As an economist, I found President Obama's job-creation proposals predictably disappointing. Both the proposed tax cuts and the proposed new programs can be classified as fiscal stimulus. According to Keynesian orthodoxy, such stimulus can hasten the end of a recession by increasing demand, which induces increased production, which in turn necessitates increased employment. But fiscal stimulus, like all Keynesian policy, is oriented only to the short run. (In defense of his short-run orientation, Keynes famously said, "In the long run we're all dead.") Both the Bush stimulus of 2008 and the Obama stimulus of 2009 were arguably reasonable Keynesian attempts to hasten the end of what looked like a severe but otherwise normal recession.
But if this were a normal recession susceptible to cure by stimulus spending, by now those efforts would already have gotten us back to normal (say 5% unemployment and 3% real annual growth). The fact that the economy has not returned to a normal growth path shows that this is not just a normal, cyclical recession. Rather, it is a symptom of more serious structural problems in our economy. President Obama's policies have not just failed to address these long-term problems, but they are actually making them worse. Until we address those problems, stimulus spending will not get the economy moving again. The impact of stimulus spending under current circumstances will be like that of the Cash for Clunkers program – a quick boost whose impact will evaporate without a trace as soon as the program ends.
In appealing for support from Republicans, President Obama reminded them that they had supported President Bush's stimulus in 2008, implying that because they had done so once they were obligated for the sake of consistency to do so again. But he passed over in silence their near-unanimous opposition to his own politically larded 2009 stimulus plan. Given the failure of both stimulus programs, it would be perfectly reasonable for Congress to choose not to throw good money after bad with another stimulus program. At the very least, Congress should demand that the President explain why his previous stimulus did not end the recession and why he thinks it will be different this time.
On Monday the President dropped the other shoe: he gave us the details on how he wants to pay for his jobs program. Again, it sounded disappointingly familiar – the same tax increases that he has proposed repeatedly before, and that Congress has rejected. This combination of taxes and class warfare might appeal to the Democratic base that Obama has been in danger of losing, but it will be a non-starter in the House. The negative impact on jobs of the proposed tax increases might actually outweigh any beneficial impact from the payroll tax cuts, making the President's jobs proposal a net destroyer of jobs.
There are many things our government could do to create jobs without spending a single additional dollar of federal money. Here are a few: 1) rein in the out-of-control NLRB, which is actively obstructing the creation of non-union jobs; 2) enact the free trade agreements with South Korea, Colombia, and Panama that President Obama is holding up in an effort to extort concessions from Congress; and 3) repeal Obamacare. The fact that the Democrats will not countenance these sure-fire job creators shows that they care more about their special-interest constituencies than about jobs for unemployed workers. This rule is proven by the one recent exception: President Obama delayed implementation of some onerous EPA regulations, which might very well help businesses create jobs – and other Democrats threw a fit.
The House could move ahead with another reform without waiting for the President – a reform that would help businesses to create jobs and might even draw support from some Democrats: reform the corporate income tax. The universal recipe for tax reform is to broaden the tax base and reduce tax rates. Broadening the tax base means making more dollars subject to taxation – most often by closing loopholes. This would make the tax fall more evenly on all corporations instead of exempting those with good lobbyists who can persuade Congress to enact custom-made loopholes for them. This, in combination with lower tax rates, would reduce the distortionary effect of the tax and help to channel money to more productive uses, which would inevitably result in more jobs. If Congress could succeed in reforming the corporate income tax, perhaps it would be emboldened to take on the personal income tax next.
But if this were a normal recession susceptible to cure by stimulus spending, by now those efforts would already have gotten us back to normal (say 5% unemployment and 3% real annual growth). The fact that the economy has not returned to a normal growth path shows that this is not just a normal, cyclical recession. Rather, it is a symptom of more serious structural problems in our economy. President Obama's policies have not just failed to address these long-term problems, but they are actually making them worse. Until we address those problems, stimulus spending will not get the economy moving again. The impact of stimulus spending under current circumstances will be like that of the Cash for Clunkers program – a quick boost whose impact will evaporate without a trace as soon as the program ends.
In appealing for support from Republicans, President Obama reminded them that they had supported President Bush's stimulus in 2008, implying that because they had done so once they were obligated for the sake of consistency to do so again. But he passed over in silence their near-unanimous opposition to his own politically larded 2009 stimulus plan. Given the failure of both stimulus programs, it would be perfectly reasonable for Congress to choose not to throw good money after bad with another stimulus program. At the very least, Congress should demand that the President explain why his previous stimulus did not end the recession and why he thinks it will be different this time.
On Monday the President dropped the other shoe: he gave us the details on how he wants to pay for his jobs program. Again, it sounded disappointingly familiar – the same tax increases that he has proposed repeatedly before, and that Congress has rejected. This combination of taxes and class warfare might appeal to the Democratic base that Obama has been in danger of losing, but it will be a non-starter in the House. The negative impact on jobs of the proposed tax increases might actually outweigh any beneficial impact from the payroll tax cuts, making the President's jobs proposal a net destroyer of jobs.
There are many things our government could do to create jobs without spending a single additional dollar of federal money. Here are a few: 1) rein in the out-of-control NLRB, which is actively obstructing the creation of non-union jobs; 2) enact the free trade agreements with South Korea, Colombia, and Panama that President Obama is holding up in an effort to extort concessions from Congress; and 3) repeal Obamacare. The fact that the Democrats will not countenance these sure-fire job creators shows that they care more about their special-interest constituencies than about jobs for unemployed workers. This rule is proven by the one recent exception: President Obama delayed implementation of some onerous EPA regulations, which might very well help businesses create jobs – and other Democrats threw a fit.
The House could move ahead with another reform without waiting for the President – a reform that would help businesses to create jobs and might even draw support from some Democrats: reform the corporate income tax. The universal recipe for tax reform is to broaden the tax base and reduce tax rates. Broadening the tax base means making more dollars subject to taxation – most often by closing loopholes. This would make the tax fall more evenly on all corporations instead of exempting those with good lobbyists who can persuade Congress to enact custom-made loopholes for them. This, in combination with lower tax rates, would reduce the distortionary effect of the tax and help to channel money to more productive uses, which would inevitably result in more jobs. If Congress could succeed in reforming the corporate income tax, perhaps it would be emboldened to take on the personal income tax next.
1 comment:
Austrian free economics FTW!
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