- David Henderson makes much the same point I did earlier about Don Boudreaux's weak case against monopsony in minimum wage labor markets.
- Jared Bernstein on the problem of the coincidence of market failure and government failure. Surprisingly, a lot of people see government failure and suggest we should just institutionalize it rather than try our best to do something about it.
- Cash for Clunkers is not good at creating jobs. This should surprise no one, I hope. Blinder's justification is that it gave the auto industry a boost at a very rough time. I suppose that's plausible, but it's awful fiscal stimulus.
I'm not so familiar with cases of monopsony and minimum wage labour markets, so I'm not going to comment on that. (Are there only a few industries where monopsony truly happens? Pardon my ignorance but right now, I can't think of a prominent example of an industry with a minimum wage labour market where this occurs.)
ReplyDeleteWith regard to Jared Bernstein's post - I liked it. However, this reminds me a little about the separation of political economy (which arguably came from moral philosophy and the writings of perceptive observers or practitioners of state-craft) into politics and economics. To get more precise and formal about this, Bernstein is talking about "passive government failure" instead of the term in its conventional sense (where the public sector does too much and makes things even worse). Issues of government accountability are nothing new, and can be found in then writings of historical figures way back in world history (Plato probably being the most important example in the case of the West). That stated...Daniel Kuehn, do you think that the division of politics and economics from political economy was a bad thing, or no?
I'm hardly surprised by the findings of that report on "Cash for Clunkers". It was a small programme anyway, and it was an excessively crude way to motivate fiscal stimulus.
I think Cash for Clunkers is underestimated for the reason that Blinder suggests. The way to frame it is as follows:
ReplyDelete-The auto industry, in roughly it's current institutional form, must be preserved to prevent massive economic dislocation (axiom)
-Given the challenges with solvency and liquidity faced by those firms, they have at the present (2009) an extremely high discount rate - that is, a single sale of $X today is worth vastly more to the auto companies than an equivalent sale of $X tomorrow.
-Therefore, a $2.85 billion expenditure is necessary not because it creates jobs at a high job-per-dollar ratio, but because it preserves a network of institutional arrangements whose collapse would be devastating due to insanely high transaction costs.
I'm not a huge fan of Arnold Kling, but I think this is the kind of thing where his PSST model makes the most sense, especially if you just interpret his model as "transaction costs are really, really high, and may rise exponentially as the scope of the economic dislocation grows."
Also:
"Using the counterfactual of vehicle sales in Canada, Li, Linn, and Spiller (2012) find that the program resulted in a reduction in gasoline consumption of 884 to 2,916 million gallons, which is equivalent to about 2.4 to 7.9 days worth of current U.S. gasoline consumption."
Even at the super-low $2-3/gallon prices of 2009, that's a gasoline savings of $1.7-9 billion! They don't specific over what time period that gasoline was saved, but frankly that's fairly impressive.
ReplyDeleteSpeaking as one who was trying to earn a living as a new car salesman in 2008...
Many members of the American middle class - enough to form a significant fraction of the automobile market - buy or lease a car every three or four years, trade it in to cover the down payment on their next car, and assume a steady car payment amount every month. Not only were they hit by the economy's crash, but the sharp rise in gas prices significantly reduced the trade-in value of their vehicles, and took them out of the new-car market.
So "clunkers" is something of a misnomer here - the program was a subsidy to the middle class, reflating the trade-in value of their 2006 SUV's.
Had your neighborhood socialist been running the program, he would have removed the "6-month ownership" qualification for cars to be traded in. This would, of course, have led to many jalopies and junkers being bought from the poor (or the unemployed brothers-in-law) for $4500 or so, gotten significant pollution sources off the roads, and probably provided the underclass, by and large, with more reliable transportation. Some things just make too much sense.