Oh, my aching head: Robert Samuelson edition

I'm thinking of a recurring theme in my blog, specifically "Oh, my aching head", for writers, columnists, and pundits who torture economics and economists by oversimplifying economic theory. Today's "Oh, my aching head" is awarded to Robert Samuelson

A Phony Jobs Debate (washingtonpost.com):

We are having a ferocious jobs debate, most of it fraudulent. If presidents could easily create jobs, the unemployment rate would rarely exceed 3.5 percent. But all they can usually do is influence the economy through taxes, spending and regulatory decisions -- and hope that job growth follows. In our market system, private employers play the pivotal role. They will add jobs only if: (a) demand justifies new workers; (b) labor costs aren't at unprofitable levels; and (c) they think healthy economic conditions will last.

Why is this debate fraudulent? Specifically, why is it a fraud to discuss the policies that the president has put in place, and discuss whether or not they've worked?

Facing a weak economy, a government can do three things: cut interest rates; run a budget deficit; and allow -- or cause -- its currency to depreciate. The first two promote borrowing and spending; the last makes a country's exports cheaper and its imports costlier. All these weapons have been deployed. Bush's policies are mostly standard economics; based on past patterns, these policies should have produced stronger job growth. But private employers have resisted hiring. "Economists are scratching their heads," says Randell Moore, editor of the monthly Blue Chip Economic Indicators, which surveys 50 economic forecasters.

Not all economists are scratching their heads. Samuelson oversimplifies by saying that "run a budget deficit" is one of the things government can do. Specifically, government can either increase spending or cut taxes to stimulate the economy. According to post-Keynesian thought, you get a bigger boost (econspeak: a larger multiplier effect) from government spending than from cutting taxes. Also, for tax cuts to work, they have to be targeted to people who will spend the money (econspeak: people whose marginal propensity to consume is high). Bush's tax cuts have been targeted at those who are rich, and who save the money, thus their marginal propensity to consume is low. And this has been one-half of the government stimulus, and caused one-third of the budget deficit.

If this had instead been used for increased spending, or tax cuts for the lowest income groups, I think we would be seeing increased demand for domestically produced goods and job creation.

We don't know. But what we can know is that policies from a President Gore or Kerry or Edwards wouldn't have improved matters much. Of course, Democrats might have discarded some Bush policies: say, tax cuts for the rich. Still, the main forces shaping the job market would have remained well beyond presidential reach: the boom-bust cycle (President Bill Clinton didn't create the boom, and the bust was unfolding even before Bush's election); weak growth in Europe, Japan and Latin America, which account for almost 40 percent of U.S. exports; and business cautiousness. Protectionism is no panacea. It barely touches job creation; America's trade problem is weak exports as much as strong imports. Even if every offshored service job had somehow been saved, the job picture wouldn't have changed much.

By ignoring the effect of the tax cuts for the rich, he ignores the fact that one-half of the administration's 'stimulus' has been useless in the short-term, and will pose a long-term drag on growth. Instead of stimulating growth, President Bush's policies put a millstone around our necks. That's why we need to discuss the policies of the Bush Administration, show that they didn't work, and show that there are viable alternatives that are proven to work.

UPDATE: Fron Pandagon:

When castigating Democrats for attacking Bush's jobs record, Robert Samuelson seems to have conveniently forgotten that Bush has been predicting job growth specifically tied to his economic policies for the past three years, and Democrats are reacting to his promises.

One would think that you could remember that the President promised job creation based his policies when complaining about Democrats attacking the President's policies for not creating jobs.

Well said.