Last month, the Congressional Budget Office reported that ObamaCare would reduce the size of the labor force by roughly 2.3 million by 2021. Conservatives pounced, bellowing that ObamaCare is a job-killer — which is wrong, of course, since this is about labor supply, not demand.
But once they got that sorted out, they continued to wring their handkerchiefs piteously about the long-term implications for the economy. By luring Americans into the hammock of a slightly less threadbare safety net and thereby reducing the incentive to work, we are impoverishing future generations — or so the argument goes.
On this point they have been joined by many mainstream pundits and business journalists, who while not quite so transparently full of it as conservatives, still think the long-term effect of government benefits on labor supply is worth considering. Ron Fournier, for instance, put it this way:
Republicans want to cut food stamps, arguing that the program is rife with abuse and is a disincentive to work. No doubt there is some truth to their argument, and there may be a better food program for the 21st century. [National Journal]
They’re not wrong, exactly. As Kevin Drum at Mother Jones points out, any means-tested benefits program is going to have some employment-lowering effect among the poor.
But the way conservatives and quote-unquote serious centrists talk about the labor supply versus other long-term economic issues reveals a very interesting divergence. Anything the Federal Reserve does, for example, will utterly dwarf the long-term effects of ObamaCare. And yet when it comes to the central bank, there is much less concern about whether the Fed is doing everything in its power to ensure robust growth down the road.
For instructional purposes, let's take a look at what Evan Soltas, a reliable centrist technocrat, said about nominal gross domestic product targeting (basically a program for how the Fed should operate):
What he's saying is that policy-makers and legislators needn't try to match the growth trajectory of the pre-recession days; they should settle, instead, for the middling rate the economy is currently enjoying.
It’s worth unpacking the incredible implications of that position. Abandoning efforts to achieve the 2007 growth trajectory, as Jared Bernstein has calculated, is throwing away roughly $1.2 trillion in output and 10 million jobs. A renewed focus on stimulus won't guarantee those results, of course, but the catch-up growth demonstrated after the Great Depression demonstrates it’s at least possible. As I’ve written before, I think an honest weighing of the potential upsides and downsides clearly necessitates making a strong effort towards hitting the 2007 trajectory, even at the risk of quite a lot of inflation. After all, as Brad DeLong has calculated, unless something dramatic happens to the economy, our current downturn will result in a greater total economic loss than that of the Great Depression.
And yet, in other contexts, long-term economic growth is treated as sacred. Matt Yglesias has written well about how wealthy centrist elites absolutely despise Social Security because of the economic implications. The economy is a machine and what we ought to be doing is making it as big as possible. Social Security, by subsidizing the unproductive elderly, makes the machine smaller. Filthy-rich magnates like Pete Peterson have spent decades and hundreds of millions of dollars pushing an anti-Social Security agenda, with such success that it has reached cultural hegemony status among Washington elites.
Contrast that with the hundreds of millions not spent on lobbying the Fed for more growth. The idea that wealthy elites view the economy with the detached, neutral indifference of a water system engineer trying to maximize his sewage throughput has a great deal of truth. But class interests are even more important — which explains why colossal long-term growth risks like the one implicitly endorsed by Soltas don’t inspire the same kind of Peterson-esque backlash.
How are class interests at play? Inflation is now also on the risk ledger. Slashing social insurance to wring a few more years of work out of grandma is one thing. But having your wealth eroded by inflation is quite another. It's in the wealthy's interest for the Fed to keep inflation low, even if it means sacrificing literally trillions of dollars in output and millions of new jobs.
In other words, centrist elites, and the vast ecosystem of media and commentary they support, care about long-term growth until the moment it infringes on their class interest. At that point, and not one nanometer further, long-term growth becomes a lot less urgent.
