America’s Employment Dilemma

Some countries – China, for example – implemented job-creation policies a year ago that relied on boosting demand for goods and services, and are now reaping the benefits in higher employment. Other countries, like the US, did not, and now face the need to fight unemployment directly, through government job programs or tax credits to businesses that hire new workers.

BERKELEY – There are always two paths to boost employment in the short term. The first path is to boost demand for goods and services, and then sit back and watch employment rise as businesses hire people to make the goods and services to meet that demand. The second path is not to worry about production of goods and services, but rather to try to boost employment directly through direct government hiring.

The first path is better: not only do you get more jobs, but you also get more useful stuff produced. The problem is that it does not take effect very quickly. It is subject to what Milton Friedman called “long and variable lags.” Thus, policies aimed at boosting employment by the end of, say, this calendar year needed to be put in place about a year ago to have time to have reached their full effect.

Some countries – China, for example – did, indeed, implement such job-creation policies a year ago and are already seeing the benefits. Others, like the United States, did not, and so unemployment remains at around 10%. 

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