Wednesday, February 2, 2011

Competing Interests

The Brookings Institution, likely sharing in the opinion that Washington is unlikely to come up with a way of getting out of the mess that we're in, has come up with a contest to drum up ideas. The 2011 Hamilton Project Policy Innovation Prize, which just opened the other day, is putting $25,000 on the line for people who come up with "The Best Proposals to Create Jobs and Enhance Productivity."

Sounds like a plan. But I suspect that whomever wins, their entry is going to be all about expanding markets for American goods and services in other parts of the world. It pretty much has to be since the two goals of the contest, creating jobs and enhancing productivity, aren't necessarily on the same page. In fact, since gains in productivity tend to lower the need for workers and thus destroy jobs, anything that falls short of the mark would have the potential to increase unemployment. It's only once demand for goods and services increases to the point where increases in productivity are no longer effective in meeting that demand that new jobs are created.

I expect that businesses are going to be very interested in the entries, winning or not, since suggestions on enhancing productivity are always welcomed. But the other half of the coin, creating jobs, is going to be the really interesting part. For the United States to lower its unemployment (and underemployment) rates, and keep them low for an extended period of time, we're going to need to be able to control the demand side of the ledger. (A quick digression: While Supply-Side Economics posits that "supply creates demand," that's predicated on the idea that prices can float to wherever they need to go to entice people to buy the supply in question, even below the cost of production. Since businesses are reluctant to produce goods and services that they cannot recoup their costs on, I suspect that supply-side entries won't do very well.) I don't know if, without doing something to even out the current wealth distribution, that sort of control can be maintained solely within domestic markets. But I have no idea how you'd influence demand in international markets.

In any event, this should be worth following. It will be interesting to see what people come up with.

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