There's a lot of debate going on these days about Macroeconomics. One the one hand, there are people like Paul Krugman, who basically thinks it's still 1933, and that we should deficit spend our way back to prosperity. On the other side are people like Larry Kudlow, who thinks we need to tax cut our way to prosperity. But I think they're both wrong, especially in the context of urban economic development, because creating jobs has a lot more to do with microeconomic reality than macroeconomic policy.
Problem with macroeconomists is that they fall in love with theories the way teenage girls fall in love with quarterbacks. But at least the teeny boppers are fickle, macroeconomists can hold onto their crushes for decades. Krugman likely fell in love with Keynes in college, and has had hearts in his eyes ever since.
Back in the 30s when Keynes was coming up with the ideas Krugman and other disciples now cling to religiously, it was much easier for government to create jobs. This wasn't because FDR was some clever guy, but because capital labor costs were much lower. Hoover Dam, for example, cost $9,400 per construction worker to build. Adjusted for inflation, this works out to about $132,000 of capital expenditures per construction job. Yet today, a modern power plant costs about $2-$4 million per construction job. Cap labor costs have gone up about 7-8% a year since the 30s, while inflation's only gone up about 2-3%. As a result, it's gotten much harder for any government to create jobs, regardless of whether policymakers listen to Krugman, Ron Paul, Larry Kudlow, or Larry the Cable Guy.
In recent articles, I've pointed out the $1 million capital-invested-per-job steam turbine plant in Chattanooga, the $4 million capital-invested-per-job data center in Iowa, and the $25 million capital-invested-per-job wind farm in Oregon. It simply requires too much capital now to create a job, and this figure is not going to stop rising faster than inflation, especially when all the workers need health benefits. If it only cost $132,000 in capital investment to create a new job like it would if cap labor costs had stayed at the same level as broader inflation, then there'd be no issue, we could just have a 1930s economic policy, and Krugman would be a hero. But we don't, so the answer is to shift regional economic development away from just creating jobs, and focusing more on recirculating wealth.
Perhaps one of the best examples of recirculating wealth is the Lowell, Mass Venture Development Fund, which doesn't try to recruit massive factories that only need 300 workers, but rather locally owned shops and restaurants, which don't need tremendous amounts of capital to justify hiring someone. Additionally, the owners live locally, so the profits don't get sent to Toronto, Toledo, or Tokyo. Increasingly, regional economic development will have to focus more on building local businesses like this, because workers are simply too productive to be hired by the thousands anymore.