None of this has to involve higher interest rates, whether on government securities or corporate bonds, yet still there is an opportunity cost from the new decisions. Do interest rates have to go up every time resources are switched across sectors? No. Will there in general be a significant “multiplier” from these sectoral shifts? I say that question is a category mistake, but if you insist the multiplier could easily be negative rather than positive.
My comments:
The crowding-out that he is talking about refers to specific sets of skills. In GDP-factory macro, there is no wuch thing. We all have the same skills, so if government demands more from the GDP factory, there is no crowding out. From a PSST perspective, or from any sensible economic perspective, if the government hires more workers whose skills are already in demand, this causes crowding out. Since many of the workers who have lost jobs over the past two decades are workers whose skills were of a sort where demand has been falling on a secular basis, chances are that when the government tries to spend more it will tend to increase demand for workers who already have jobs. Hence, crowding out.
But by hiring more while-collar workers in compliance departments, the economic effect will trickle down to … oh, wait. Never mind.
John McPhee in _Coming into the country_.provides the anecdote that at one point many of Alaska’s best bush pilots were operating bulldozers on the Alaska pipeline because it paid better than most other jobs. Bush plane fatalities were up, allegedly because many of the pilots were new and inexperienced, and perhaps they lacked adequate prudence.
It is somewhat late to boost employment now but some government spending, particularly areas like infrastructure that aren’t privately provided, can crowd in investment, even if crowding out lesser projects closer to them. It can also crowd in through increasing supplies in tight areas due to their large presence in education for example. We are beyond make work though simply providing more liquidity services would probably provide a net gain.
Philadelphia sticks out like a sore thumb doesn’t it.
There remains a shortage of good-paying menial work suitable for HS ed or less, tho with good work habits.
This niche is particularly filled with illegals who are willing to work for less, and work “off the books” for cash only.
Illegals in menial jobs certainly are crowding out less educated natives competing for the same jobs, but with competing offers of unemployment / welfare / crime (/home basement video playing?).
Could we possibly enumerate or otherwise quantify how much public policy did not take this very real effect into account? This seems like fertile ground for a generation of grad students.