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When It Comes to Generating Jobs It Pays Not to Listen to the Experts

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Saturday, 19 April 2014 07:43

It is remarkable that no country has outlawed economics as a dangerous occupation on a par with drug dealing or murder for hire. The damage done to the world over the last seven years based on policies designed by economists has been incredible.

Floyd Norris documents this fact in a nice piece comparing the change in employment rates (the percentage of the population employed) in rich countries since 2007. The only two countries with higher employment to population ratios today than at the start of the downturn are Germany and Japan. Both countries have broken with the economic orthodoxy in important ways.

In Germany, the government has adopted policies that encourage employers to keep workers on the payroll by cutting back hours rather than laying them off. As a result, their unemployment rate is almost three percentage points below its pre-recession level even though its growth has actually been somewhat slower than in the United States.

Japan has adopted a policy of aggressive deficit spending even though its debt to GDP ratio is already more than twice that of the United States. It also has deliberately targeted a higher rate of inflation as a way of lowering real interest rates and reducing debt burden. As a result, it has created a number of jobs that would be the equivalent of more than 4 million in the United States.

In short, ignoring the economic orthodoxy works. Listening to orthodox economists brings destruction to the economy and devastates peoples' lives.  

 

Addendum:

The increase in the employment rates of prime age women in Germany and Japan, 4.0 percentage points and 3.6 percentage points, is especially impressive. This compares to a drop of 3.1 percentage points in the United States.

Comments (9)Add Comment
Economic Suicide
written by Tyler, April 19, 2014 8:21
"Economic Suicide," by Mike Whitney: http://www.counterpunch.org/20...c-suicide/
It also has deliberately targeted a higher rate of inflation...
written by Bill H, April 19, 2014 9:06
"...as a way of lowering real interest rates and reducing debt burden."

You left off, "erasing savings in order to destroy the ability of people to retire and reducing retirement account effective income so that presently retired people cannot eat."

But then, economists never really worry about the bottom of the ladder. They think in terms of government economic success and that of business. People, especially little people, are not in the equations and formulas with which they deal.
Bottom has no savings
written by Dean, April 19, 2014 9:59
Bill,

look at the data -- if you have savings to lose to inflation you are least in the middle -- the bottom has zero. And most of the people with savings do not have it all in short-term money. They have some in stock and long-term bonds, both of which have risen sharply due to in part to low interest rates.

If you think you have a policy that helps the economy and doesn't hurt anyone, then you don't understand your policy.
...
written by skeptonomist, April 19, 2014 12:49
Dean is right that the employment policies of Germany and Japan are favorable to workers, but in the case of Japan it's hardly a result of Abenomics. In the Japanese system employment has traditionally been regarded as permanent. Even when conditions were very bad after the collapse of 1990 the employment rate never went very high. Unemployment in Japan has been decreasing steadily from a peak of about 5.5% in 2009 to under 4% now, but there was no big change when Abe took power.

http://www.tradingeconomics.co...yment-rate

...
written by skeptonomist, April 19, 2014 12:55
The really important thing about inflation for those at the lower end of the scale is the effect it has on wages. When inflation and unemployment are both high, real wages go down - this is exactly what happened in the 70's. Investment also went down when inflation was high then, despite negative real interest rates.

If real wages decline, then demand does also. If demand is declining, why would businesses invest and hire more?
Actually there was a big surge in employment when Abe took power
written by Dean, April 19, 2014 1:40
Skeptonomist,

please look at the data http://stats.oecd.org/Index.aspx?QueryId=38900#. The EPOP for those between 16-64 rose by 1.6 pp from the fall of 2012 to February of this year. It had been falling prior to Abe coming to power. That is a huge turnaround.
.......
written by djb, April 20, 2014 6:26

They are doing the bidding of the king to enrich themselves at the expense of common people....... the arrogance with which the do it is the usual psychological defense against knowing deep down they are wrong
Adam Smith.
written by Ralph Musgrave, April 20, 2014 10:05

Adam Smith said, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public..” That applies to so called “professional” economists as much as it does to banksters.
...
written by Ignacio, April 20, 2014 12:18
Sadly, Germany promotes orthodoxy abroad and plays a game that "exports" unemployment.

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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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