Hope is not lost — the future knows the truth

The economic truth, that is. As Obama meets with banks to try to loosen lending practices, and as he invites luminaries from private companies, the government, and, err…SEIU and other unions to forums about how to create more jobs (sigh), there is hope in this: students and younger workers are hip to the truth.

See, for example, this post by David Huffman of Chicago Young Republicans, wherein he is shocked to agree with Paul Krugman that the recent “good news” of 11,000 new jobs isn’t that good. But then the agreement with Krugman ends there, as Krugman argues for even more stimulus funds, etc etc.

And then the following note,  by Loyola University Chicago student Elizabeth Davidson about a Wall Street Journal video, reveals an understanding of Keynesian versus supply-side economics, and a thirst for rational thought:

The Wall Street Journal video concerning the federal government’s involvement of increasing economic job growth, “Pressure Builds on Obama for Jobs Creation,” compels me to evaluate the comments of Economic Editor Wessel with knowledge gained in my Microeconomics class.  It is imperative for the pubic to understand the government’s interventions intentions, it terms of graphical relationships between resource and production supply and demand.

Wessell states the debate centers around whether or not the government can, should, or will do something to improve the economy.  Currently, lack of employment growth is the most detrimental circumstance.  The first view is the laissez fair approach of “just let it be.”  There are fluctuations in every economy.  Proponents of this view assert that lack of growth is natural and occurs regardless of external factors. Therefore, no action should be taken.  This falls under more of a macroeconomics theme.

The editor then asserts there are two devices for those who desire action.  The first is to stimulate demand.  The way the government attempts stimulating demand is to give money to citizens to spend on products.  This effort will lead to production of more goods and services because demand increases.   In the labor model, and as suggested, more demand of a product will increase demand for labor.  Increased demand for labor results in increased job availability.  More jobs are available due to increased demand for products bas is exhibited in the fact that the market resource curve is derived from the product demand curve. This increases demand for the products which require labor for production, thereby giving money to citizens to buy the products.  Editor Wessell states that this was the rationale which led to the Fiscal Stimulus last year.

The other view is to act directly within the unemployment problem, or labor market.  This is done by tax cuts and rewards for hiring for businesses.  By making it financially beneficial for employers to hire labor, the firms are more likely to do so.  Instead of terminating employees, due to the costs, firms will choose to hire.  Tax cuts will also reduce the cost of production and increase supply.  This will thus increase the quantity of labor demanded. This option is more direct because it is dealing with the labor supply, which has closer correlation to the core of unemployment than the previous course of action.

The informational video provided unbiased reasoning behind the motivation of the government’s actions, which is not spelled out habitually.  It is valuable to hear from a neutral source that the motivation for these actions might not be to expand the economy; these actions are preformed out of appeasement.

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