Assault of Thoughts, New Research Edition - 7/19/2010

"Words ought to be a little wild, for they are the assault of thoughts on the unthinking" - JMK

- The New York Times reports on a new evaluation of job training programs by the Department of Labor that concludes that the employment and earnings gains from job training are "small or non-existent". Even a representative of the liberal Economic Policy Institute opines: "When you have five people unemployed for every vacancy, you can train all the people you want and unfortunately only one-fifth of the people will get hired. Training doesn’t create jobs." I tend to agree with these assessments, and I have a little bit of experience in evaluating federal job training programs. I think the point to remember, as the EPI representative said, "training doesn't create jobs". Research has consistently found that job search assistance is more beneficial than job training, I'm guessing for precisely this reason. Now, contingent on getting additional job search assistance could training benefit a worker? I'd be inclined to buy into that idea. But the point is, training programs are expensive and it's not entirely clear that they're the ideal solution. The report is here. The team producing it is quite good. I think the most promising training is very targeted to high growth industries, tied to employment and on the job training (as in apprenticeships), or organized by employers themselves. This ensures that human capital being built in the programs is actually useful to employers.

- There's an interesting new NBER working paper on the paper money experiment in early 18th century New England. Most analysis of this period emphasizes the resulting inflation. This piece focuses on growth of the real economy. Their abstract:

"We examine econometrically the real effects of paper money's introduction into
colonial New England over the 1703-1749 period. Departing from earlier analyses
that focus primarily on the depreciation of paper money in the region, we show
that expansion of the money stock promoted growth in modern sector activity and
not the other way around. We also find that bills emitted for seigniorage
purposes had a positive effect on the modern sector, while bills issued through
loan banks did not."

It's not particularly surprising that expansionary monetary policy benefits commercial activity. Traditionally in U.S. history, the commercial northeast has been suspected of a tight-money bias depriving Southern and Western farmers of money. This obviously doesn't refute that, but it does seem to suggest that they were aware of the benefits of having ample circulating cash for their own economy, at least during this period. If Greece teaches us anything, it should teach us that "tightness of monetary policy" is a relative thing. One could argue that this throws the structure of production out of whack. To a certain extent, this makes sense as a criticism - but New England of all places should demonstrate that today's distorted structure of production is tomorrow's capital endowment and comparative advantage.

- Another interesting NBER working paper discusses "credit traps", which operate like liquidity traps (expansionary poilcy does not result in additional loans). However, these "traps" don't rely on an indifference between cash and bonds, as the classic liquidity trap does. They "arise due to the interplay between financing frictions, liquidity, and collateral values".