All the king’s horses and all the king’s men…

Here is another factor behind the recent German economic success:

A vast expansion of a program paying to keep workers employed, rather than dealing with them once they lost their jobs, was the most direct step taken in the heat of the crisis.

There is much more of interest here.  I would describe this as a major, still uninternalized lesson of the recent crisis, with its roller coaster-rapid dips.  In a highly specialized modern economy, it is much easier to prevent jobs from being destroyed than to create them again, at least assuming those are "good" jobs in the first place.  (Yes, people thought they knew this but it's an even stronger difference than had been believed.)  The U.S. auto bailout, for instance, worked better than did most of the stimulus program.  Most of the Austrians would disown this point, but you can pull it right out of Lachmann's Capital and its Structure

We should have cut the payroll tax as soon as possible, an idea which I might add Alex was promoting quite early on.

Comments

Even if it inhibits structural reallocations to correct the imbalances that caused the crash?

It seems at best unwise and at worst inviting corruption to suggest that the government be the arbiter of which jobs are "good" jobs and deserve to stick around, while which ones are part of a restructuring and will never return.

"..it is much easier to prevent jobs from being destroyed than to create them again": this is surely just another way of stating a pretty ancient insight, namely that it's easier to destroy a business than reconstruct one. That's why statesmen fret about inheritance taxes destroying businesses; that's why sales of businesses attract payments for "goodwill". No?

We should have paid construction workers in Vegas and Phoenix to keep building homes with no one to move into.

There is a better answer than Germany's - our unemployment program after 26 weeks should REQUIRE any recipient to work as requested by local entrepreneurs.

And local entrepreneurs should be able to hire from this the unemployment rolls at discount and without normal licensing hurdles (sub-minimum wage and very few hoops to jump through) for set periods of time.

We want a crazy vibrant start-up culture, one that eschews rules, regulations, labor costs, etc. It doesn't matter if 80% fail, we want the risked capital, the crazier chances taken.

Get back to basics. Make it as wild west as possible. If there is truly "unused capacity" let the wildcatters at it.

SuperTyler, please take a break. You deserve it. You have already been admitted to the Journolist and beaten deflation (Yesterday I congratulated you about your victory and earlier today it was pleased to hear the latest report confirming that deflation has been defeated).
Enjoy your success and don't read Arnold Kling's pointed critique of your post. Arnold likes to make things look more complex than they are. (see http://econlog.econlib.org/archives/2010/08/which_jobs_to_s.html )

Ouch! Kling delivers a withering criticism of Cowen's post.

to E. Barandiaran:

as for major Arnold objection on 'how to figure out whom to help and whom not'

actually the problem though difficult is not unsolvable with the right tools.

take a look at http://www2.econ.iastate.edu/tesfatsi/DSGEVersusACEMonetaryPolicy.fagiolo_roventini_2008.pdf from here http://www2.econ.iastate.edu/tesfatsi/amulmark.htm

it is still a way to go - but at some point it could reveal where to apply right measures with quite a bit of certainty.

BTW there are some new on old 'calculation debate'
I think that some errors might be here still very interesting
http://ideas.repec.org/e/pco108.html though I know both Tyler and Alex would laugh at 'computational machines' like those used by Allende in project Cybersyn

but with info actually being provided in Cybersyn network an approach described here http://ideas.repec.org/e/pco108.html might actually work and better than USSR economy did.

so to put it short - while expectations that 'it is not possible to compute whole economy' was definitely right years back it is almost not correct for now and will be less correct in future. It is still a question - to which extent such computations could help or harm.

But old defense against Tyler like proposals would not work.

We should have cut the payroll tax as soon as possible

Why would that tax cut create any more jobs than the Bush tax cuts that created fewer jobs than the Clinton tax hikes, at best 7 million jobs for the Bush tax cuts vs 20 million jobs for the Clinton tax hikes which were on top of the Bush 1990 tax hikes. In fact, between the two Bush tax hikes in 89 and 90, plus the Clinton tax hike in 93, over 25 million jobs were created in 12 years, about 2 million jobs a year over that extended period of time. The six Bush tax cuts resulted in 7 million jobs, many devoted to building homes that no one could afford to buy.

What would people do with a payroll tax cut: take a European vacation? Funding individual consumption with long term Federal debt seems to be too much like a return to Bushonomics.

Or maybe payoff consumer debt? Isn't that another failed policy of the past decade: converting short term debt into long term debt?

When have tax cuts ever resulted in real employment growth?

Maybe individuals would take their payroll tax money and pool it to have failing highway bridges repaired or replaced? Just had a couple of bridges closed in my area because these long red listed bridges have been found to be falling apart and at high risk of collapse.

Interesting NYT article, thanks. I'm glad of Germany's "export-driven success," but the US economy hasn't been export-driven for a while, and not every country can be a net exporter. Anyway, at this stage of the game, with five people begging for every job, I'd thing we will need another WPA if we are to avoid a Greater Depression, or at best a Lost Decade or two. Tweaking the tax system seems clearly inadequate to the task.

And Morgan, why would you want to force a person drawing already-inadequate unemployment insurance to take a sub-minimum wage job? Do you want them to starve?

seems the obvious problem with this approach is that layoffs can reveal hidden efficiencies that would remain hidden by intrusive gov't subsidies - this is the whole problem associated with gov't interference, no? Sure, GM can seem like a good deal in the short term, but when will that seedling turn into a weed the gov't insists on calling a flower?

Better yet, make the payroll tax cut a subsidy, and make it targeted.

Cognitive dissonance, anyone?

"a program paying to keep workers employed..."

The program is called "Kurzarbeit," which is German for short-time working. The basic idea was to avoid layoffs by paying people to work fewer hours than usual. In its 2010 Employment Outlook report, the OECD included a 20-page section evaluating the success of short-time working schemes.

http://www.tuac.org/en/public/e-docs/00/00/07/4E/document_doc.phtml

"Three examples of somewhat novel policy initiatives emerge from this chapter as being particularly likely to shed new light on policy strategies for reducing the social costs associated with recessions and supporting strong labour market recoveries. First, many countries have introduced or significantly expanded short-time work schemes in order to preserve existing jobs. The chapter’s analysis suggests that these schemes have had considerable success in limiting layoffs, at least through most of 2009, but it is too early to judge how they will affect the vigour of hiring and productivity growth going forward..."

I suppose the recent GDP news out of Germany is offering some preliminary evidence on that last point!

But the lesson out of all this still seems to be AMERICAN ECONOMISTS MUST NOT TALK ABOUT SHORTER WORKING TIME (with the notable exception of Dean Baker, of course). After all, to suggest that shorter working time might combat unemployment is to commit the imaginary "lump-of-labor fallacy."

And why do economists dislike a "lump of labor"?

The lump-of-labor fallacy has been called one of the "best known fallacies in economics." It is widely cited in disparagement of policies for reducing the standard hours of work, yet the authenticity of the fallacy claim is questionable, and explanations of it are inconsistent and contradictory. This article discusses recent occurrences of the fallacy claim and investigates anomalies in the claim and its history. S.J. Chapman's coherent and formerly highly regarded theory of the hours of labor is reviewed, and it is shown how that theory could lend credence to the job-creating potentiality of shorter working time policies. It concludes that substituting a dubious fallacy claim for an authentic economic theory may have obstructed fruitful dialogue about working time and the appropriate policies for regulating it.

http://tinyurl.com/lumpoflabor

Well, it looks like throwaway e-mail (whatever@why_do_you_need_to_know.com) is not allowed at Kling's place.

But this comment fits fine here -
'Trying to save existing jobs is a fool's errand, comparable to trying to keep defaulting mortgage borrowers in their homes.'
Remind me again which economy just posted over 8% growth, much of that growth concentrated exactly in those sectors covered by Kurzarbeit (here is a hint - Kurzarbeit applies only to what one would call manufacturing, though since the mid-1990s, that definition has expanded to include such areas as software)?

The lack of awareness of what an industrial economy actually requires to remain successful competing in world markets is striking. Though maybe not - after all, both the UK and the US have been providing a generation (generations, in the case of the UK) long example of how to destroy a successful industrially based economy.

Germany, on the other hand, even with its apparently flawed governmental intervention to preserve its industrial economy, seems to actually understand how to remain successful in world markets based on industrial goods and production.

I also notice that Sandwichman emphasizes one of the largest points Americans miss about Kurzarbeit - 'The basic idea was to avoid layoffs by paying people to work fewer hours than usual.' And why might that be?

A concrete example - company A notices orders fall 20%. Company A's workers work 20% less, and yet most of the difference in pay is covered by government funds. This allows the factory and its workers to continue to work at 80%, and if orders have not picked up after a fixed (if now a bit more flexible than in the past) time, then 20% of the workers will have to be let go. But if orders have picked up in that intervening time, then the company A returns to its previous production level with zero disruption, and with a bit of luck, will then profit from having not destroyed itself, its supply chain, or its customer relations due to some American idea of how the marketplace for industrial products works. As compared to how it really works, but then, most Americans are not really acquainted with what a successful industrial economy looks like anymore.

I might add, Kurzarbeit is another one of those German ideas which does have a bit of a history behind it - its roots stretch back to 1910, though its modern German aspect is from 1957.

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