Shovel-ready futility

What is a shovel-ready job? In a recent interview with the New York Times President Obama said he had realised too late that there were no shovel-ready jobs. Of course, there has subsequently been much back-tracking and obscuration by Press Secretary Robert Gibbs. He explained that, yes, the President had formerly said that the stimulus would go to shovel-ready jobs and, in fact, many thousands of projects have been started and/or or completed. We are left in a semantic spin, which is precisely what Mr Gibbs intended; that’s his job.

There are three components of a shovel-ready job when you think about it – the project waiting to happen; the jobless people, and the shovels. And, when you are spending $800 billion, there has to be many tens of thousands of these components in place, spread diffusely around the country, in case a stimulus should come along. This is hard to imagine; though obviously not hard enough for the President’s imaginative economic advisers. Where the President made his mistake was to take the advice of his advisors and assume the existence of shovel-ready jobs, instead of simply making them up.

He should have made a phone call to Julia Gillard or Wayne Swan or Ken Henry. They all knew the answer. Make them up. Build a school hall, classroom, library, or canteen in every primary school; needed or not. In one hit you have the geographical spread that you want. Shovel ready – people available? Make sure that you impose no financial accountability on builders and they will be laying bricks tout de suite. If this isn’t enough, put free ceiling insulation in every roof. This gives you magnificent geographical spread. Shovel ready – people available? Make sure you impose no workmanship standards and fly-by-night operators will clamber into roof spaces tout de suite.

An objection might be; but what about the waste? This doesn’t matter. Keynes said that burying stuff in the ground and digging it up again would be good for the economy. As crazy as that sounds, his modern-day disciples are faithful to the script.

I was recently interviewed by Guy Raz on National Public Radio – based in Washington DC –following my ‘Time to topple Keynes’ article in the September issue of Quadrant. Paul Krugman was also on the program. Unfairly, they gave more time to Krugman, presumably on the flimsy grounds that he is a prominent public figure and has won a Nobel Prize. Leaving that aside, his remarks were revealing. He thinks that the US government should implement another huge dose of fiscal stimulus of at least the size of the previous one. When asked what the spending should be on, he said that it was more important that it gets spent than what it gets spent on.

This Keynesian script is, in fact, as crazy as it sounds. It has no commonsense or sound economic logic behind it. Nevertheless, it has captured the minds of a majority of economists and so far as I can tell all economists in public service. I don’t know why this is so. It is probably deeply complex and psychological. One reason though, which undoubtedly plays a part, is that the Keynesian script offers a solution in times of distress.

At one point, in the unused part of my interview, Raz seemed a tad impatient with me saying – but we have 10 per cent unemployment in the United States. Imagine that a family member is sick. One doctor says I have nothing to help. Keep the patient as comfortable as possible, he or she should recover in time. Another doctor says do I have an elixir for you. Which doctor do you choose? When I became chief economist of a bank many years ago, I unwisely started out by saying that no-one could predict interest rates. This was career limiting. I quickly learnt to predict interest rates and found that no-one minded when I got it wrong, as long as I kept on predicting. I was right 50 per cent of the time. My reputation grew. Quackery can be more alluring than doing nothing. This is especially the case with governments.

Governments want to do something. They don’t like to be seen doing nothing. Economic advisers might be given short shrift if they explained that the best thing that governments could do was nothing. So along come Keynesian advisers with their script, which says spend and spend no matter on what. Those advisers of President Obama just didn’t learn the script well enough. They thought that the spending should be on shovel-ready jobs. It can be on anything. Australians still have a thing or two to teach the Americans.