I think Steve's post from yesterday raised some very important issues worth exploring. But in the comments Roger Koppl also made an important point that "facts are the facts."* There are brute facts in the world, though most of us would all agree are interpreted facts and thus theory impregnated. Epistemological issues aside, as Tyler Cowen points to today, the fact is that temporary hiring has experienced a boom, while private sector permanent hiring is lagging behind. This is a strong indicator that the policies have created regime uncertainty which has clouded the investment horizon.
I know with Steve's recent appearances on Freedom Watch, and the recent discussion of sales of The Road to Serfdom due to Glenn Beck, there might be suspicion that we are Fox news advocates. I actually watch CNN more than any other news channel, and read the NYT and Wash Post more than any other newspapers. I cannot watch CNBC though, and I am sure that I watch ESPN more than any other channel (though lately I have been watching a lot of the Golf Channel). Still I flick, and the other day I was flicking and Glenn Beck was doing his thing with a cut out figure of Uncle Sam and a cut out figure of the monopoly man, and he was explaining why the monopoly man was not investing. Uncle Sam was complaining the the monopoly man -- monocle and all -- was not investing. Beck had explained that it would be in the self-interest of the monopoly man to invest if he thought his investment would pay off. At this point, he thrust forward the cut out of Uncle Sam, and simply said, it is because of him that monopoly man is not investing. Despite the source, I thought "wow if my economics students could understand that, we might make progress in understanding our current situation this upcoming semester." Or, perhaps those of more refined tastes should just make all their students read Bob Higgs, and absorb the lesson his economic analysis of New Deal policies and their impact on the business environment during the Great Depression. They can use that for their teaching point rather than Glenn Beck's cut out figures.
Bottom line, it is policy that is causing the slow adjustment of the market to changing circumstances, not market forces themselves. All readers must remember Adam Smith's words: "The natural effort of every individual to better his own condition, when suffered to exert itself with freedom and security, is so powerful a principle, that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often incumbers its operations." When this doesn't happen, we need to ask about the thousands of impertinent obstructions that are incumbering the adjustment path. Of course, the points that Steve raises are very important point to consider -- the heterogenous and multi-specific uses of capital and labor are real issues -- but the real question to my mind is the mobility and reallocation required by recalculation that must take place and the policy response must be to reduce the "folly of human laws" even further to lower the costs of recalculation and transition, not to increase the folly with more and more efforts at never letting a crisis go to waste for a political agenda that has nothing to do with free markets, entrepreneurship, wealth creation, and generalized prosperity.
*Though in response to Roger and in defense of Steve. When I was at GCC the first lesson that Sennholz told us that was, as he put it, of practical economics --- always make sure that your marginal productivity exceeded your wage. And to guarantee that, Sennholz stressed skills that were fungible across changing economic circumstances. That was his defense of a wide-based liberal arts education. I think education has gotten more specialized, not less, in the subsequent 25+ years. But that is an impression, not a factual assessment. Still Sennholz's lesson rings true -- if your marginal productivity exceeds your wage, you will always fine employment; when your wage exceeds your marginal productivity you will be unemployed. Jim Buchanan has at times quoted a passage that was on a professors door at U of Tenn, "Studying economics will not keep you off the breadline, but at least you will know why you are there on the breadline."