help.

As Kling suggests:

“Over the next ten years, some sectors of the economy on long-term downward trends will continue to shrink……….. Much of the new strength in the economy will come from underlying long-term forces. New workers will be absorbed by businesses that have not yet been launched in industries that we have not even imagined. For this restructuring, what I like to call The Great Recalculation, Keynesian stimulus will be irrelevant.”


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