In his post below, Julius argues that the government should reflate by providing guaranteed employment rather than by using quantitative easing to sustain inflated asset prices. I couldn’t agree more, and Paul Krugman has also suggested that the government consider programs that create jobs directly:
You can make a pretty good case that just employing a lot of people directly would be a lot more cost-effective; the WPA and CCC cost surprisingly little given the number of people put to work. Think of it as the stimulus equivalent of getting the middlemen out of the student loan program.
Given how many people have been turning to Hyman Minsky’s magnum opus Stabilizing an Unstable Economy for insight about the financial crisis, it’s surprising that government job-creation programs haven’t been part of the policy discussion (at least as far as I can tell). Such programs are actually a central component of Minsky’s policy recommendations. Of course, the recommendations start on page 319 of an admittedly turgid volume, so perhaps most readers had given up by that point. I think it’s unfortunate that Minsky’s ideas haven’t been given more attention, since they could be exactly what we need.
Minsky’s employment strategy seeks to “achieve a close approximation to full employment” without causing “instability, inflation, and unemployment” (p. 343). He proposes that the government act as the employer of last resort by creating an unlimited supply of jobs at a low, non-inflationary wage. These jobs could be created within the New Deal framework of the Civilian Conservation Corps (CCC), the National Youth Administration (NYA), and the Works Progress Administration (WPA); Minsky offers detailed proposals on pages 345-6.
The beauty of Minsky’s approach is that, by setting wages at a low level, the programs neither create inflationary pressure nor crowd out the private sector. When private sector demand for labor rises, workers will happily leave the government programs to take better-paying private sector jobs. The approach also promises to develop human capital and prevent the skill loss and suffering associated with prolonged unemployment. Minsky summarizes the approach as follows:
It is envisioned that WPA, NYA, and CCC when fully developed will, together with normal government activity and private employment, provide income through jobs for all who are willing and able to work. These permanent programs will provide outputs–public services, environmental improvements, etc. that a transfer-payment government does not yield, as well as the creation and improvement of human resources. In our urban centers, where there are concentrations of unemployed and welfare recipients, the improvement of the public environment should be marked. WPA, CCC, and NYA will succeed precisely because they are job programs that perform useful tasks and yield visible outputs. (347)
Why not set these programs up as entrepreneurial ventures, owned and administered by the government, that compete for resources (new employees), thereby creating performance incentives and developing entrepreneurial skills? Call them the Works Progress Entrepreneurs. Perhaps some public-spirited, newly minted MBAs would be willing to help get the program up and running before moving on to lucrative careers on Wall Street.