Tom Friedman is at it again. “Both mainstream ideologies are wrong, but a few global entrepreneurs are leading the way nonpartisan way forward.” You know the drill. His latest article makes two points:
- Both mainstream approaches to economic growth, spending and tax cuts to stimulate demand, are equally valid solutions – but not the total solution.
- The labor supply should act more like entrepreneurs.
If this isn’t a false third way-ism, I’ll write a whole post on how balance sheet troubles are the real reason for the recovery-less recovery.
It is evidence for liberals that we need more stimulus and for conservatives that we need more tax cuts to increase demand. I am sure there is truth in both, but I do not believe they are the whole story. Friedman – NYT
One problem here is tax cuts haven’t increased demand in the past 10 years. In 2001 and 2003 tax cuts did not substantially increase demand or improve economic conditions. On the other hand, China’s stimulus package was mostly physical development projects not tax cuts, ranging from infrastructure funding to technological improvements to rural development projects. It was so successful that the World Bank had to raise its growth forecast from 6.5 to 7.2% in 2009. This is pretty impressive, considering as much as 20% of it can’t be accounted for – it is China after all.
On the point that our labor market has to change, it only makes sense if the alternative model is superior and our labor market has proven itself obsolete. The latter first, when did our workforce become obsolete? Unemployment was at 5% right before the Big Banks got the tail-end of the bubble they made. It would take a coincidence at the cosmic level to have American employees suddenly unfit to do their jobs just after the banks dry up national liquidity. The problem with the labor market is an absence of demand for new hires, not new skills. Small businesses report that they’re not hiring due to poor sales; the portion of small businesses reporting taxes as their highest obstacle has remained constant over the years while ‘poor sales’ skyrocketed in 2008 and remains high.
And the entrepreneurship of Silicon Valley is not necessarily a superior alternative. Tom Friedman cites their small employee pools and their high market values as a strength, but it’s plausible that they’re small because their products are barely profitable and financiers are merely creating yet another bubble, not because they’re nimble and Advanced.
There is no problem to fostering entrepreneurship, but the real-life trends don’t seem to support a lack of it as the problem with the US labor force.