I’m a Krugman/DeLong sort of guy when it comes to economics, but I do try to as read widely as my limited free time permits. Even more so since the crash. And I do read the critiques of infrastructure spending. That’s a small reading list lately. But it’s there.
Reading the Becker-Posner blog today, I am reminded of the traditional conservative critique of infrastructure investment, that it “crowds out” private investment:
If the government increased its spending on infrastructure when the economy has full employment, its main impact would likely be to draw labor, capital, and raw materials away from various other activities. In effect, increased government spending under these employment conditions would “crowd out” private spending. Measured GDP would not be much affected, if at all.
The broad answer to this challenge is (I think) that risky assets are currently undervalued by the marketplace, and while that is the case private spending is likely to be timid, and several steps and a couple death spirals down the flow chart later, this results in excess unemployment. And by definition, where government projects cut into excess unemployment (rather than pull from a workforce near optimum employment), they can’t be crowding out private initiatives. That is, after all, what the “excess” in “excess unemployment” means.
Becker concedes that these are not normal times, and different rules apply. But then he asks what I feel is a legitimate question — how are we sure that people are pulled from the right part of the workforce?
For another thing, with unemployment at 7% to 8% of the labor force, it is impossible to target effective spending programs that primarily utilize unemployed workers, or underemployed capital. Spending on infrastructure, and especially on health, energy, and education, will mainly attract employed persons from other activities to the activities stimulated by the government spending. The net job creation from these and related spending is likely to be rather small. In addition, if the private activities crowded out are more valuable than the activities hastily stimulated by this plan, the value of the increase in employment and GDP could be very small, even negative.
I disagree, of course, with the main idea, that people in private industry with good jobs will flee to government stimulus jobs. Jobs are the new black, and in this economy if you know you are not replaceable at your current job, that’s probably enough incentive to not go looking for greener pastures.
However, there is a particular reading of that concern that makes sense. If 100,000 auto assembly line people lose their jobs, and the stimulus creates 100,000 jobs laying fiber optic lines, there’s a bit of a disconnect there. To be effective, stimulus jobs have to require the skills possessed by a large set of unemployed people.
Which brings me back to the why OCW production is such a perfect candidate for infrastructure development. It is a generalist endeavor.
If a plan was implemented to put two $35,000/yr OCW production positions at every school which wanted to put 40 courses online over the next year, it would not crowd out any significant private initiatives (I’m in a position to say that with some certainty, given my job). And even more importantly, the generalist nature of the position (record audio, coordinate document publication, set up a simple web site) ensures that people doing common office work in other industries could easily cross over into OCW production. We’re not talking about a specialized pool of labor where there may be some constraints.
I’m not saying, of course, that there aren’t specialized skills and talents that an OCW team develops. There are. But there isn’t a specialized OCW workforce at this point — if major infrastructure money was to be spent jump-starting OCW production the pool of government-funded workers would so dwarf the current pool of OCW workers that any talk of the demand for new OCW workers being met by reapportionment of people in the profession would be ridiculous.
The only negative effect I can see is that since it might increase demand for the small pool of experienced OCW workers that currently exist, it could result in slight wage inflation for current OCW workers, a result that I might like, but which would be harmful to the bottom line of many nascent initiatives. The solution to that, though, is simple: just adjust the wage paid to the new jobs to 80% or so of the current pool — a good rate for entry-level workers, but raw deal for the more experienced.