Larry Summers, on why the Administration hasn’t gone for the kind of “job-sharing” programs (encouraging companies to shorten workweeks rather than laying off employees) that have kept German unemployment down during the Great Recession:
The primary objective of our policy is having more work done, more product produced and more people earning more income. It may be desirable to have a given amount of work shared among more people. But that’s not as desirable as expanding the total amount of work.
“May be desirable”?
Whiskey. Â Tango. Â Foxtrot.
The principle of diminishing marginal utility makes it obvious that if there are twenty workers and only work enough to support nineteen of them, it’s better to have each of them work 5% fewer hours for 5% less money than to lay one of them off. Â Just do the thought experiment: Â if you were one of the twenty, with no better or worse a chance than anyone else of being the one selected for the layoff, which policy would you prefer? Â Most obviously, a 5% pay cut is very unlikely o make you lose your house, but a year of unemployment could easily do so.
Indeed, lots of people would probably be better off with 5% less income and 5% fewer working hours, as long as the people they socialize with were taking similar income hits so that their relative income level didn’t change much.
And that’s before you get to all the impacts of unemployment other than losing currentÂ income: Â losing health insurance, taking a possibly permanent hit to your human capital, risks of substance abuse, mental illness, physical illness due to stress, family breakdown, loss of status.
So the phrase “may be desirable” could only be spoken by someone who Â ha not only lacks empathy and common sense but has also gotten so lost in the arcana of macroeconomics as to have forgotten first-semester microeconomic principles.
No doubt Summers has his value, but if I were Barack Obama and I read that sentence I’d want to spend more time with my other economic advisers.
Current real GDP per capita will be higher than GDP per capita at the beginning of 2007. Â We weren’t in crisis then. Â The crisis isn’t a one-year slippage in national income; the crisis is that people are out of work.
No doubt the President’s political advisers understand this. Â But I hope he’s not deluded into thinking that there’s a choice between good Â politics and sound economic analysis.
There’s only a choice between good politics and bad economic analysis.