Hail Garett Jones!

by on December 3, 2008 at 6:26 am in Economics | Permalink

From the comments, Garett Jones writes:

Here’s a simple neoclassical explanation for the high G (government purchases)–>Low Y (GDP) relationship: 

More high-paying government jobs–>
More people waiting in line for those good jobs–>
Less private-sector employment. 

Queuing for good Davis-Bacon jobs is what creates the problem. 

It’s a new twist on the Cole and Ohanian story of high wages worsening the Depression, and Quadrini and Trigari told it in the Scandinavian Journal of Economics as well as here

There is more at the first link.  I am pleased to report that I have the honor of sharing a corridor with Garett Jones.

1 voracity December 3, 2008 at 8:36 am

Why doesn’t the same effect occur with high-paying industries?

2 Matt December 3, 2008 at 10:50 am

The “waiting in line” effect happens whenever the price is above equilibrium. Rent control makes scarce spare supply by depressing wages. Wage controls, for lack of a better term, creates excess supply.

There are plenty of private-sector jobs out there for people with high school or less, but they pay far less and are far tougher than cush jobs at government agencies. The DMV or postal service are very good for people without college degrees and the jobs are also scarce. NYC bus drivers take home 60+ a year for example.

If the government signals the supply of these jobs will increase, people will decide to apply to these jobs instead of trying out the private-sector.

3 Cyril Morong December 3, 2008 at 3:06 pm

Mankiw has a link to a paper called “Was the New Deal Contractionary?” by Gauti B. Eggertsson of the Federal Reserve Bank of New York

The answer seems to be no. Here is the abstract:

“Can government policies that increase the monopoly power of firms and the militancy of
unions increase output? This paper studies this question in a dynamic general equilibrium model
with nominal frictions and shows that these policies are expansionary when certain “emergency†
conditions apply. These emergency conditions–zero interest rates and deflation–were satisfied
during the Great Depression in the United States. Therefore, the New Deal, which facilitated
monopolies and union militancy, was expansionary, according to the model. This conclusion is
contrary to the one reached by a large previous literature, e.g. Cole and Ohanian (2004), that
argues that the New Deal was contractionary. The main reason for this divergence is that the
current model incorporates nominal frictions so that inflation expectations play a central role in
the analysis. The New Deal has a strong effect on inflation expectations in the model, changing
excessive deflation to modest inflation, thereby lowering real interest rates and stimulating
spending.”

Here is the link to the paper:

http://www.newyorkfed.org/research/economists/eggertsson/WastheNewDealContractionary.pdf

4 Lord December 3, 2008 at 6:25 pm

It assumes some rationale for ‘queuing’ when they could take what is available until they found such a job. While some transitory reasons may exist, these would not persist. Even Walmart generally has long lines of applicants when it opens a new store. Quite lame if you ask me.

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