More. Stimulus., ctd.

Via loyal reader richmart, Alan Blinder, a former vice chairman of the Federal Reserve Board, likes more stimulus too ...

Two big ideas for job creation are under active discussion: a tax credit for new jobs, and direct public-service employment. Were the unemployment rate at 5%, I would oppose both. The tax credit invites gaming, e.g., creating phantom jobs to grab the tax benefit; and we do not particularly want more people on the public payroll. But the unemployment rate is 10%. In deep recessions, sensible governments do things they would never do at full employment. So let's consider the merits and demerits of the two ideas.

Direct public-service employment is straightforward. As long as the new government jobs do not compete with the private sector, the net job creation should be one-for-one. So hire people to repair parks, not shopping malls. And if we restrict ourselves to low-wage jobs, the cost will not do grievous harm to the budget. For example, at an average all-in cost of $30,000 a year, one million new jobs would cost $30 billion.

What's the downside? Well, any public expenditure does add to the deficit at a time when the deficit is already huge. Furthermore, despite much rhetoric to the contrary, the U.S. remains a "small government" country, especially at the federal level. With total federal civilian employment around 1.4 million, it is inconceivable that the federal government could find sensible uses for a million new workers. So, realistically, most of the program must be funneled through the states.