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Home Publications Blogs Beat the Press Those Shoe Stores and Realtors Who Will Increase Hiring When the Government Lays Off Workers

Those Shoe Stores and Realtors Who Will Increase Hiring When the Government Lays Off Workers

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Tuesday, 05 April 2011 21:20

Economists usually think that firms increase hiring when they see more demand for labor, but we have a new story coming from John Lott Jr, courtesy of Fox. Mr Lott argues that firms will hire more workers because the government is laying off workers.

Lott tells readers that:

"Democrats respond that government spending can’t be cut because it would eliminate jobs. Just the proposed $61 billion cuts by House Republicans in the current budget is said to “amount to a loss of 700,000 jobs.” The claim only counts the jobs funded by the government and assumes that this spending isn’t offset by the loss of private sector jobs. The notion is that if the government doesn’t spend the money, it never really exists."

Actually many of these lost jobs are not funded by the government. (The federal government only employs a bit over 2 million workers directly. It will not lose one-third of its work force as a result of these cuts.) Most of the lost jobs would be from reduced spending on private sector goods and services by the government or from reduced spending by workers who had formerly been employed by government agencies.

It is difficult to see how the government cutbacks would be offset by increased private sector hiring. If the economy were closer to full employment then we might expect to see interest rates fall in response to a cutback in government spending. This could spur increased consumption and investment, which would then lead to more hiring.

However in the current environment it is difficult to believe that these cutbacks would lead to any noticeable reduction in interest rates, nor that the reduction in interest rates would lead to any noticeable increase in spending. In other words, in the current circumstances it is likely that government cutbacks simply lead to a reduction in demand and employment as seems to be the case in the United Kingdom at present. (The OECD just lowered its growth projection for the UK this year to 1.0 percent. The UK adopted a Republican-type austerity program last summer.)

Comments (6)Add Comment
...
written by joe, April 06, 2011 2:19
"The notion is that if the government doesn’t spend the money, it never really exists."

The notion is that if the govt doesn't spend the money then the private sector which is already sitting on 1.5 - 2 trillion dollars will also not spend the money.
Guns Don't Kill and Butter Doesn't Spread - People Do
written by izzatzo, April 06, 2011 2:48
"The notion is that if the government doesn’t spend the money, it never really exists."


Lott is correct of course under the famous no-free-lunch trade-off theory of scarcity in guns and butter at full employment.

The notion is that if more is not spent on butter then the spending does not exist, which is mistaken of course since it would be spent on guns instead, the same way it would be spent on private jobs instead of government jobs in a deep recession.

It's like saying if guns don't kill people because only people kill people, then people could not use butter instead of guns to kill people during a gun shortage. Of course they can, especially with concealed carry butter.

Under supply side competition everything is a substitute for everything else, whether guns for butter, people with guns for people with butter, or private jobs for public jobs, so any one of them can and do exist to displace and crowd out the other.

Stupid liberals.
Question from the economically ignorant--
written by Doug O'Keefe, April 06, 2011 10:55
Can someone explain the logic behind Dean's statement: "If the economy were closer to full employment then we might expect to see interest rates fall in response to a cutback in government spending"? Why would such a cutback cause a drop in interest rates? Thanks.
lower demand for money
written by Floccina, April 06, 2011 12:11
@ Doug O'Keefe, because Government would borrow less money which equals lower demand for money. Lower demand for money means lower interest rates.
...
written by bmz, April 06, 2011 5:16
izzatzo..."It's like saying if guns don't kill people because only people kill people, then people could not use butter instead of guns to kill people during a gun shortage. Of course they can, especially with concealed carry butter."
WOW, I now understand Republicon economics!
...
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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.

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