Wednesday, September 14, 2011

Pass the My Job Act Right Away

Whatever the Jobs Act is about, it isn't jobs. At least not for anyone but President Obama.

We have been having an ongoing debate about the efficacy of Keynesian stimulus in our present economic circumstances. There are those who buy into a relatively clean version of the Keynesian orthodoxy that I learned in introductory macroeconomics thirty years ago. At the risk of oversimplification, the idea is that there is inadequate demand so the government should "inject" money into the economy by borrowing it and that this will cause those who are sitting on their money to change their behavior.

There are all sorts of reasons to think that this won't work in the great run of circumstances and the recent repeated failure of massive stimuli in the form of both spending and tax cuts to have any discernible effect ought to give substantial pause to those who call for more of the same. There are, of course, studies that claim the administrations' 2009 stimulus "created" varying number of jobs at a staggering cost. Other studies claim otherwise and the fact remains that stimulus has not delivered as promised.

But lets put that aside. Keynesian stimulus is not supposed to be "paid for" - at least not during the period in which it is supposed to work its magic. Raising taxes reduces the supposedly stimulative injection of cash into the economy. So Obama's plan to pay for temporary tax cuts and spending with permanent tax cuts is a category mistake. It steps on the (dubious) job creation part of the Jobs Act.*

This gives the game away. The Jobs Act is nothing more than a tax increase. Because the increase is limited to those "millionaires" who earn a quarter of a million and is paired with goodies for everyone, it is intended not to create jobs but political talking points. Republicans will oppose the scheme because it will contribute, as the Wall Street Journal points out, to a tax cliff in 2013. They believe - correctly in my view - that it will create disincentives to economic growth both because of marginal rate increases and further regime uncertainty.

Obama knows that but the objective here is not to create jobs but talking points.

*One could argue that transferring money from higher to lower earners will increase the velocity of money, i.e., the lower earners will spend it while the higher earners would not. This requires quite a few dubious assumptions and, as Megan McCardle points out, is pretty weak tea.


Anonymous said...

The problem I believe with the US economy and debt/deficit problems is from 44% of people reporting income do not make enough to pay Federal Taxes. The WSJ reported this week that household incomes are back to 1996 and that poverty is growing.

The answer to these problems are obvious and P. Obama's proposal gives everyone the opportunity to help resolve the problem.

P. Obama proposes 1500 tax credit to families but Republicans may look at raising everyones incomes to help resolve the problem as well as offering to hire and train more people for the appropriate incentive.

Likewise, Republicans answer to health care will never fly and they need to negotiate a National Health care plan that will be simple, will cap the costs to individuals and will be privatized through third party administrators that will be responsible for getting quotes and holding down costs. This issue alone probably would consume the campaign season.

If they listened to Obama's speech, I think they would have heard him open the door to improve the health care plan.

Finally, in the news yesterday Walmart announced that it is committing billions to training and educating women in the workforce. Is this politics or are they really going to do it?

Anonymous said...

Ms. McArdle starts out by saying "I was tenatively [sic] in favor . . ." Start out like that, and you lose my attention fast.

Anonymous said...

So much for assuming the other side is bargaining in good faith.

What I don't get with conservatives is that for the past 10 years or so we've pretty much been running a supply-side operation. The economy started tanking in 2008, meaning the downturn was hardly Obama's fault. I only partially blame Bush because I think what we're seeing is a manifestation of a lot of problems caused by a lot of people and circumstances, both domestic and foreign.

Yet for 11 years, and hell we could even argue that for 30 years, taxes have been lower than they were previously in our history. Yet over the past 11 job creation has been relatively stagnant, wage growth has been non-existent, and debt has increased. Obama has largely followed supply-side solutions that people like you favor. He has cut taxes repeatedly.

The rich and corporations are sitting on piles of cash. Isn't that what supply-siders like you said would work? Shouldn't all that investment power by the job creators be doing something by now? Shouldn't all the tax cuts and de-regulation of the Bush years have prevented what happened in 2008?

I don't think Obama has done a great job, but it seems that people on the right are either deluded, dishonest, or frankly just being obstructionist for reasons Mitch McConnell has laid bare.

Tom said...

@Anon #3 - except that Bush was hardly fiscally conservative, massively increasing both spending and the deficit.

His early policies did turn around the recession caused by 9/11, though - unemployment went up and came right back down. That's not happening under Obama (and by 2008, remember, the Democrats controlled Congress).

@Anon 1 - It's not that increasing take home pay by extending the payroll tax cut is a bad idea per se, it's that raising taxes on the rich (the minority) in order to cut taxes on the middle class and working poor (the majority) is a frighteningly horrible idea.

Anonymous said...

But Tom, the recession of '01 was hardly as catastrophic or systemic as this crisis, and Bush was aided in the recovery by the Greenspan Put. The recovery from '02 to '08 was funded largely by household debt, wall street malfeasance and fraudulent mortgages. It was not a structurally sound economic expansion.

Yes, the Dems controlled congress from '08 on. So what. The economy would have imploded in 2008 regardless of which party was in charge. And due to the systemic and global nature of the problem, it's highly unlikely we'd be in any better position had McCain won in 2008. Anyone who thinks otherwise is deluded or a partisan hack.