Another blog (Caplan?) pointed out that most of the houses built in recent years in the Southwestern US were built by labor that was uneducated workers from little villages and farms in Mexico. And yet these workers had four times the productivity of similar workers building housing in Latin America. The most important thing is to have a good economic system. If you do, even workers with relatively little education can easily compete in the global economy.

I think the US already leads the world in innovation, so I’d rather focus on the dysfunctional areas of our economic system (health care, public schools, the legal system, etc.)

I agree that industrial policy has many pitfalls. It worked horribly in the former Soviet model, where resources were forced into inefficient industries in inefficient places (cotton in Uzbekistan stands out to me). My idea was an industrial policy along three lines: 1) to capture the intellectual property developed at our fine universities first and foremost for the competitive advantage of the U.S., including changes in immigration rules that would force foreign-born PhDs to stay rather than go; 2) self-sufficiency in critical areas, such as subsidies to restart rare earth metals mining/refining in the U.S.; and 3) encouraging the development of high-human-value manufacturing industries through incentives, patent-sharing (related to #1 above), and educational incentives to make Americans fit for high-paying jobs in said industries.

Similarly, when I say that we have too many unemployable people, I mean people who lack the skills to compete in a global environment with global wage pressures. To maintain our standard of living we cannot have a large percentage of the population in minimum wage jobs that even at $7/hr would be outsourced if that were feasible (can’t deliver hot fries from India). If anything those jobs should belong, as they once did, to entry-level part-timers i.e. high school students. Unfortunately, we just don’t have a very well-educated workforce which on the whole merits compensation on the order of 5-10 times the going rate in developing countries. But that’s what we need–to be Japan or Switzerland where our labor is truly worth more and can be paid more relative to other countries.

All that, of course, assumes that we want to continue our massively disproportionate consumption of the world’s natural and human outputs. We do, right? Therefore, we need to be, in aggregate terms, more brainy than brawny in relation to the other peoples of the Earth.

Its obvious in retrospect (except to a few hard money types) that inflationary policy in 1933 benefited everyone. But its not obvious to everyone from that it would do so now, because its obvious (in retrospect) that in 1933 the economy was operating below capacity, whereas there are people now who believe its not, because the currently under-utilized capital and labor can’t be used profitably at this time. I think this is nonsense, but I offer Arnold Kling as an existence proof of someone who isn’t wilfully ignorant but does believe this.

There’s a spread of plausible views on how much the economy can grow before the money supply needs to be tightened, far broader than it normal times, and it seems (based on the very unscientific sample of people I talk to) that people tend to believe in the projections that would be worst for their particular position WRT inflation, and therefore advocate for the policies that would help them most. For purely selfless reasons of course. As a fairly young person in a well-paid job and with most of my net worth tied up in a debt-laden house, advocating for risking mild inflation to maintain growth, I’m no exception

But people take these position on the assumption things will otherwise be okay. The banking and investment lobby would refer lower inflation, provided it doesn’t hold back growth. I’d prefer higher inflation, because I don’t want to risk holding back growth. I read your basic point (in laymans terms) as being that the level of inflation needed to maintain growth is higher than most people thing right now, because NGDP fell so far so fast during the firs year of the recession.

I don’t understand your point 2. What firms are we forcing to hire workers? And who isn’t qualified to work? Most jobs require very little education.

To move forward, I think we have to deal with the following problems:
1) the highest .1% of earners are taking way more than their productive contribution from the economy–this is mainly a problem because their earnings are largely not reinvested in this country. Related to this theme is the disproportionate role of the financial services industry at the expense of ‘hard’ industries;
2) many people in this country are economically unemployable even at minimum wage. Forcing employers to give them jobs just makes us less competitive collectively;
3) too much of our domestic demand is satisfied with imports–primarily oil and manufactured consumer goods. The problem here is that what is spent on these things often comes back in the form of lending which must someday be repaid, not in the form of trade for finished products with American labor content;
4) We are fighting to maintain a standard of living that isn’t justified by our value to the rest of the world. And in doing so we emphasize consumption and frivolous spoils over prudent investment (a side effect of television politics).

I don’t have all the answers, but am pretty sure that the machinations of the Fed (monetary jiggering) is if anything a very tiny part of the solution.

Where I would like to see policy discussion go, but have little hope it will, is toward industrial policy, a massive campaign of investment in infrastructure (paid for with a national sales tax which includes energy purchases) and a return to the system we once had in which state legislatures elected their US Senators–not popular elections.

I still think most people in the government do still want more AD. They just don’t seem to realize that means more inflation as well.