This article is part of Back To Full Employment, a forum on the possibilities for full employment in todays economy.
Thanks to assorted special interests and inept government officials, we have now witnessed the worst economic crisis since the Great Depression. Yet Robert Pollin avers that other special interests and officials can revive the economy if theyll make the right choices about where to invest billions of dollars borrowed from future generations. Were skeptical. Here are three reasons why.
First, while some details of the causes and consequences of the economic crisis are still emerging, we know that part of the problem arose from the excessively easy credit policies followed by the worlds central banks, particularly the Federal Reserve, after 2001. Another cause was the politically driven misbehavior of the giant government-sponsored enterprises Fannie Mae and Freddie Mac. And we know the immunity from liability that the government provided to credit-rating agencies, together with inept regulation of them, destroyed the functioning of market signals of credit-worthiness.
If you still doubt the inability of government regulators to handle complex financial matters, look no further than the Securities and Exchange Commission (SEC). The SEC failed to recognize the fraud committed by Bernard Madoff even as Harry Markopolos, a private citizen, repeatedly blew the whistle. This is only one example of the governments terrible record with respect to economic management.
The failure of the neoliberal project is a catchy slogan, but it ignores the fact that policies advocated by Pollin suffer from the same structural problems as those that caused the crisis to begin with.
Second, Pollins plan is a repackaging of the failed policies of the Nixon-Ford-Carter decade of inflation and unemployment. During those years, the federal government intervened massively in pursuit of full employment. The Federal Reserve was instructed to make full employment a policy goal equal in importance to controlling inflation. It didnt work. Unemployment fell only when Federal Reserve Chairman Paul Volckers tight-money policies broke inflation and President Reagans tax cutting and deregulatory efforts encouraged entrepreneurs to create jobs.
Job creation is less difficult than Pollin would have us believe.
The Nixon-Ford-Carter failures included not only the same kind of economic policies that Pollin promotes, but also the same sort of energy plans. During the 1970s the federal government launched expensive green-energy schemes. These included multi-billion-dollar research and development programs that Pollins predecessors claimed would free us from foreign oil by producing gasoline from coal, free electricity from solar and wind energy, and energy-conservation to cut consumption.
Rather than leading to a clean-energy future, the programs squandered billions of dollars. Rather than progress toward a cleaner environment, efforts to combine environmental and job-creation goals led to the appalling special-interest deal-making of the 1977 Clean Air Act Amendments, documented in Bruce Ackerman and William Hasslers landmark Clean Coal / Dirty Air (1981). The Amendments shifted electricity production away from less-polluting low-sulfur coal by favoring dirty high-sulfur coal in pursuit of employment goals in places such as West Virginia. Such special interestdriven energy policy is repeated today with corn-based ethanol, now recognized as an environmentally destructive, expensive failure that has driven up food costs for the worlds poor. The green-energy record is a series of failed technologies and special-interest pork.
Perhaps the bureaucrats and politicians who direct todays programs are wiser than their predecessors and will avoid the mistakes and special-interest giveaways of the past. But lets see some evidence of this before we gamble our childrens environmental and energy futures on claims of good intentions and superior knowledge. The recent stimulus program has failed: the money did not produce jobs or growth. Stanford economist John Taylor, drawing on his own research, testified before Congress that government spending in the stimulus package was uncorrelated with improved economic growth. Allocation of the stimulus money was dictated by politics rather than economic sense. Should we anticipate otherwise in the case of green-energy investment?
Third, even if we could solve the special-interest pork problems, avoid repeating the failures of the 1970s, solve the regulatory-competence issues illustrated by the SECs failures, prevent the Federal Reserve inflating a new bubble, correct the incentive problems of the credit-rating industry, and somehow fix Fannie and Freddie, wed still be left with a major problem. The green-energy programs Pollin proposes will destroy jobs, not create them. Solar, wind, ethanol, and the rest of the green pantheon are all more expensive sources of energy than are fossil fuels, large hydroelectric installations, and nuclear power. Thats why Iowa corn farmers and corporate interests such as Archer Daniels Midland need subsidies to manufacture ethanol. Energy costs make up about half the cost of producing food, medicines, and consumer goods. What Pollin is proposing is to increase the cost of virtually everything American workers buy by borrowing money from their children and handing that money over to special interests drawn to politics like flies to honey.
Creating well-paying jobs is less difficult than Pollin would have us believe. The United States has done it time and again, as it transformed from an isolated, agricultural backwater in 1800 to the worlds leading economy. Secure property rights and relatively low taxes unleash entrepreneurs and inventors to create wealth and jobs. Sensible, stable tax policy would both encourage employers to hire and consumers to spend much more than will politicized pork-barrel spending. If more rapid innovation in energy production is necessary, then we should rely on prizes for performance, which have successfully sparked innovation in everything from navigation to space flight.
Lets learn from our mistakes, not repeat the policy debacles of yesteryear. We dont need to go back to the failed Nixon-Ford-Carter energy and economic policies. We need to nurture an economy in which entrepreneurs are able to compete to create new technologies, jobs, and wealth, without political interference.
Andrew P. Morriss is D. Paul Jones Jr. & Charlene A. Jones Chairholder of Law at the University of Alabama and Senior Fellow at the Property and Environment Research Center.
Roger E. Meiners is Goolsby Professor of Economics and Law at the University of Texas, Arlington and Senior Fellow at the Property and Environment Research Center.
Back to Full Employment, a forum on the possibilities for full employment in todays economy.