Sunday, October 28, 2012

Robert Samuelson embarrasses himself

Robert Samuelson thoroughly embarrasses himself in a Washington Post op-ed published on Thursday. His column attacks a New York Times editorial he claims is so wrong-headed as to move him to write a column "refuting" an editorial for the first time in 35 years. Unfortunately for him, the only thing the column refutes is the idea that he understands what he is talking about.

Others have already done a fine job tearing apart his argument, including Josh Bivens (at EPI), whose data the New York Times cited, as well as Dean Baker (at CEPR) and Paul Krugman. I just want to make one additional point that has not yet been made.

Samuelson's key claim is the following assertion: "What the Times omits is the money to support all these government jobs. It must come from somewhere — generally, taxes or loans (bonds, bills). But if the people whose money is taken via taxation or borrowing had kept the money, they would have spent most or all of it on something — and that spending would have boosted employment."

From this he concludes that government job creation must substitute "public-sector workers for private-sector workers," and hence does not count as real job creation. Note the faulty logic: if he is right, then the exact same argument can be made in the opposite direction — not taking money via taxation increases private jobs only by reducing government jobs. Depending on your starting point, then, the private sector doesn't create jobs either.

So where does the logic go wrong? Well, Samuelson's simplistic analysis fails to take into account 2 1/2 considerations. First, not all jobs cost the same amount of money, so if we're just moving money back and forth between the government and the private sector, job creation takes place in whichever sector jobs cost less. Second, jobs are not the only thing money is spent on in either sector, so job creation/destruction may depend on which sector spends a greater proportion of its money on jobs.

Third (and this is the 1/2 consideration above), "real" job creation happens, of course, not by shifting money back and forth between the public and private sectors, but rather when certain jobs and certain spending have a multiplier effect and generate further jobs. Samuelson knows this, but simply asserts  that only private sector jobs & spending can have this effect.

Of course, Samuelson does not offer even the tiniest scrap of evidence for this claim, and others who have responded to his column (especially Dean Baker) have already highlighted its flaws.

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