When Your Only Tool is a Hammer…

September 1st, 2011 at 7:14 pm

I’m going to write something more extensive about this when I get the chance, but for now, let me say that as the Republican’s jobs plans are dribbling out, I don’t see much that could actually help on…you know…jobs.

What I see instead is rehashed, discredited trickle down, supply-side ideas…such measures have a terrible jobs track record, though they have been effective in redistributing wealth upwards.  What we have here is a thinly disguised effort to map their permanent tax cut and deregulatory agenda onto “jobs programs,” hoping no one will notice where that map led us when we followed it during the Bush years.

As noted, their ideas seem to fall into two categories: tax reform and deregulation.  And neither will move the needle on jobs one bit.

Tax Reform: I’ll all for cleaning up the code, closing loopholes, and if I have to trade some points on the corporate rate for some loophole revenue, I’m in (though don’t be talkin’ to me about “revenue neutral”—i.e., lowering the rate so much that there’s no new revs).

But in the R’s plans, the connection between tax reform and jobs looks like nothing more than warmed-over trickle down.  Unleash corporations from their tax burdens and they’ll start hiring in droves!

That never works—just look at the lousy jobs record in the Bush years.  And we especially shouldn’t be surprised that it wouldn’t work now.  Corporate profits as a share of GDP, after tax, were the highest last quarter of any quarter in the history of these data going back to 1947.  Yet they’re not hiring.  Why should we believe that even higher after-tax profits would make a difference?

They’re doing well selling into expanding economies, which doesn’t right now include the US.  If we were to get this economy back on track, which would take actually getting people back to work, creating more domestic demand, then firms will start hiring here.  All these supply-side tax cuts will do is boost their already high bottom lines.

Deregulation: Puh-lease.  Cut all the rules you want, that’s not what’s holding back hiring.

Here again, I actually think it is important and would be beneficial to streamline say, some of the requirements that must be met before a firm can build a factory, e.g.  During the Recovery Act, I remember how some of these delays slowed down job creation.

But firms don’t expand or contract on the basis of environmental or workplace safety rules.  They do so because there’s enough demand—there’s that D word again—for what they’re producing.

And here’s another thing that’s workin’ my nerves about these plans.  The R’s promote them in good times and bad.  When the economy is zipping along, it’s time to cut taxes and red tape.  When the economy is stuck in the mud, same thing!

All they’re doing here is dressing up their permanent tax cut and deregulatory agenda as a jobs program.  It’s cynical and it should not be taken seriously.


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14 comments in reply to "When Your Only Tool is a Hammer…"

  1. Dan Furlano says:

    I really wish you would give MMT a read. I think you may be surprised how closely your thinking is aligned.

  2. Kenneth Duda says:

    It is worse than you say. Tax cuts don’t merely fail to create jobs. They will lead to more unemployment in the current climate. Here is why.

    What we have right now is a confidence crisis leading to a demand shortfall. This is plainly visible in consumer confidence polls (the lowest level in 30 years) and in the very low inflation numbers despite low interest rates. People are afraid to buy because they are afraid for their jobs in the future. In that climate, businesses cut back production, leading to more unemployment, justifying people’s fears and making them more fearful. A vicious circle, a self-fulfilling prophecy. The economy is now performing under capacity by 8%, the largest amount since 1947! See http://research.stlouisfed.org/fredgraph.png?g=1WD for a graph that illustrates how much more capacity there is to produce than we are using. This idle capacity is why so many people are unemployed.

    In this environment, the worst thing to do is to cut government spending. If the government pulls back on spending, then more people lose their jobs, accelerating the downward spiral. Instead, the government should be spending money to harness the idle capacity of the economy. Perhaps as much as $1T/year could be spent without causing inflation, and this would restore employment.

    What should the government spend this money on? Anything that increases demand for US labor. Parks, bridges, roads, schools, libraries, universities, community centers.

    As the economy approaches full employment, then we should gradually withdraw that spending and focus on reducing government debt.

    • Dave Lynch says:

      In the face of overwhelming evidence that the stimulus – like every other stimulus and all this demand side crap that has been failing us since Keynes does not work, you want to try to sell more ?

      Yes, I know Mr. Bernstein believes otherwise. And has a few scholars to cite – there is always somebody.

      Apparently the latest good news on the Stimulus is that 58% of the jobs it supposedly created just moved somebody with a job to another job – an actually economically destructive act.

      When Pres. Obama was elected I prayed – hard that everything I was sure I knew and believed would prove wrong. I prayed that even though I believed almost everything we were doing was exactly the wrong thing that somehow it would work out anyway. My prayers were not answered.

      Even if the stimulus produced the 3.4% gain in the economy Mr. Bernstein claims elsewhere – we spent more than 7% of GDP to achieve it.

      Republicans may well see everything as an excuse to cut taxes, but Democrats wee everything as an excuse to increase spending.

      Very soon spending is coming down. We can either grasp that Federal government at 25% of GDP is unsustainable, that it creates nowhere near $4T (actually pretty close to 0) of value each year, or we can go bankrupt. Unfortunately I suspect we are choosing the latter.

      Is there someone here that thinks the Greeks are not responsible for their own problems ? That everything would have worked out had they been able to borrow and spend some more ?

      • Dan Furlano says:

        What evidence do you have that a stimulus would fail?

        If you are talking about the 800b that turned into 200b when Obama took office. anyone with any knowledge said that was way too small. The stimulus need to be on the order of 1.2t to be effective.

        If your claim is correct why is 7% gdp too much for a 3.4% increase? So far the gdp has been downgraded 3 times this year? Is that somehow better?

        Why is 25% unsustainable? Is 10% unemployment ok to live with?

        How is Greece relevant to anything going on at the federal level?

        You need to bring facts and not emotion. I can tell you fairly clearly why both the republicans and the democrats don’t have a freakin clue what they are doing and the evidence is staring us in the face.

      • Chigliakus says:

        Wow really? As Dan says, you need to bring more facts and less emotion. Think about what you’re saying here, that we’ve been doing Keynes for how long? After the last 30+ years of supply side crap making the rich richer and destroying the middle class you’re saying we’ve been doing Keynes? Most Keynesian economists said the stimulus was too small, and Krugman correctly predicted that this would be used as evidence that it didn’t work. After Jared presents evidence that it did in fact help more than people give it credit for, and at least staved off a repeat of the great depression, you’re going to have to bring some evidence of your own.

        You also make the claim that Democrats only want to increase spending, but the fact of the matter is that the spending increases Obama has presided over have mostly been for safety net programs. Spending looks terrible as a percentage of GDP, sure, but that’s because GDP took a huge dive at the start of the economic crisis. Also when talking deficits, let’s not forget the wasteful spending and expansion of government under the Bush admin, deficit spending that was compounded by tax cuts. Instead of praying try thinking and reading, try not to let your emotion and gut instincts blind you to the facts. First gain an understanding of the IS-LM models, understand what a liquidity trap is and what it means to be at the zero lower bound. This will inform you on why government spending will not crowd out private investment in our current situation.

        When you bring up Greece you need to explain why the US can borrow at an unprecedentedly low interest rates and Greece can’t. You then need to explain why the US’s dollar-denominated debt is like Greece Euro-denominated debt, because I see a lot of differences and few similarities. Greece had a much higher debt/GDP ratio before the crisis. Greece can’t inflate away its debt because it doesn’t control the currency its debt is denominated in. This list goes on, but this comment is already too long.

    • Jean McKinley says:

      It does not seem to me that this is a crisis of confidence. That implies that if consumers were to just feel more confident, then all the problems would go away. There is more to this than that.

      The emergence of global demand has lessened the power of the American consumer. If we don’t buy, there are other markets where people will. As a result, trying to accommodate and boost the middle class consumer is no longer business’s highest priority.

      The rift in thought between the conservative and progressive mind is another problem. Whereas in other times, the federal government could step in and boost the economy, that is no longer possible due to the conservative anti-federalist views.

      I think we have to stop seeing this problem as a temporary one, and see it as the new normal. Maybe then we can try to find solutions that address the real problems — a decline in importance of the American consumer, and an emergence of the power of ignorance in American politics.

      • Dan Furlano says:

        So one night in 2008 everyone stopped buying stuff because?

        • Jean McKinley says:

          Um … they ran out of money, their homes were leveraged up to the hilt, the banks stopped lending, they lost their jobs …

          That seems real to me. Not just a crisis of confidence.

    • Robert says:

      Bravo! I agree with everything you say and I’d like to add my own 2 cents worth:

      If we established an employer-of-last-resort (ELR) type of jobs program, we could put all 26.2 million unemployed and under-employed workers back to work in minimum wage public sector community service jobs. The direct and indirect costs for such a program would be in the vicinity of $600 billion (~ same cost as QE2), all of which would be injected into the private sector. Aside from the boost to private consumption, the confidence boost to the nation would inspire businesses to begin hiring again as ELR workers would migrate to private sector jobs.

  3. Bob Wyman says:

    Tax cuts for the wealthy “job creators” not only don’t create more jobs, they also ensure increasing wealth inequality in the future. The reason is that while the poor tend to spend all the money they receive, the wealthy tend to invest much of their income. Thus, what is merely “a dollar to be spent” to the poor is the seed of a compounding revenue stream for the wealthy. Given that one group spends while the other is able to invest, even small differences in income would lead to the investor group getting ahead and staying ahead.

    If there was *any* solid empirical evidence that lowering taxes would actually create jobs in the short term, it might make sense to do so temporarily and risk an increase in wealth inequality. But, given that such evidence either doesn’t exist or is ambiguous, we simply shouldn’t exacerbate the already bad wealth inequality by giving the wealthy even more money to invest.

  4. perplexed says:

    Why don’t we start asking the republicans what their solution to the unprecedented wealth concentration problem that their tax policies created is? Maybe if they’re forced to confront the reality of it a large part of their “base” will begin to wonder what happened to their cut and they’ll begin to question the theological underpinnings of this propaganda machine!

  5. tom says:

    The deregulation thing got me think about something the Austrian groupies like to do. In response to calls for fiscal stimulus, they drag out the hoary parable of the broken window: hiring people to break windows, then fix them, would make us worse off, even though there might be economic growth. Perhaps true, but one of the most blatant, stupid straw man arguments of all time.

    Then they turn around and say the what we need to do to help the economy is cut environmental regulations. Huh? The can see destructiveness is bad in their straw man parable, but not when it comes to pollution? *d**ts.