Yesterday, as I was standing behind hundreds of other job-seekers in line for one of the periodic job fairs held by the New York Post at the Affinia Hotel, I realized how pivotal forums like the Intelligence Squared U.S. debate-pictured above-which I attended on Tuesday are to the economic debate occurring in this country. This was the first in a series of insta-debates hosted by Intelligence Squared, which are intended to “debate a topic at the forefront of current events,” according to the program guide for IQ2.
That topic, in this instance, was President Obama’s proposed jobs plan, which had recently been rejected by the United States Senate. Therefore, the resolution was modified to reflect the President’s legislative defeat: Congress Should Pass President Obama’s Jobs Plan…Piece By Piece.
One of those pieces-as labor economist and former advisor to President Obama Cecilia Rouse pointed out during the debate-is a law that would prohibit firms from publicly dissuading potential applicants who are unemployed from applying for advertised job openings. The tangibility of this issue was brought home during the job fair I attended, when in response to a recruiter asking what the best strategy for being hired is, someone caustically replied, “have a job.” In addition to this provision, which Rouse admitted was mostly a cosmetic measure-mitigated to some extent by discretionary waivers that could be issued by the government, similar to those issued under PPACA-intended to encourage those long term unemployed seeking work, there are a host of other measures that Democrats in Congress and President Obama continue to push in one form or another.
As Professor Rouse described it, 40% of the bill would consist of direct stimulus, e.g. $1,500 in tax cuts for those earning 50,000 dollars or less, the extension of unemployment benefits for those who’ve exhausted their 73 weeks, while 20% would be earmarked for labor cost efficiency. That would encompass everything from an extended payroll tax cut for employers to federal stipends for hiring those who are among the long term unemployed, which as the debate was taking place stood at 6.2 million. Another element of the jobs package would be the creation of a national infrastructure reinvestment bank, an idea that has been in circulation since the beginning of the housing and banking crises in 2007. Most of these measures would be funded through the elimination of certain tax credits attaining to wealthier Americans and hedge funds, something that Mark Zandi-Chief Economist at Moody’s Analytics, and Professor Rouse’s partner in supporting the debate resolution-conceded was “a negative, but a modest negative.”
All of these measures are intended to provide short term stability and integrity to an economy experiencing a profoundly sluggish recovery, notwithstanding its slightly improved showing this 3rd quarter. As Mark Zandi pointed out during his introductory remarks, the 75,000 new jobs that are being added per month need to be doubled simply in order to maintain a stable rate of unemployment. Both Zandi and Rouse emphasized that there would need to long term, deep structural changes in order to achieve permanent economic growth for the foreseeable future. Zandi’s recommendations included reform and simplification of the tax code as well as implementation of recommendations submitted by the deficit reduction commission, a.k.a. the Simpson-Bowles Commission. Professor Rouse, on the other hand, touted the work sharing programs in place in nations that have weathered the recession slightly better the United States; specifically, Germany and Canada. This proposed solution has been suggested by other analysts who’ve tried to resolve the seemingly intractable problem of joblessness plaguing the United States for the past three years.
Both Rouse and Zandi, however, agreed that the best short term solution to the woeful economic problems we’re currently facing is to immediately enact the proposals advocated by the Obama administration. Zandi asserted that the original, 850 billion dollar stimulus package, known as the American Recovery and Reinvestment Act of 2009, succeeded in its intended effect, i.e. propping up an economy that was reeling from the implosion of the housing industry and concurrent banking crisis. In support of this argument, Zandi cited the fact that in February of 2009 the American economy was shedding 750,000 jobs every month, whereas by June of that same year-after the stimulus had been enacted-the economy was showing a monthly increase in job growth. He asserted that we have created 2 million new jobs since February of 2010, demonstrating that the stimulus was an effective stop gap measure in shoring up our economy.
By contrast, the opponents of the debate resolution, NYU Law School professor Richard Epstein and Cato Institute economist Daniel Mitchell, argued that the Obama stimulus plan had been a complete failure, and that enacting a stimulus-heavy jobs bill would simply recreate the same problems found in the first legislative attempt at restarting our sputtering economy. Mitchell took particular aim at the Keynesian underpinning to these plans, which relies upon the notion that government injecting money into the economy will spur private sector growth, without acknowledging that the public sector needs non-governmentnal, private sector prosperity in order to fund its expenditures. He asserted that “government can’t put money into the economy without taking money out,” which amounts to the central critique of Keynesianism. Rather, Mitchell suggested that expanding economic growth entailed expanding the pie, not redistributing pre-existing wealth-a reference to the surcharge that would defray the costs of this jobs bill.
When Mark Zandi claimed that “fiscal stimulus is a tried and true response to recession,” which had been implemented after every major economic downturn since World War II, Mitchell countered that it was a solution that had proven to be a failure time and time again. To buttress his argument, Dan Mitchell cited the 47 percent increase in government spending during four years of the Hoover administration, the over 100 percent increase in spending from 1932-1940, the government support of industry during the Ford administration, as well as the 16 different stimulus programs Japan has experimented with since its lost decade-none of which succeeded in spurring economic growth or job creation-as examples of why centrally planned management of the economy does more harm than good when it comes to creating employment opportunities.
His partner in opposing the debate’s resolution, Richard Epstein, acknowledged that infrastructure spending, such as building roads, bridges, etc., might be justified, yet insisted that the way this spending was channeled through the federal bureaucracy insured that whatever benefit might obtain from such projects would never materialize. He described the institutions set up as a result of the American Recovery and Investment Act as “a massive bureaucracy designed to waste money.” He took aim at the buy America provisions in particular, claiming that these caused the government to spend as much as possible on labor, whereas the goal of businesses is to minimize labor costs. Epstein had a corollary critique of the prevailing wage mandates that contractors accept while working on stimulus projects, which he believes negate whatever benefit might be derived from new construction projects. This is why he suggested stripping the Davis-Bacon Act from any future stimulus projects, despite opposition from organized labor-one of the central themes in Professor Epstein’s argument was that much of the spending overseen by federal agencies is directed at rewarding President Obama’s political benefactors, rather than boosting the American economy.
The opponents of the resolution disputed both the methodology and the figures employed by Rouse and Zandi to support their position; arguing that the projected economic growth forecasted by the Congressional Budget Office after analyzing the proposed jobs bill relied upon a static, econometric model which didn’t reflect real world consequences of government policies or the responses of individuals to those policies. Both Epstein and Mitchell disputed the notion that the first stimulus package had saved jobs, asserting that this claim was not falsifiable. Cecilia Rouse acknowledged that it was impossible to prove a counterfactual, i.e. we can’t know what the unemployment rate would have been had the stimulus package not been passed, but contended that an analysis of states that received more stimulus funds-and experienced job stabilization or growth-demonstrated that it was a worthwhile endeavor in staving off even greater unemployment.
Richard Epstein was critical of what he saw as a decision to raise taxes on the most productive citizens, only to put it “into the hands of the government, which doesn’t know how to use it.” This comment drew a vociferously negative response from the audience in the Skirball Center. Rouse countered with the assertion that there has never been a strong relationship between high marginal tax rates and economic growth, citing what was then the largest tax increase in American history during the Clinton administration which coincided with robust economic growth. Dan Mitchell contested the linkage, but averred that he would gladly exchange the budget consciousness of the Clinton Era-which was eradicated by successive presidents-in return for slightly higher marginal tax rates.
One audience member attacked Rouse’s defense of the Clinton Era policies-both fiscal and monetary-pointing out that many have blamed the Greenspan-led Federal Reserve for the boom and bust cycle that ultimately led to the unraveling of the American economy during the last year of President Clinton’s second term. As to the more immediate question of whether the Obama jobs plan would stimulate economic growth, the supporters of the resolution insisted that congressional action-even in a piecemeal fashion-was preferable to doing nothing, insofar as inaction carried the risk of creating a double dip recession. And while Mark Zandi conceded that “Keynesian theory is not an immutable fact” and “it doesn’t work in every environment,” he believed that in this case, it was dictated by the pressing lack of job growth and continued stagnant housing market. His debate opponents vociferously attacked this assumption, maintaining that the first goal of the government with respect to the economy was to “do no harm.” Epstein encapsulated the philosophy of the resolution’s opponents by stating that, “If you don’t know what you’re doing, don’t spend government money doing it.” His solution was doing away with industrial policy altogether, as well as thwarting microeconomic policies that he felt were retarding economic growth, such as the decision by the National Labor Relations Board to penalize Boeing for moving manufacturing from Washington to South Carolina, the President’s support for card check legislation, in addition to what he described as implicit taxes contained within the health care overhaul enacted by Congress and signed into law by Barack Obama. In the end, Epstein concluded that the best way to boost job growth was to deregulate labor markets through a reversal of the aforementioned Obama-supported policies. Zandi and Rouse rejected the notion that this would do anything to spur economic growth in the short term, and accused their opponents of not having an immediate program for job development.
The audience was unpersuaded by the argument put forth by the opponents of the resolution, ultimately voting in favor of it by a margin of 69% to 22%, with 9% of the audience remaining undecided. That was actually an increase of 24% from the initial pre-debate audience survey, indicating that Cecilia Rouse and Mark Zandi had “won” the debate. It must be said that the result probably had more to do with the ideological inclinations of the audience coming in to the debate than the persuasiveness of the affirmative’s arguments-unfortunately, that’s one of the more problematic features of IQ2 debates, which occasionally cause a reification of political views rather than an expansion of the spectator’s world view. That said, I was still pleased to be able to attend a debate about such a pivotal issue, which featured some of those most knowledgeable about the current economic crisis.
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