9 Political Beliefs Of Soon-To-Be Head Economic Advisor Alan Krueger

Alan KrugerAlan Krueger

Photo: flickr: centre for American Progress

Yesterday, President Obama announced that he selected Alan Krueger to replace his head economic advisor Austan Goolsbee. Krueger will still need to be confirmed to the Senate, but that is mostly a formality. He will be Obama’s number one thinker on the economy.So what does he think?

The Wall Street Journal broke the story of Krueger’s selection, and they wrote that he was “likely to provide a voice inside the administration for more-aggressive government action to bring down unemployment and, particularly, to address long-term joblessness.”

We should hope so. But that’s only one part of what this administration’s head economic advisor will be thinking about, and Krueguer, a prolific writer and Cornell/Harvard graduate, has done quite a lot of thinking. You will note that it is driven, mostly, by statistical research.

Aggressive foreign policy to fight terrorism.

Krueger may be less keen to hack away at counter-terrorism spending. In his 2007 book, What Makes a Terrorist, he argued that terrorists are not motivated by poverty and deprivation. Instead, he says, terrorism is a political statement that requires intelligent individuals to carry out complex schemes.

The evidence suggests that terrorists care about influencing political outcomes...To under­stand who joins terrorist organisations, instead of asking who has a low salary and few opportunities, we should ask: Who holds strong political views and is confident enough to try to impose an extreme­ist vision by violent means? Most terrorists are not so desperately poor that they have nothing to live for. Instead, they are people who care so fervently about a cause that they are willing to die for it.

The unemployed/unemployment doesn't always act like we think it does.

In 2011 Krueger and Andreas Muller (of Stockholm University) conducted a survey of 6,025 unemployed workers and this is what they found:

  • The longer a worker is unemployed, the less time they devote to searching for a job.
  • The unemployed are picky about the jobs they take, and do not want to paid less than they were paid previously.
  • In a Bloomberg column 2011, he points out the unemployment decreased rapidly because people stopped looking for jobs, not because they'd found them.

Source: The Washington Post

We should spend more on educating low-income Americans.

He think Congress needs a budget trigger.

In a NYT op-ed, Krueger said that Congress needed a trigger that would automatically kick to curb spending and lower the deficit if the legislature were unable to pass measures themselves. Also from the article, one gets the sense that Krueger does not have much faith in politicians.

Discretion is hard for politicians to give up -- and briefly satisfying, as dieters know when they dig out those hidden chocolate bars. What will help over time to lessen our appetite for more debt is to remove the temptation, and expectation, that when it comes to the budget we can always spend more than we have.

Raising the minimum wage does not cause unemployment.

In 1992 Krueger wrote a paper comparing fast food restaurants in New Jersey and Pennsylvania. The New Jersey restaurant hiked the minimum wage while the Pennsylvania restaurant kept its rate unchanged. Counter to common intuition, the New Jersey restaurant did not lose jobs, it actually added them.

Why? The idea is that business owners can make a choice; pay low wages and watch workers walk through a revolving door, or pay high wages, keep your workers, and seldom face the challenge of replacing them.

Source: The Washington Post

Giving more visas to skilled immigrants.

In 2000 Krueger wrote that the U.S. should increase its number of skilled workers by issuing more H-1B visas to immigrants.

... the labour market increasingly demands more high-skilled workers, as suggested by the long-term rise in the number of workers with college degrees and their sharply increased pay compared with that of those with high school degrees. Therefore, it would be economically beneficial to admit relatively more highly skilled permanent immigrants... it makes economic sense to increase the number of skilled immigrants by issuing H-1B visas...

Also, that workers who fall under this category deserve more protection.

American workers are protected from exploitation on the job by three defenses: exit, voice and regulation. Exit entails the ability to move to a better job if one is available; voice results from representation by labour unions and other organisations; and regulation is a labyrinth of standards enforced by government agencies. These protections are deficient for H-1B workers.

Source: Princeton University

Getting rid of tax breaks for big oil.

In 2009, when he worked for the Treasury, Krueger wrote a report about what would happen if the government junked tax breaks for big oil. His finding -- nothing much. Natural gas prices might go up a 1%, oil production might go down less than 0.5%. The rest of the world wouldn't even notice.

Source: The Washington Post

If you're smart, you can make it no matter where you go to school.

Krueger will probably get flack from critics who sneer at graduates from top tier Universities (he attended Cornell and Harvard), but personally, he doesn't believe an elite education is necessary for professional success. He found this in a paper he wrote with Stacey Dale in February.

Krueger and Dale compared the wages of students with the same standardized test scores, who went to different undergraduate institutions (say Penn vs. Penn State). They found their salaries didn't differ much.

Source: Washington Post

The government is more involved with jobs than we think.

In 2009, Krueger wrote a paper with University of Michigan Professor Morris Kleiner called analysing the Extent and Influence of Occupational Licensing on the labour Market. They found that 35% of all jobs in the U.S. are regulated/licensed by the government, and that those with licenses have 14% higher wages than those that do not.

Now here's a word from a guy who would fire Krueger...

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