In a great article given to me by my Mother, Linfield College economics professor Eric Schuck claims, “What you think you know is wrong.” The article appears in The Oregonian at http://www.oregonlive.com/opinion/index.ssf/2012/06/debunking_economic_myths_or_th.html The online title is “Debunking economic myths [which is dear to my heart], or the trouble with what you think you know”
I will summarize and gently editorialize his three myths:
Myth #1. Firms (companies) are job creators-
Giving special deference to firms as “job creators” simply is not an accurate assessment of their mission and role in society. They make profits, not jobs. Professor Schuck goes on to point out that to an economist jobs generally aren’t a benefit, they’re a cost of profit-making. Under our current legal structure, the primary purpose of a corporation is to make money for its owners. If they can do it without employing anyone, then they must. Such is the psychosis of the corporate model. I highly recommend the documentary, The Corporation.
So whose legal mission is it to create jobs? That would be an obligation of the federal government under the Employment Acts of 1946 and 1978, he points out. And it has largely failed in that mission, having lost 160,000 public sector jobs this year alone. Because of myth #2.
Myth #2. Governments should work by the same budgetary rules as families.
There are two sides to this- revenue and expenditures -but I disagree that this is a myth for both sides; when times are tough for a family it makes sense to increase revenue if at all possible, just like governments must [selectively] raise taxes in a recession. And some “deficit” spending is necessary for a family too such as taking out education loans for retraining or getting a new outfit to dress for success in job interviews. But Professor Schuck is right on that the role of government is to stabilize the economy. Which means preserving jobs whenever possible.
Myth #3. Federal deficits are the scariest problem the economy faces.
This section is so good I have to include the whole thing: [Federal deficits are] not, and here’s why: Current interest rates on federally issued bonds are running at about 1.5 percent. Current inflation rates are right around 2 percent. Adjusting for inflation, the real interest rates on public debt is “less than zero.” Effectively, people buying U.S. Treasury bonds are paying the government to borrow money from them. If there was ever a time to run a deficit to offset reductions in spending at the state and local level to stop job losses, this is it. Better still would be to use those negative real interest rates to finance infrastructure investments that both create demand and improve productive capacity. There are worse things in this world than using debt to pay for much-needed roads, cops and schools, especially when the short-run cost of that debt is pretty much zero. Debt and deficits are long-run problems; unemployment is a short-run problem. Fix today’s problems first. By increasing, not decreasing, government spending.