Sunday, August 21, 2011

A Job Creation Primer for Paul Krugman

New York Times columnist and Nobel laureate in Economics Paul Krugman caused quite a stir with his recent comments on CNN’s Fareed Zakaria GPS suggesting that inflation and an expansionary monetary policy to meet an attack by space aliens would pull us out of the economic doldrums in 18 months.

KRUGMAN: Think about World War II, right? That was actually negative social product spending, and yet it brought us out. I mean, probably because you want to put these things together, if we say, "Look, we could use some inflation." Ken and I are both saying that, which is, of course, anathema to a lot of people in Washington but is, in fact, what the basic logic says. It's very hard to get inflation in a depressed economy. But if you had a program of government spending plus an expansionary policy by the Fed, you could get that. So, if you think about using all of these things together, you could accomplish, you know, a great deal. If we discovered that, you know, space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months. And then if we discovered, oops, we made a mistake, there aren't any aliens, we'd be better –
ROGOFF: And we need Orson Welles, is what you're saying.
KRUGMAN: No, there was a "Twilight Zone" episode like this in which scientists fake an alien threat in order to achieve world peace. Well, this time, we don't need it, we need it in order to get some fiscal stimulus

It seems Mr. Krugman needs some serious re-education regarding the nature of the creation of jobs to man Franklin Roosevelt’s “Arsenal of Democracy”. I expect that he and most readers would agree that the massive shipbuilding programs undertaken during World War II created a lot of jobs, as well as technological advances and improved America’s competitive advantage in global trade. I have some personal knowledge of those shipbuilding programs learned from my father Robert Thompson. He was a marine engineer with the naval architecture and marine engineering firm, Gibbs & Cox. Here is a very brief summary of their work during World War II from the company website

The company was founded on June 29, 1929 by lawyer and engineer William Francis Gibbs, his brother Frederick H. Gibbs and Daniel Cox, a noted yacht designer. Mr. Gibbs was a lawyer by education but a ship designer by avocation. Prior to forming Gibbs & Cox, Inc., Mr. Gibbs had extensive experience in shipbuilding. During World War I, he was the Assistant to the Chairman of the Shipping Control Committee. In 1922, he and his brother formed Gibbs Brothers, Ind. to convert the liner Vaterland to the Leviathan.

Gibbs & Cox designed the famous, standardized cargo-carrying Liberty ships of World War II and was instrumental in the implementation of modular construction, centralized material and equipment procurement, and design-for-production features that are the foundation of cost-effective shipbuilding today. The firm developed and implemented many improvements in ship design and construction based on fleet feedback during World War II, constantly improving the designs of surface combatants and other ships throughout the war.

During World War II, Gibbs & Cox was a leader in the shaping of the U.S. maritime forces. Over 5,400 ships were built to Gibbs & Cox, Inc. designs during the War. These
included destroyers, destroyer escorts, light cruisers, landing ships and amphibious assault vessels, liberty ships, minesweepers, icebreakers, tankers and tenders. In addition to the design work, Gibbs & Cox, Inc. was also responsible for the central procurement of all materials and equipment. At its peak, the firm issued 10,000 blueprints a month and 6,700 purchase orders per day.

That was a lot of jobs! Especially relevant to my father’s career, and presumably counter-intuitive to Mr. Krugman, is this sentence

Since 1933, the firm has designed every class of destroyers built for the U.S. Navy, with only one exception.

That’s right Mr. Krugman, at the height of the Great Depression, FDR permanently outsourced the design of the most numerous type of naval surface warship to civilians working in the private sector, rather than designing them inside the government itself, specifically the U S Navy’s design and construction bureau. I like to think much of that was due to the talents of my father, the Valedictorian of the Webb Institute of Naval Architecture Class of 1932! Those new designs increased the pressure and temperature of the steam boilers with a resultant increase in power and fuel economy, increasing a destroyer’s range by 25%, a significant advantage over the Japanese in combat over the vast reaches of the Pacific War.

Let us also consider the Liberty ship program that produced 2,620 10,000-ton cargo vessels for the war effort. In addition to design work, Gibbs & Cox did what would now be called supply chain management for the industrialists, such as Henry Kaiser, who first built the shipyards in “green fields” located in Oakland California and Vancouver Oregon, and then built the ships in those new yards. At its peak in September 1942, one of Kaiser’s yards laid down the keel of Joseph N. Teal, launched her ten days later and delivered her four days after that. Those Liberty ships carried 75% of the cargo tonnage of World War II and they were rapidly designed and built by the private sector. Their design innovations, such as welded rather than riveted construction, allowed previously untrained workers to learn the trade of welding and thereby earn a living and contribute to the war effort (Rosie the Riverter worked for Henry Ford in aircraft production!). After the war, those ships allowed America to become the world’s pre-eminent trading nation.

Indeed, it was with a conversion of the C-2 cargo ships of World War II that Malcolm McLean used to create the first scheduled container fleet with his Sea-Land Service. Those ubiquitous containers of today’s international shipping market got their start during the post war period on ships built during the Great Depression. Nowadays over 90% of all American trade travels by sea, much via container ships.

But could a Henry Kaiser build a shipyard in mere months today, or would government regulation throttle the effort in the cradle? The August 16 edition of the Wall Street Journal had an editorial illustrated the governmental obstacles to job creation . It noted that during the construction of the 682-mile Ruby Red natural gas pipeline, the owner El Paso, had to employ 215 archeologists in the field to ‘mitigate affects to cultural resources’, as required by the National Historic Preservation Act of 1966. New technology jobs will not be found in archeology texts!

To the extent that the past is prologue, it demands that we downsize government and remove regulation, not simply print money and cause inflation. Mr. Krugman, take your place in the Nobel Laureate Hall of Shame alongside Steven Chu, Barack Obama and Al Gore!