Markets, Not Economists, Will Help the Economy
By George Will
WASHINGTON -- Three days after the president-elect announced in a radio address that he had directed his "economic team" to devise a plan "that will mean 2.5 million more jobs by January of 2011," he told a news conference that he favored measures "that will help save or create 2.5 million jobs." To the extent that his ambition is clear, it is notably modest.
It is, however, unclear. How will anyone calculate the number of jobs "saved"? In what sense saved? Saved from what? Saved by what? By government action, such as agriculture subsidies or other corporate welfare? What about jobs lost because of those irrational uses of finite economic resources? Should jobs "saved" by, say, protectionist policies that interfere with free trade be balanced against jobs lost when export markets are lost to retaliatory protectionism?
In recent years, in normal conditions, the economy has "lost" tens of millions of jobs through capitalism's "creative destruction" (Joseph Schumpeter's phrase). It also has created a few million more than that, which is why the destruction is creative. Investor's Business Daily reports:
"Since Eisenhower's first term, the economy has created an average of 1.5 million new jobs each year. Since Reagan's first term, the average has been about 2.5 million a year. And Reagan, who inherited an economy as bad if not worse than the current one, saw 6.3 million new jobs created four years after he entered the White House."
Because the economy's job-creation is not quite as predictable as a solar eclipse, Obama, by promising 2.5 million jobs by 2011, is a bit more audacious than was Mark Twain's Connecticut Yankee, who astonished King Arthur's court by commanding an eclipse that he knew was due. Still, because scores of millions of today's jobs will exist two years from now, who will be able to dispute a presidential claim that administration policies "saved" some portion of them?
If you must forecast tomorrow's weather, you will be tolerably accurate more often than not if you say it will be sort of like today's. In normal times, the rule for forecasting next year's economy is similar. The problem is that economic forecasts matter most in abnormal times, such as these. The question is: How abnormal are these times?
A snapshot of a moving target is of limited use, but: Sales the day after Thanksgiving were 3 percent higher than last year. Over the weekend, 172 million people, shopping in stores and online, spent an average of $372.57, a 7.2 percent increase over a year ago, when 147 million shoppers spent $347.55 per person. Is this evidence that the recent deleveraging of indebted households has breathed fresh life into personal consumption, which normally is 70 percent of economic activity? Is it evidence of underestimated strength of an economy in which more than 93 percent of those who want to work are employed, and more than 93 percent of mortgages are being paid on time? Is it evidence that Washington's jaw-dropping interventions with hundreds of billions of dollars are having their intended psychotherapeutic effects? How much is it evidence of the decline of the price of a gallon of regular gasoline from $4.10 in July to $1.81 today? Over a year, every 1 cent decline is a $1.5 billion saving to consumers.
Whatever else historians will say about Washington's response to today's crisis, they are not apt to say the government did too little. It certainly has not suffered the fate of Buridan's ass, the animal in a philosophic puzzle who, placed equidistant from two piles of hay, starved to death from indecision. Some Washingtonians can remember when the federal government first had a budget of $100 billion (1962); this year's decisiveness might contribute to a deficit next year of $1 trillion.
In his wise book "Capitalism, Democracy & Ralph's Pretty Good Grocery," John Mueller, an Ohio State political scientist, notes that John Maynard Keynes' central theme, according to his biographer Robert Skidelsky, was that "the state is wise and the market is stupid." Mueller continues: "Working from that sort of perspective, India's top economists for a generation supported policies of regulation and central control that failed abysmally -- leading one of them to lament recently, 'India's misfortune was to have brilliant economists.'"
Many of them were educated in Britain, by Keynes' followers. In America today, everyone agrees that the president-elect's economic team is composed of brilliant economists.
Copyright 2008, Washington Post Writers Group