Tuesday, June 29, 2010

Two-handed economist

Two economists proposing diametrically opposing policy choices for the same problem is one of the defining characteristics of the profession. The latest example comes in the form of the policy choices presented by James Galbraith and Jeff Miron on addressing the problem of persisting unemployment in the US in a NYT Room for Debate.

First, James Galbraith on the need to create jobs by shrinking the labor force,

"Reducing the eligibility age for Medicare to 55 would allow older workers to opt into early retirement. Eliminating the early retirement penalty in Social Security for, say, five years — and, yes, we can afford that — would open up jobs for young people. More money for community colleges, technical schools and universities can help: more students means fewer unemployed."

Second, Jeff Miron's approach to pursue jobs growth,

"Phasing in a higher age of eligibility for Social Security and Medicare, to slow the growth of entitlement spending. This would signal markets, at home and abroad, that the US can balance its budget over the longer term. If this occurs, capital will come flooding in, along with talented labor if immigration policy permits. This influx would spur investment and subsequently job growth."

Both are understandably incomplete and clear representations of ideological positions. I am inclined to the view that such issues cannot be argued and resolved at an intuitive or theoretical level, especially since a small change of even one or two years (to the Medicare eligibility norms) can have massive implications on the fiscal balance and its beneficiaries. An objective assessment should require filling in the numbers and doing a cost-benefit analysis of the balance sheet, duly internalizing costs like those inflicted on the laid-off and older workers who now lose their Medicare protection (due to increase in age floor).

1 comment:

Anonymous said...

Unfortunately, there is no number crunching way out of the problem. Often, the problem seems to be solving itself before the debate concludes finally.