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Home Publications Blogs Beat the Press Thomas Friedman Advocates Higher Unemployment

Thomas Friedman Advocates Higher Unemployment

Thursday, 09 December 2010 05:11

New York Times columnist Thomas Friedman apparently believes that higher unemployment will make the United States better able to compete with highly educated workers in China and India. This is the logical implication of his argument that the United States should stop accumulating debt.

If the United States reduced its deficit in the current downturn, it would reduce demand in the economy, thereby leading firms and/or governments to lay off more workers. Friedman does not indicate why he believes that higher unemployment will make U.S. workers more competitive internationally.

He seems to think that the government's debt poses a problem. Of course the Federal Reserve Board can simply buy and hold debt incurred in a downturn like the present. In this case the debt creates no interest burden since the interest would be paid to the Fed which then refunds it to the Treasury at the end of the year.

While this practice could lead to inflation in more normal times, this is not an issue at present, when a somewhat higher inflation rate would be desirable in any case. Japan's central bank holds an amount of debt that is close to the size of its GDP ($15 trillion in the case of the United States) and it is still experiencing deflation. The Fed could raise reserve requirements at some future point if inflation threatens to be a problem.

There is no good economic argument for wanting to see a lower deficit at present. Apparently Friedman has some other rationale for wanting a lower deficit.

Comments (6)Add Comment
Retired professor of economics
written by Richard Hattwick, December 09, 2010 6:21
Kudos to Dean Baker for his continued emphasis on the consequences of the FED financing deficit spending during a deep recession. Our nation's media, lawmakers and general public need to be educated on this matter. For that to happen, the explanation needs to appear repeatedly in the press. So far Dean Baker appears to be the only economist peforming that function. Keep it up!
don't expect a rationale from the unrational
written by anthrosciguy, December 09, 2010 6:44
Apparently Friedman has some other rationale for wanting a lower deficit.

It seems highly likely that Friedman has no rationale whatever for what he says he wants; this is a man who claims that it's just fine and dandy driving without a steering wheel as long as you remember you don't have one. He's not a rational thinker, so looking for a rationale in his thinking is unwise.
Makes perfect sense
written by Matt, December 09, 2010 8:27
In Friedman's world, increasing unemployment can make us more competitive if we remove "impediments" like the minimum wage and environmental regulations. All we need to do is have people working for $3/day in unsafe conditions and we'll be right back in there competing with China! I expect him or one of his ilk to propose the re-introduction of debtor's prisons any day now.
Follow China: Save More, Hustle More, Borrow More - From Yourself
written by izzatzo, December 09, 2010 8:29
From the NYT article, this quote by Friedman:
Economics is not war. It can be win-win, so it’s good for the world if China is doing better. But it can’t be good for America if every time we come to a hard choice we borrow more money from a country that is not just out-saving and out-hustling us, but is also starting to out-educate us. We need a plan.

Friedman understands that good economics is not about winner-take-all growth that concentrates benefits of growth to the few, sends capital flow from developing countries to developed ones, and depends exclusively on supply side phenomena for full employment growth.

Instead Friedman, like Baker, understands the demand side as well. When China does better, the USA does better, the same way trickle down works so effectively within the USA, it works internationally as well from 'Wealth Mimic Pull', an obscure Keynesian effect but very powerful.

Borrowing more from China would be like borrowing more from the wealthy in the USA and just deepen the recession with more debt.

Friedman in effect agrees with Baker, that a central command and control socialist plan is necessary from the demand side that does not depend on borrowing, relying instead on the Fed to hold debt costlessly rather than borrowing more from China.

When a country borrows from itself to create more jobs, that's the same as saving and hustling more at the individual level. Among economists, it's a well known essential component of the Paradox of Thrift, where demand side forces spill over into the supply side to increase employment, which acts to more than offset the other part of the paradox, where savings act to reduce demand.

It's fortunate that national journalists like Friedman agree with economists like Baker and put out the correct message. Like China, America can recover if it just hustles and saves more by borrwing from itself.
written by diesel, December 09, 2010 9:12
I'm not going to talk about Friedman's column, but I would like to call your attention to the content of one of the commenters.

Klaus, a swedish guy, wrote the following, "Hopelessness: In a culture where only the winners count, there will be a lot of losers."

There it is in a nutshell. When only one in twenty start up businesses is still around after six years, the true description of America is not one of opportunity and success (as popular imagination would have it) but of failure. We just can't bring ourselves to see, acknowledge and accept this fact.

Not accepting this fact, we make no psychological plans to accommodate failing and no social plan to accommodate failures. We think that this is being vigorously honest and tough with ourselves, but it is being unrealistic. When standards are set so high, failure is the norm. Most children get the drift by the sixth grade. A few will be selected for success. The rest can get lost. They are acutely, embarassingly aware of their mediocre performance. Every test they have taken has reminded them of their ordinariness or worse.

We are a cruel people when we care only for the exceptional, and Friedman is no exception to this attitude. He epitomizes it.
written by umass1993, December 09, 2010 5:16
Dean, let me rewrite this post for you.

Tom, just shut the eff up.

That would have sufficed.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.