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Obama’s Jobs Plan: Deja Vu All Over Again?

At some yet-to-be-determined point after Labor Day, President Obama is set to give a speech unveiling his “jobs plan.” Interestingly, I could’ve written that same sentence a year ago since, as Jeff Dunetz points out, the President was talking about presenting a plan to spur economic growth and hiring exactly one year ago. As Jeff notes, the only thing that was missing back then was an earthquake and a hurricane on the East Coast. As it turns out, though, its not just the idea of a plan that’s strikingly similar to what the President has talked about before, but the plan itself:

Among the options Obama is considering is a version of a tax credit for new hires that could spur the creation of 900,000 additional jobs at a cost of $30 billion, according to an estimate by Michael Greenstone, an economics professor at the Massachusetts Institute of Technology and former chief economist for Obama’s Council of Economic Advisers.

“It allows the private sector to lead the economy toward the areas where the payoffs are greatest,” Greenstone said.

In discussions with the president, Obama’s economic team has strongly backed a tax incentive for new hires, said a person familiar with the deliberations.

(….)

A $5,000 tax credit for new hires combined with a five- percentage-point reduction in payroll taxes on the net increase wages paid by a business would stimulate 900,000 additional new jobs, according to his analysis. The tax break would also wind up subsidizing about 5.1 million new hires that Greenstone forecasts will occur without the incentives. Consequently, the cost per additional job would be about $35,000 apiece, he said.

The White House hasn’t disclosed how a tax incentive for new hires would be structured, and its impact and cost would depend on details such as the amount of a credit.

This is an idea that’s been floating out there since at least late 2009. On paper it sounds like a good idea. Give businesses a tax credit to hire new employees and they’ll hire new employees, right? Well, it’s not quite that easy. When President Obama was proposing the same idea back in 2010, CNN pointed out that a similar program tried during the Carter Administration (which is hardly the place to look to for advice on stimulating the economy) had very little impact on hiring:

Then, as now, the economy looked anemic and unemployment was high: 7.8% when Carter entered office, compared with 9.7% now. So just eleven days after his inauguration, the president proposed giving companies a temporary tax break if they hired new employees, calling it the New Jobs Tax Credit. The law went into effect for 1977 and 1978, over which time the unemployment rate fell 2%.

(…)

The goal of any jobs tax credit is to spur a company to hire when it otherwise wouldn’t. The trouble is, it’s impossible to distinguish exactly which companies have plans to hire anyway. Lawmakers can only do their best to design a bill with the right incentives.

Critics of Carter’s plan — and Congress’ now — say that the problem with any jobs credit is the potential for waste. It’s estimated that of the companies that claimed the tax credit under Carter’s plan, two-thirds would have hired those employees regardless of the tax break.

“It’s a windfall for companies that want to expand anyway,” says Rea Hederman, a senior policy analyst at the Heritage Foundation. Should the bill pass, Hederman says the big beneficiaries of the tax credit this time around would be companies in the big-growth areas of health care and education.

Another problem with the 1977-78 effort is that many companies, especially small businesses, didn’t even know about the tax credit. A survey by the National Federation of Independent Business found that only 43% of their members knew of the law in January 1978.

Meanwhile bigger companies were, and still are, better-equipped to take advantage of the tax breaks because their armies of accountants can keep up with the complex changes. (Never mind that the law behind the 1970s tax credit was called the Tax Reduction and Simplification Act.)

Will some companoies hire more workers with such a tax credit? Probably, but for the vast majority of them it will be, as in the 70s, hiring that they were already planning on doing anyway. So, effectively, the government will be subsidizing businesses for something that they were going to do anyway. This is what happened with the Administration’s infamous “cash for clunkers” program to spur automobiles, and the home buyer tax credit. While these credits were in place, purchasing did increase, but the empirical evidence in both the automobile and housing markets demonstrated that the vast majority of those purchases were merely time shifted purchases that would’ve made anyway. In both cases, once the credit ended, so did the boom in auto and housing sales. There’s every reason to believe that the same thing would happen in the case of a hiring tax credit.

Businesses don’t hire because they’ll get a one-time tax credit. Given the investment that adding employees involves for the average business, that wouldn’t make sense. Hiring happens when actual demand for a companies product or service increases sufficiently to warrant expansion, the crucial question being whether, after taking all the costs of hiring into account, the employee is still likely to generate a profit for the employer. Unless that last part is true, there’s no reason for an employer to hire additional employees. A minor one-time subsidy isn’t going to be sufficient reason to compel a business to pick up hiring in large numbers, and it’s not going to do anything to make up for decreased demand and consumer pessimism which leads to lower consumer spending.

Bruce McQuain points what looks like it will be another part of the Obama proposal, and it looks just as familiar as the two year old tax credit idea:

White House aides gave some clues Wednesday when they revealed the president had discussed with his Jobs and Competitiveness Council an initiative aimed at having construction workers retrofit commercial buildings to make them more energy efficient.

Both Obama and former president Bill Clinton have touted the retrofitting concept as a way to create up to 1 million jobs, according to the Jobs Council.

Obama talked about those plans Wednesday on a conference call with General Electric Chief Executive Jeffrey Immelt and American Express Chief Executive Ken Chenault, who co-chair the jobs council, said deputy White House press secretary Josh Earnest.

“They discussed a number of the proposals that the Jobs Council has been developing,” Earnest told reporters during his daily briefing in Martha’s Vineyard, where Obama is vacationing with his family. “And the president solicited their input on the policy — again, on the policy process that’s underway related to the major economic address that the President will deliver after Labor Day.”

The project would put people to work and improve the environment, Immelt and Chenault wrote in a June op-ed in the Wall Street Journal.

President Obama has been pushing the “Green Jobs” idea since he was a candidate for President. The problem is that there’s no evidence that it actually works:

Federal and state efforts to stimulate creation of green jobs have largely failed, government records show. Two years after it was awarded $186 million in federal stimulus money to weatherize drafty homes, California has spent only a little over half that sum and has so far created the equivalent of just 538 full-time jobs in the last quarter, according to the State Department of Community Services and Development.

Nonetheless, the Obama Administration apparently thinks they’re on to something here:

“More than two million construction workers don’t have work,” they wrote. “Every city in America has commercial buildings that can be made more energy efficient. Both the private and public sectors can step up to create good jobs and save energy.”

Utilizing this dubious program in government buildings might be possible on the outside chance that the President could actually get a program like this through Congress, but what makes anyone think that the private commercial real estate industry, which is already dealing with vacancy issues that have yet to resolve themselves, is going to be all that interesting in investing millions of dollars on “retrofitting” projects with little discernible benefit? Absent huge savings in energy costs, which is unlikely, most building owners simply aren’t going to be willing or able to spend that kind of money. Unless the government forces them to, of course. Therefore, it’s likely that this latest “Green Jobs” program will be as much of a bomb as the others.

Finally,as Ed Morrissey notes,  the whole notion of infrastructure spending as the key to jobs growth would seem to have been refuted by our experience after the 2009 stimulus package, which was filled with infrastructure projects. Rather than spurring new hiring, though, the bill simply enriched existing contractors, most of whom are politically connected in their respective regions, who used existing employees on multiple projects rather than hiring new employees. There were some jobs added during this period, of course, but even we assumed that every one of them were the direct result of stimulus spending (which is unlikely) the total comes out to $278,000 in Federal Spending per job. That is simply a bad investment, and one that we cannot afford anymore.

Perhaps there will be more in the President’s speech, we’ll have to wait until he actually gives it to find that out. So far, though. it’s not looking good at all.

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About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May, 2010 and also writes at Below The Beltway. Follow Doug on Twitter | Facebook

Comments

  1. john personna says:

    “had very little impact on hiring” doesn’t seem supported by the following data, reduction of unemployment by 2%, and the claim that 1/3 of those jobs were stimulated by the program. That kind of result would look pretty good right now.

    It will be interesting to see how it plays out. My real feeling is that the country cannot come to grips with the jobs, tax, spending interaction. Overall they want government to promise less spending while promising more jobs. Illogical. As you say, with demand private industry might create more jobs on their own, but it’s hard to see how government can get in the jobs act without net-spending (directly or by tax credit).

    Related: Yes, We Can Do Stimulus Without Adding Debt. Here’s How. (The trick there being that you raise spending and tax by equal amounts.)

    Like or Dislike: Thumb up 1 Thumb down 0

  2. john personna says:

    (Should I ask if your subtext is that you want austerity AND jobs, Doug?)

    Like or Dislike: Thumb up 0 Thumb down 0

  3. The austerity is necessary because we can no longer afford not to do it. Jobs are created by the private sector, not government.

    Like or Dislike: Thumb up 1 Thumb down 8

  4. john personna says:

    (Another revenue neutral way to create jobs would be to look at two opposing programs, say ethanol subsidies and food stamps, and check which is more jobs-intensive. Then whatever the result, you shift spending toward the jobs.)

    Like or Dislike: Thumb up 0 Thumb down 0

  5. Boyd says:

    @john personna:

    “had very little impact on hiring” doesn’t seem supported by the following data, reduction of unemployment by 2%, and the claim that 1/3 of those jobs were stimulated by the program. That kind of result would look pretty good right now.

    Isn’t there a piece missing from this puzzle, John? Wouldn’t the cost need to be factored in to determine if the effort was worthwhile?

    Which is another way of saying that I wish they’d included the pertinent information in the linked article.

    Like or Dislike: Thumb up 0 Thumb down 0

  6. Rick Almeida says:

    @Doug Mataconis:

    Jobs are created by the private sector, not government.

    Unless your job is actually created by the government.

    Like or Dislike: Thumb up 3 Thumb down 1

  7. john personna says:

    @Doug Mataconis:

    The austerity is necessary because we can no longer afford not to do it. Jobs are created by the private sector, not government.

    I almost feel like I should let someone else take a whack at this T-Ball.

    The bit “because we can no longer afford” is based on decade-out projections, which makes the claim somewhat fuzzy to anyone who really understands it. What we can afford, decades out, depends on forward income and spending curves, not current levels in isolation. On the other hand, the austerity claim is about current spending.

    And of course “Jobs are created by the private sector, not government” is just factually wrong, in the most trivial sense. Many of your co-bloggers have had government jobs, you never have done?

    Like or Dislike: Thumb up 3 Thumb down 2

  8. Rob in CT says:

    Jobs are created by the private sector, not government.

    This has become a mantra.

    Like or Dislike: Thumb up 3 Thumb down 2

  9. john personna says:

    @Boyd:

    Isn’t there a piece missing from this puzzle, John? Wouldn’t the cost need to be factored in to determine if the effort was worthwhile?

    Sure, but be sure to scale that cost to the economic boom in the following decades. Basically the growth 1980-2000 made all prior costs look pretty trivial. As I needed to argue in a past thread, debt to GDP matters, but GDP growth can make it better.

    Like or Dislike: Thumb up 0 Thumb down 0

  10. MBunge says:

    “Jobs are created by the private sector, not government.”

    No matter how many times conservative repeat that sentiment, it remains bunk. Government not only creates jobs all the time but government is often times a key factor in the creation of private sector jobs as well. This really isn’t a matter of opinion.

    Mike

    Like or Dislike: Thumb up 4 Thumb down 2

  11. snarky bastard says:

    @Doug Mataconis: Doug — real interest rates are at or below 0% — we can afford deficits right now and for the intermediate term even within the same policy baseline. If we go current law baseline, big deficits now will be dealt with fairly quickly as the Bush tax cuts roll-off, SGR takes a whack at Medicare (the providers can’t afford to not treat Medicare patients as a class) and several other things expire.

    We only can’t afford to run deficits now if you believe that long run revenue trends should not come within 3% to 4% percentage points of historical normal and hyperinflation is right around the corner

    Like or Dislike: Thumb up 0 Thumb down 0

  12. michael reynolds says:

    Jobs are created by the private sector, not government.

    And yet there are these guys running around in uniform and carrying guns who seem to think they have jobs. And guys in towers at the airport under the obviously mistaken impression that they are directing planes. And judges, attorneys, federal agents and the like all apparently just pretending to work.

    Diplomats, teachers in base schools, assorted food inspectors, scientists at the FDA, statisticians, economists, Halliburton, corps of engineers, the workers who build federal buildings, defense workers, spies, park rangers. . .

    Who knew that none of those were jobs, whereas a graveyard shift at the Circle K that pays $8 an hour with no benefits was a triumph of the free market?

    Once again: ideology makes people stupid.

    Like or Dislike: Thumb up 11 Thumb down 2

  13. Gerry W. says:

    In the meantime we keep sending private sector jobs to low wage countries. I would assume, if free market principles are in order, then you need to include 2 billion cheap laborers. And all the politicians are doing is looking at every nook and cranny to find what will create jobs. All laughable. Tax cuts? Tax credits? Cash for clunkers? Private sector-what private sector? Casinos? More war? More spending? More printing of money?

    Like or Dislike: Thumb up 1 Thumb down 0

  14. c.red says:

    I don’t post much, but this one just needs it –

    First, the leaks are not exactly what the president wants, they are what he thinks he might be able to get – big difference. I think he is being foolishly optimistic – Republicans have just about stated that they will do anything to keep the economy stunted until the next election. How Cantor and Ryan are not villified throughout the country is mind boggling.

    Second perhaps if the president actually got a chance to implement his plan then perhaps we would be able to actually evaluate the results and we would stop hearing it every year.

    As for your assessment of the stimulus, it was pretty much pointed out in the comment thread at the time that you were pretty much way off base, and that all responsible non-partisan (and more than a few that would be traditionally sympathetic to Republicans) evaluators agreed that it kept a bad situation from getting catastrophic. New data since then has only strengthened that position. There is also plenty of data that austerity is a horrible idea (Great Britain anyone?)

    We’ve been waiting for ten years for low taxes and lax regulations to improve the economy for anyone but the super-rich and it hasn’t happened. Maybe it is time to try something else.

    Like or Dislike: Thumb up 8 Thumb down 1

  15. JKB says:

    “Jobs are created by the private sector, not government.”

    All jobs “created” by the government are a net loss to the Treasury, i.e., it takes more tax money to pay the person than is returned to the Treasury through taxes. It is this fallacy that the government can be the primary employer that is at the heart of many of our current problems.

    All government workers are a net cost to the economy in the first order. A few, mostly in the old, pre-New Deal, areas do produce second order work that assists the private sector in producing profits. Work such as weather forecasting, nautical charts, agricultural statistics (although today that might be just as well provided by private enterprise), state road crews, etc. Those activities that result in broader market and less risky market for goods and services.

    Until workers are hired into private sector jobs that produce goods and services for which they are paid by other voluntary private sector exchanges of value, there will be no recovery. Only private sector tax payments result in a net gain to the Treasury and the Domestic Product after taxes.

    The idea you can have a Stimulus that is paid for with a tax increase is completely bogus. You are taking as much money out of the economy as you are putting in to stimulate it in addition to the “skimming” off the top that occurs as the funds progress through the bureaucracy. Deficit spending was only marginally better as it was using tomorrow’s tax receipts today but that is no longer an option since we’ve borrowed well into the taxes to be paid by today’s newborns.

    Like or Dislike: Thumb up 3 Thumb down 1

  16. Gerry W. says:

    Until workers are hired into private sector jobs that produce goods and services for which they are paid by other voluntary private sector exchanges of value, there will be no recovery.

    But that is the point. There are two major problems. One is the housing market in which would normally employ millions of jobs, and the other is the loss of 1/3 of our manufacturing which we gave away to other countries or through mergers and consolidation. And there is nothing to replace those jobs. So while we are doing away with private sector jobs, the politicians look for government for the answer, either by the republican way of more tax cuts or the democrat way with more spending. In either case, we still face globalization and 2 billion cheap labors. And that is where our problem lies.

    Like or Dislike: Thumb up 2 Thumb down 1

  17. john personna says:

    @JKB:

    All jobs “created” by the government are a net loss to the Treasury, i.e., it takes more tax money to pay the person than is returned to the Treasury through taxes. It is this fallacy that the government can be the primary employer that is at the heart of many of our current problems.

    I would agree that government cannot be the primary employer, but luckily that isn’t what government tries to do, and no one here suggests they do.

    The words “of last resort” are ancient but meaningful in this context.

    Like or Dislike: Thumb up 1 Thumb down 0

  18. Tsar Nicholas says:

    One sure-fire way to create jobs is to build insane asylums for leftists.

    Regarding the administration’s jobs proposals, a couple of points are worth making:

    – You’d have to be smoking crack to believe that a payroll tax credit would spur the creation of any material number of net jobs, much less nearly a million new jobs. It’s certainly not the case that companies are failing to add to their rosters because of the payroll tax. Companies have been dealing with the payroll tax for multiple decades. Businesses are not hiring first and foremost because of a lack of macro demand by consumers and a staggering lack of demand in the Capex sector of the business community. Businesses also are not hiring because of overregulation, e.g., environmental regulations, Obamacare, labor and employment regulations and OSHA regulations.

    If you really wanted to create jobs you’d be talking about targeted tax breaks for capital investment by small businesses and sweeping regulatory reforms, beginning most notably with a repeal of Obamacare and expansions of nuclear power, oil drilling, shale production and gasoline and diesel refining capacity.

    – Not only would you have to be smoking crack you’d also need to be mainlining heroin if you actually believe that a plan to retrofit commercial buildings will do anything to help the job markets. Have these administration geniuses even checked the vacancy rates for the commercial real estate market? They’re catastropic. And that’s despite the fact commercial landlords have been giving out incentives for the past 2-3 years. To get a commercial lease deal done in this day and age you have to give the tenant free rent at least for six months, multiple tenant improvements and early termination rights. What landlord with that backdrop is going to spend major dollars on helping to lower the power bill? It’s insane. Spending tens of thousands to save hundreds might work on Left-Wing Fantasy Island but it doesn’t work out there on Planet Reality.

    How about accelerated depreciation schedules for capital improvements in connection with new or renewed commercial leases and allowing commercial tenants to amortize free rent with a new or renewed lease as a tax deduction? These measures might help to get some deals done, which in turn would help reduce vacancy rates, which in turn will increase capitilization rates and thereby help commercial landlords get themselves above water. Then we could get some extra hiring in the brokerage, property mgt. and construction fields. At worst it’ll help stabilize the commercial real estate market, which not coincidentally is one of the next big shoes to drop.

    Like or Dislike: Thumb up 2 Thumb down 4

  19. Tano says:

    we’ll have to wait until he actually gives it to find [that] out.

    Now there isan idea…

    Like or Dislike: Thumb up 0 Thumb down 0

  20. WR says:

    @Doug Mataconis: I’m a little confused, because every month I get money deposited into my bank account in exchange for the work I do teaching for the University of California. As far as I can tell, the entire UC system is part of the government. I thought I had a job, but now you inform me that I don’t. Would you be so good as to explain?

    Like or Dislike: Thumb up 5 Thumb down 2

  21. john personna says:

    (Again, there is an interplay, between tax, jobs, and spending, in a mixed economy. The interplay is not simple. For example, hiring school teachers creates their jobs directly, but also improves the employment prospects of their students.)

    Like or Dislike: Thumb up 2 Thumb down 0

  22. PD Shaw says:

    The dynamic for the jobs credit isn’t limited to business. The feds recently granted my city the money to pay the salaries and benefits to hire new firefighters for two years (a number of fire-fighters equal to ten percent of all fire department employees). There’s a very public debate going on as to whether we can afford to pass on this grant, or whether we can’t afford to take it because it will bust the budget after two years.

    Ironically, this type of proposal is going to be more valuable in states with fewer worker protections from being fired and in non-union jobs. I’m guessing it would result in a far greater proportion of low-skill, low-benefit jobs being created in say Texas, than in places like Michigan.

    Like or Dislike: Thumb up 0 Thumb down 0

  23. Rob in CT says:

    If you really wanted to create jobs you’d be talking about targeted tax breaks for capital investment by small businesses and sweeping regulatory reforms, beginning most notably with a repeal of Obamacare and expansions of nuclear power, oil drilling, shale production and gasoline and diesel refining capacity.

    Each of those policy choices have their own costs, of course. While I support more nuclear as a “less bad” option, the reality is that nuclear waste is a problem and increasing capacity will make it more of a problem. I’m in, but don’t pretend there isn’t a cost there. Oil production and refining are both high-pollution endeavors. That pollution doesn’t just harm the spotted oil or whatever – it harms human beings. It also costs money, because (depending on the specifics, of course) pollution sometimes has to be cleaned up (as opposed to being allowed to “naturally attenuate”), and cleanups are very expensive. It’s pretty easy to contaminate an acquifer with petroleum hydrocarbons. It’s pricey to get that stuff back out (though not terribly complicated).

    That should be considered on the front end. First, by doing one’s best to design a new facility (say a refinery) to reduce the potential pollution. Second, by recognizing that an inherently dirty business such as that will pollute despite reasonable safeguards and preparing for that (hence funding the “SuperFund”). That’s not leftist delusion. It’s sane planning.

    Like or Dislike: Thumb up 0 Thumb down 0

  24. john personna says:

    @Tsar Nicholas:

    If you really wanted to create jobs you’d be talking about targeted tax breaks for capital investment by small businesses and sweeping regulatory reforms, beginning most notably with a repeal of Obamacare and expansions of nuclear power, oil drilling, shale production and gasoline and diesel refining capacity.

    Shrug. You just did what the leftists do. You named a bunch of things you want anyway, and declared that they have jobs attached. FWIW, the fact that you put energy in there so prominently proves their case. If it is a net win to get such-and-such therms out of the ground, it is the same win to save that many therms through efficiency.

    As a moderate centrist I must laugh. The left would save energy through insulation, the right says oh no, we can’t insulate, we should just drill more.

    Like or Dislike: Thumb up 3 Thumb down 1

  25. john personna says:

    (I’m skeptical of “green jobs” because not all of them are sensible, but I’m willing to be convinced where they can be shown as a win-win. Say, hiring teens to insulate schools saves future school heating bills.)

    Like or Dislike: Thumb up 3 Thumb down 1

  26. sam says:

    @Doug

    Businesses don’t hire because they’ll get a one-time tax credit. Given the investment that adding employees involves for the average business, that wouldn’t make sense. Hiring happens when actual demand for a companies product or service increases sufficiently to warrant expansion, the crucial question being whether, after taking all the costs of hiring into account, the employee is still likely to generate a profit for the employer.

    Wait a minute. I thought the business community had the vapors because of uncertainty. Now you’re telling me it’s lack of demand that’s constipating the economy. WTF.

    Like or Dislike: Thumb up 2 Thumb down 0

  27. Rob in CT says:

    @john personna:

    Makes sense to me. Basic insulation work has, if I recall correctly, a very good bang-for-the-buck.

    Like or Dislike: Thumb up 1 Thumb down 0

  28. CB says:

    …labor and employment regulations and OSHA regulations.

    forgive me, but I will be god damned if I let you tell me that OSHA regulations are too strict. to the extent that they are, they keep me from falling off my order picker and breaking both my legs or having a palette come hurtling from the sky and crushing me like a bug, you tool.

    Like or Dislike: Thumb up 3 Thumb down 0

  29. Ben Wolf says:

    @ Doug

    Jobs are created by the private sector, not government.

    Please describe to me the difference in aggregate demand generated by a business ordering $1000 in T- shirts, and HUD ordering $1000 in T-shirts. How is one increase in output better than another in terms of stimulatory activity?

    Like or Dislike: Thumb up 0 Thumb down 0

  30. danimal says:

    There were some jobs added during this period, of course, but even we assumed that every one of them were the direct result of stimulus spending (which is unlikely) the total comes out to $278,000 in Federal Spending per job.

    I want to scream and hurt people when I see these comparisons. Let’s say there is a $2 million road project, and let’s say that 10 jobs are created. The simple math says that each job costs $200,000 and the extraordinarily simplistic analysis says this is a bad investment.

    There is something missing from this equation, and it makes a BIG frackin’ difference. There is not any thought or consideration given to the impact that the new road creates. Maybe it’s a road to nowhere and the money was wasted. I haven’t seen too many of them as a part of ARRA, but I concede the possibility. Perhaps the added economic value of the road in terms of loosened congestion, quicker commutes, safety, etc are well in excess of the $2 million spent.

    Why not analyze the costs and benefits in a realistic manner instead of playing parlor games?

    Like or Dislike: Thumb up 6 Thumb down 0

  31. Andre Kenji says:

    Not only Carter: Lula tried the same idea in Brazil and it did not work.

    Like or Dislike: Thumb up 0 Thumb down 0

  32. Ben Wolf says:

    @Doug

    The austerity is necessary because we can no longer afford not to do it.

    This is not logical Doug. The private sector is net saving in order to deleverage. By definition it cannot save more than 100 percent of its income, meaning it requires injections of money to increase its assets. It is not possible for government to also net save without entering a deflationary spiral. For one sector to save, the other must spend.

    Like or Dislike: Thumb up 0 Thumb down 0

  33. michael reynolds says:

    @WR:

    I’m a little confused, because every month I get money deposited into my bank account in exchange for the work I do teaching for the University of California. As far as I can tell, the entire UC system is part of the government. I thought I had a job, but now you inform me that I don’t. Would you be so good as to explain?

    Who are you going to believe? The Libertarian Statement of Faith? Or your own lying eyes?

    Like or Dislike: Thumb up 5 Thumb down 1

  34. anjin-san says:

    Jobs are created by the private sector, not government.

    The Flat Earth Society is thrilled to have you on board.

    Like or Dislike: Thumb up 4 Thumb down 1

  35. anjin-san says:

    I want to scream and hurt people when I see these comparisons.

    I agree. Tell me Doug, how does it feel to be Morrissey’s sock puppet? I would think him having his hand up your ass would have to hurt a bit, or at least cause some embarrassment..

    Like or Dislike: Thumb up 4 Thumb down 1

  36. Ron Beasley says:

    The world, not just the US economy has serious structural flaws and can’t be fixed by any one world leader. The TBF banks are still insolvent. The oligarchs that actually control the economy are interested only on how much money they can stash away today and don’t even think ahead to next week much less next month or next year. Nothing will change until the world financial system collapses which will be sooner rather than later.
    Obama knows all of this and he will suggest things that he knows will not get past the Republican congress so he can blame them in 2012.

    Like or Dislike: Thumb up 1 Thumb down 0

  37. Ben Wolf says:

    Who are you going to believe? The Libertarian Statement of Faith? Or your own lying eyes?

    This is why it’s difficult to discuss these issue with libertarians: they almost invariably make blanket statements based on their principles rather than on empiricism. The net result is you might as well talk economics with your dog for all the good it does.

    Like or Dislike: Thumb up 5 Thumb down 1

  38. michael reynolds says:

    @Ben Wolf:

    Please describe to me the difference in aggregate demand generated by a business ordering $1000 in T- shirts, and HUD ordering $1000 in T-shirts. How is one increase in output better than another in terms of stimulatory activity?

    I doubt Doug will answer, so I can help.

    I have $10,000. Let’s say I was going to use that $10,000 to stimulate the lap dancing and pot-growing economic sectors. Instead, the government takes that $10,000 from me and buys 1000 t-shirts.

    This is the government picking winners and losers. Why should the government step in and choose t-shirts over weed-farmers and college girls paying their tuition by soliciting tips for erotic dances?

    Of course it works out better if we suppose I was going to spend that money on stock. Maybe some shares of Lehman Brothers.

    Or maybe I could have used that money to go into the trucking business. Ah, my trucks would cross the country freely, riding along . . . um . . . magic roads that no one had to pay for with taxes. That’s right, and magic bridges, too.

    I believe that answers your question.

    Like or Dislike: Thumb up 2 Thumb down 0

  39. Ben Wolf says:

    @michael reynolds: I had no idea. I’m grateful for your ability to channel Doug’s consciousness though: oddly enough he rarely puts effort into defending his positions.

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  40. PD Shaw says:

    michael has given the (sarcastic) answer of dead weight loss, but the greater issue to me is that there is a fundamental difference between private and government spending. Business pays for goods and services out of cash reserves. The government engages in defecit spending and when it does so it creates a short-term benefit paid for with a long-term decline in economic growth.

    Businesses are not on the sideline because of some short-term condition, they are not declining to hire because a few percentage points in taxes. They see long term stagnation in America’s future.

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  41. Ben Wolf says:

    The government engages in defecit spending and when it does so it creates a short-term benefit paid for with a long-term decline in economic growth.

    Please elaborate. How does adding financial assets to the private sector result in a long-term decline in economic growth?

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  42. steve says:

    “They see long term stagnation in America’s future.”

    And in the short term, no one has the money to buy their stuff.

    On Obamacare, I guess no one here runs a business. Having been faced with yearly insurance cost increases of 7%-42% over the last 15 years, I think there is substantial reason to think this will smooth out and become more predictable. Small businesses pay more since they are subject to underwriting, and they pay much higher administrative fees. With the exchanges, those should go away (though I really do like my insurance broker and will miss our phone calls).

    Steve

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  43. PD Shaw says:

    @Ben Wolf: Because the government creates an asset while at the same time it is creating a debt. In other words, the government borrows $10,000 to buy shirts, thus putting $10,000 into the economy; but at the same time it has created a long-term liability to repay the $10,000 which reduces future income, and additionally may crowd-out private spending. The CBO has some assumptions on how much long-term growth is reduced per $1 of defecit spending.

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  44. PD Shaw says:

    Here’s the CBO scoring on the stimulus package. It will create short-term benefits, but the long-term costs will be measured in long-term lower wages:

    In contrast to its positive near-term macroeconomic effects, the legislation will reduce output slightly in the long run, CBO estimates. The principal channel for that effect, which would also arise from other proposals to provide short-term economic stimulus by increasing government spending or reducing revenues, is that the law will result in an increase in government debt. To the extent that people hold their wealth as government bonds rather than in a form that can be used to finance private investment, the increased debt will tend to reduce the stock of productive private capital. In economic parlance, the debt will “crowd out” private investment. (Crowding out is unlikely to occur in the short run under current conditions, because most firms are lowering investment in response to reduced demand, which stimulus can offset in part.) CBO’s basic assumption is that, in the long run, each dollar of additional debt crowds out about a third of a dollar’s worth of private domestic capital (with the remainder of the rise in debt offset by increases in private saving and inflows of foreign capital). Because of uncertainty about the degree of crowding out, however, CBO has incorporated both more and less crowding out into its range of estimates of the long-run effects of the stimulus legislation

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  45. Wayne says:

    Re “Please describe to me the difference in aggregate demand generated by a business ordering $1000 in T- shirts, and HUD ordering $1000 in T-shirts. How is one increase in output better than another in terms of stimulatory activity?”

    First a private business is doing it with their own money. They went out and produced something to earn the money to buy those t-shirts. HUD through the government took other people’s money or it is added to the national deficit to do so.

    The private company probably is buying those shirts to encourage production. HUD is doing so to encourage a lack of production. The more productivity the more demand created.

    Money taken from private sector would most likely be spent to promote productivity. Taking it away decreases that productivity. Government giveaways do not promote productivity.
    In addition HUD will probably spend another $10,000 in additional overhead cost because the government is very inefficient. They will spend money on committee to make sure the shirts are selected properly according to the government. Also have committees on top of committees to make sure HUD is wasting tax payer’s money. And yes I mean “wasting” and not “not wasting”.

    Even the demand that benefits the company receiving the order isn’t equal. They will be hit with additional taxes or be hit with inflation in order for the government to pay for the shirts.

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  46. Ben Wolf says:

    @PD Shaw: The government is not creating a liability when it spends. It creates additional money. It doesn’t reach into anyone’s pockets to obtain funds to spend. To think the federal government needs tax receipts when it can credit any account it desires at any time is ludicrous and totally mischaracterizes the purpose of taxation in a system with a fiat currency. The CBO report is a perfect example of economists who continue to think in terms of the now defunct gold standard. We aren’t on it any more, and the federal governmnet does not have a finite supply of money. It is not revenue constrained.

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  47. Rob Prather says:

    @Gerry W.: You’re wearing this hobby horse of yours out. As recently as four years ago we had 5% unemployment and a growing economy and there were still two billion cheap laborers. How do you explain that?

    Economics is not a zero-sum game. You’re wrong about globalization.

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  48. sam says:

    @PD Shaw:

    the government borrows $10,000 to buy shirts, thus putting $10,000 into the economy; but at the same time it has created a long-term liability to repay the $10,000 which reduces future income, and additionally may crowd-out private spending.

    Is that really true with a fiat currency?

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  49. john personna says:

    @Rob Prather:

    In my industries, we’ve seen Asia climb the skills curve, and take on more and more work. Thirty years ago I worked in large US teams. Recently I was the only US member of an international team. When a guy in the Philippines can build good US web pages for $2.50/hr, he gets the work.

    So while 5 years ago wasn’t the start, it was right in the middle.

    We taught our suppliers how to compete, and now the do.

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  50. john personna says:

    @sam:

    That’s where the $9T in outstanding Treasuries come from, isn’t it?

    If I understand Ben correctly, he doesn’t think those had to be issued(?), but they were.

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  51. PD Shaw says:

    @sam: I still think you need to account for the cost of printing money. The CBO assumption of slow growth and slower wage increases due to debt may not be all that different from the loss of value of money. Maybe its just a matter of whose ox gets gored, pensioners or wage earners.

    My understanding of the Keynsian response is that if you borrow at near zero interest rates and pay them back by the time the economy rebounds, then you avoid crowding out.

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  52. Ben Wolf says:

    @john personna: No, there is in fact no need to issue treasuries other than, as I’ve said before, to drain excess reserves thereby hitting the target interest rate set by Treasury and the Fed in conjunction.

    Look, the feds are the sole issuer of currency in America, paper or electronic. If the government were completely limited to what it could raise by taxation or by debt, there would by definition be zero monetary growth in the economy. Government inputs would be matched to outputs, loans would match to liabilities and all would net to zero. The money supply remains flat.

    Under such a system the opportunities for the private sector to accumulate financial assets become exceedingly limited. This was in fact one of the glaring problems with the gold standard. An economy trying to expand often found the static limits on gold reserves prevented the money supply from growing to reflect increased economic activity. For an economy to function at full capacity there must be enough money in circulation to buy every good and service available. If the feds did not create money in our current system we would have had forty years of economic stagnation and rampant deflation as dollars became more and more highly valued.

    Every time a for-profit bank lends money the feds create new money for the deposit. When the feds deficit spend they inject additional money into the private sector. How much monetary creation the feds can engage in without causing damaging inflation depends on the economic context, but that does not change its critical role in creating the finanial assets (money) the private sector needs to generate wealth.

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  53. sam says:

    @john personna:

    How about we just mint two $5 trillion platinum coins and be done with it?

    But seriously (well, that last was semi-quasi-not quite tongue in cheek – serious), I think Ben’s point (and mine) is that with a fiat currency, the sovereign can just issue money as it wishes, as policy dictates. The big freakout, of course, is the spectre of inflation. But who’s freaked out by inflation? Here’s a hint–it ain’t the folks who owe money… (See David Leonhardt, Dissecting the Mind of the Fed)

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  54. Gerry W. says:

    @Rob Prather:

    Let me go through this whole scenario, it is a combination of many things.

    Bush had a guns and butter economics.
    http://www.washingtonpost.com/wp-dyn/content/article/2005/09/21/AR2005092102504.html

    He borrowed for his tax cuts, essentially creating a false economy. Also housing was targeted to create jobs and the fed accommodated. So the economy was riding high, but in the Midwest a different scenario was developing. We were losing our jobs. All of this was covered up with the tax cuts and home building.

    So that 5% you saw was again on the tail of a trickle down theory, but it never trickled down in the Midwest. Bush came to my state and said “free trade is good” and we watched the factories close. It was said that we lost some 57,000 factories or 6 million jobs in a decade or 1/3 of our manufacturing. If you sit in a big city, or have just farming in Iowa, or have oil in Alaska or Texas, maybe you did not feel the effects, but the effects are felt in the Midwest. And evidently we were ignored and have no voice. I will never see my town the way it was before. There is nothing that will fill in those factories. I suspect my town has some 30 or 40% unemployment. But put that up against national statistics, I suppose that is a drop in the bucket. We will just continue being ignored.

    Now you add up 2 billion cheap laborers since the fall of communism, automation, lean principles, and mergers and consolidation and we have lost jobs and the wages are reduced. We were told by the “experts” that we were going to be a service society and/or an information society and I do not see that either. And we were told that we did not need the manufacturing. That manufacturing employed those that did not go to college and others that went to college for the front office and engineers. It also employed blacks or anyone else who did not have to go to college and created a middle class.

    I can only tell you what I saw. I saw our jobs leave the country, our money go to Iraq, and the neglect of the infrastructure. No country can survive under this scenario. The fake Bush economy which ignored so many problems and with all our politicians still supporting free trade and we find ourselves without jobs. We still see jobs going overseas, and the tax cuts have been used and are less effective, and the fed is printing money which is also less effective. We lost our jobs and we lost all our stimulus. Bush had his roaring 20’s and now we see a near depression. At least where I live. But now I know, just how Roosevelt must have felt when there were no jobs in the private sector. And the question is, what will create jobs? What widgets can we make here and not some other country? How do you support small business when factories are closed in a community? And what jobs are left pay less and require more skills.

    If you believe in competition, then our biggest competitors among nations are the cheap labor countries. And the question is what we are going to do about it when they have the advantage of cheap labor. And what we got, for example, from Rudy Guiliani (on Piers Morgan last week) is the same old same old. More tax cuts, after all, he said, Kennedy had tax cuts, of course, he did not talk about the high tax rate at that time and Kennedy did not have to deal with globalization as what we have today and that we had years of tax cuts. We just keep going down a hole not thinking globally. For some reason, the politicians are only looking at issues within our borders and not globally.

    I could give you a hundred articles but I think I am limited to three.
    http://www.businessinsider.com/11-long-term-trends-that-are-absolutely-destroying-the-us-economy-2010-10?op=1

    http://www.washingtonpost.com/wp-dyn/content/article/2009/11/09/AR2009110903705.html?wprss=rss_print

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  55. Gerry W. says:

    @Rob Prather:

    My comment is waiting moderation as I put in three url’s.

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  56. Gerry W. says:

    @Rob Prather:

    Let me go through this whole scenario, it is a combination of many things.

    Bush had a guns and butter economics.

    He borrowed for his tax cuts, essentially creating a false economy. Also housing was targeted to create jobs and the fed accommodated. So the economy was riding high, but in the Midwest a different scenario was developing. We were losing our jobs. All of this was covered up with the tax cuts and home building.

    So that 5% you saw was again on the tail of a trickle down theory, but it never trickled down in the Midwest. Bush came to my state and said “free trade is good” and we watched the factories close. It was said that we lost some 57,000 factories or 6 million jobs in a decade or 1/3 of our manufacturing. If you sit in a big city, or have just farming in Iowa, or have oil in Alaska or Texas, maybe you did not feel the effects, but the effects are felt in the Midwest. And evidently we were ignored and have no voice. I will never see my town the way it was before. There is nothing that will fill in those factories. I suspect my town has some 30 or 40% unemployment. But put that up against national statistics, I suppose that is a drop in the bucket. We will just continue being ignored.

    Now you add up 2 billion cheap laborers since the fall of communism, automation, lean principles, and mergers and consolidation and we have lost jobs and the wages are reduced. We were told by the “experts” that we were going to be a service society and/or an information society and I do not see that either. And we were told that we did not need the manufacturing. That manufacturing employed those that did not go to college and others that went to college for the front office and engineers. It also employed blacks or anyone else who did not have to go to college and created a middle class.

    I can only tell you what I saw. I saw our jobs leave the country, our money go to Iraq, and the neglect of the infrastructure. No country can survive under this scenario. The fake Bush economy which ignored so many problems and with all our politicians still supporting free trade and we find ourselves without jobs. We still see jobs going overseas, and the tax cuts have been used and are less effective, and the fed is printing money which is also less effective. We lost our jobs and we lost all our stimulus. Bush had his roaring 20′s and now we see a near depression. At least where I live. But now I know, just how Roosevelt must have felt when there were no jobs in the private sector. And the question is, what will create jobs? What widgets can we make here and not some other country? How do you support small business when factories are closed in a community? And what jobs are left pay less and require more skills.

    If you believe in competition, then our biggest competitors among nations are the cheap labor countries. And the question is what we are going to do about it when they have the advantage of cheap labor. And what we got, for example, from Rudy Guiliani (on Piers Morgan last week) is the same old same old. More tax cuts, after all, he said, Kennedy had tax cuts, of course, he did not talk about the high tax rate at that time and Kennedy did not have to deal with globalization as what we have today and that we had years of tax cuts. We just keep going down a hole not thinking globally. For some reason, the politicians are only looking at issues within our borders and not globally.
    http://www.washingtonpost.com/wp-dyn/content/article/2009/11/09/AR2009110903705.html?wprss=rss_print

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  57. @Gerry W.: I’m not going to defend Bush’s tax cuts and the like. You have been saying the same things for years now and have offered no answers.

    Manufacturing output has indeed been decoupled from labor, but it is increasing (see the chart at the following link). To say that manufacturing has been decimated is incorrect (see here and here).

    Now tell me, what are you going to do about it? Are you a Luddite; will you make productive capital illegal? Will you have us raise tariffs? That worked so well with Smoot-Hawley!

    What would you do?

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  58. Gerry W. says:

    @Robert Prather:

    You have confirmed what I have been saying. The articles did not mention the 57,000 or so factories that have closed, but that is what happened. And the articles confirm that more technical skills are needed. I know I have sounded like a broken record, but there is hardly a politician that has an idea either.

    As far as what we do, I have pointed that our before. Yes, there would be a tariff, but only minimal. But if you point out that tariffs are bad, then the result still has been 57,000 factory closures in a decade. Actually what should have been done was a tariff for 20 years until cheap labor wages got up to par with ours. But it is too late for that now. And it is probably too late for any tariffs. The bottom line is that the middle class lost.

    Now, what can we do about it? First recognize the problem in which 99% of our politicians do not recognize . Don’t ignore it. But that is what they have done and we see what they are doing today. They are spending for cash for clunkers, they are having more tax cuts which cannot stimulate as the tax cuts are overdone and there are no jobs to stimulate and no demand, and the fed is printing money. So, more harm is being done as everyone is on the free trade band wagon.

    I would do the following. It will not make up for all the lost jobs. In other words, YOU DON’T GIVE UP 6 MILLION JOBS. But the water is over the dam and we have to move on with what little we have. And it will take 10 to 20 years to recuperate. Too bad we did not pay attention to this two or three decades ago.

    1. Invest in your country: That is energy independence for security and jobs. Also a new air traffic control system that will save 12% on fuel. The savings to the airlines can go to build new aircraft. A nationwide high speed internet system. Perhaps high speed rail within reason.

    2. Invest in your people: That is mandatory vocational training. We live in a globalized world and you can no longer rely on factories. We have to be an educated society.

    3. Invest in the future: Federal research grants to be given to universities and business to bring out new technologies. Today there are no new jobs to go to for those unemployed. You need new areas of growth. No playing games with embryonic stem cell research.

    4. Fix the antitrust laws that Reagan relaxed. Monopolies and consolidations destroyed jobs.

    5. Consider an “American job elimination tax” on companies that move out of the country. These companies do not pay middle class wages, healthcare, pensions, social security, or city and state taxes.

    6. Get away from failed ideology. We saw it for 8 years. Tax cuts was used as an ideology. It did not prevent recessions. And did not create prosperity. You still have to solve problems. Ideology does not solve problems.

    7. Supporting small business sounds nice and it is heard in Washington, but it does not work in my community as the big business left. That means you cannot have small business where factories have closed.

    8. We are losing the middle class. We cannot compete with 2 billion cheap laborers in the world that want our jobs. There are not enough jobs to go around. Competition is good, but it can be harmful also. All we are doing in this country is build the same business environment so that we can knock the other guy out. A person loses his job and has no place to go to. And the reason is that we did not invest in our country, in our people, and in the future.

    9. Have commissions to cut government spending. It seems to be the only approach to doing this. Obviously, one side or the other will complain, but something has to be done now. Actually, Obama had this but did not follow through.

    10. Government appointed jobs and organizations need to be slimmed down. Every 50 to 60 years we need to go through this. There are too many secretaries, deputy-secretaries, under-secretaries, and under-under-secretaries. Information gets loss through the process and government becomes ineffective. The last time this was done was with the Hoover Commission in the late 40’s.

    11. Pour money into new drugs and preliminary medical science. Drugs are becoming less resistant to diseases. And potential super bugs are coming.

    12. Fix the infrastructure. It is the reflection of our country and to the rest of the world.

    13 And if we have not kept up with it, every school should have physical education. Also wash your hands when you come home to prevent viruses and less trips to the doctor. And as we see so often, stop throwing pop cans, etc. outside the car.

    14 We need to slow down urban sprawl. Inner cities are being abandoned. As people leave there is no money left to support the inner city. This maybe controversial to some, but at some point we will have to deal with the problem. Sprawl also takes away from farms and spreads cities out too far in a time when you have empty buildings. We cannot have cities in decay. And cities in decay cannot create jobs and small business.

    15.Create an hour period each school day for freshmen high school students to study any subject for a month (9 months-9 subjects) that they would have not normally have taken. It may be the hardest of subjects in which students would have been afraid in failing like algebra, geometry, calculus, languages, music, or any other subject including learning sports, like golf, football, baseball, or tennis as examples. There are many retired people who would like to teach what they learned in life. There could be a test at the end of the month, but this would only to see if the student learned anything in that subject and would not count against him in his grade average. The point is to have students learn as much as they can on different subjects and to see if they like a certain subject that they did not anticipate.

    16. The Bush tax cuts is spent money. It was for the “here and now” and did nothing for our future. The tax cuts did not trickle down as our jobs went overseas. It would have been better to revitalize our cities and towns across America. I look at my town with closed factories and a downtown with empty 100 year old buildings. It is a disgrace as China is building for the 21st and 22nd century. While you will have some white elephants, the 800 billion dollar tax cuts was the biggest white elephant of all and we have nothing to show for it. Having revitalized city centers means support for small business and would give a renewed enthusiasm for our country.

    17. And finally, I don’t think our electoral political system works anymore. Every candidate is bought off and it takes huge amounts of money to run a campaign. I would suggest a management team or a turn around specialist to be appointed as president for a couple of years or more. And there would be a board of directors who he answers to and for the middle class. That does not mean that we do not support the rich or free enterprise, it is a matter of working with them to see what works.The parties are riddled with failed ideologies. We can do better that what we have.

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  59. Ben Wolf says:

    @sam: John has the impression I’m a radical leftist. Well, let me dispel that idea if I can: everything I’ve said about how government creates money, about a balance sheet recession and about public vs. private debt suggests a good way (not the only way or even the most important way) to help the economy recover is for another round of tax cuts for households making $100,000 per year or less. It wouldn’t do anything for jobs in the short term nor would it stimulate the economy, but it would help the middle class deleverage more quickly; you can be damned sure that extra $2,000 would be applied to retiring debt, particularly mortgage debt. The faster they deleverage the sooner they have disposable income to spend, and that will provide stimulus.

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  60. @Gerry W.: The articles weren’t intended to address the 57,000 closed factories, but were intended to show that manufacturing output has been rising and it has. Additional technical skills are fine; I have no objection to this. What I do object to is your harping on the 2 billion cheap laborers as if they are stealing from us. They are doing no such thing. They are trying to make a living the same as people in this country do, and in many cases, they are trying to extricate themselves from grinding poverty. As for the Fed printing more money, it was completely necessary and to not have done so would have been disastrous.

    On to your points:

    1. I don’t really object to any of that as long as it makes sense. You seem qualified in your support of high speed rail, and rightly so. It only makes sense in certain places.

    2. The emphasis on mandatory vocational training sounds a lot like Germany and is not a bad idea. No real objections here, either.

    3. No objections again to the investment in research and basic science. However, we are already doing these things. There is an argument to be made that more should be spent on basic science, and I have no real objections to it.

    4. You’re on more shaky ground here. It’s true that some of the wheeling and dealing was useless shuffling of money around, but often times when a company is bought out it is because they are failing in their mission and another company sees an opportunity.

    5. I’m not sure what this would entail, but it rubs me the wrong way. How can we tax them if they’re out of the country?

    6. I pretty much agree with this. I retweeted something today where someone said that if your ideology doesn’t stand up to empirical testing, you should adjust your ideology. I largely agree with this.

    7. Not sure what to say about this.

    8. Again with the 2 billion cheap laborers. We’ve covered this already.

    9. Cutting government spending right now is a bad idea. A better idea would be to plan for long term cuts based on when the economy pulls out of its slump.

    10. Streamlining bureaucracy is always a good thing. No argument here.

    11. As with spending on basic science, and this qualifies, I’m in agreement.

    12. Spending on infrastructure is needed and I have no problem with spending more. One of the problems with Obama’s stimulus bill was that it contained tax cuts when it should have had none. Instead, the money should have been spent replacing water and sewer mains, roads and upgrades to other infrastructure. Also, the stimulus was too small.

    13. Not sure what PE has to do with manufacturing, but no arguments here.

    14. Urban sprawl is a problem, of sorts, but it ends up that way because people want it that way. Nevertheless, some changes in zoning would probably be beneficial.

    15. I’m not sure about the merits of this idea, but education reform would be great. We spend an awful lot of money on education and get little for it.

    16. I’ve already said the tax cuts were a bad idea.

    17. The idea of a management team sounds unworkable. There probably is some need for electoral reform, though.

    My main objection is still that you seem to view economics as a zero sum game and you harp on cheap labor in other countries as if they are stealing from us. Nice discussion.

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  61. Gerry W. says:

    @Robert Prather:

    I am not trying to criticize 2 billion cheap laborers, maybe the tone came out wrong. What I am emphasizing is that 2 billion cheap laborers have entered the free market system. And when the Palins of the world say they believe in a free market system, I have to question, does that include 2 billion cheap laborers and what they are doing to our wages and jobs. And I get the sense that it is just business as usual with tax cuts and laissez-faire which ignores globalization.

    On number seven: The politicians campaign everyday and they say things that they support small business. Well, if the factories close, then how does one support a small business? Many small businesses wrapped themselves the factories and they need employed clientele to visit their business. Just mentioning this as the politicians are not addressing the concerns. It is just sound bites, at least where I live.

    On number nine: There are no right answers as we are trapped in a corner. We have deficits and debt and programs need to be fixed. But you cannot fix any problem as long as you keep shipping jobs overseas. Tax cuts are overdone, but we need them as not to slow down the economy. Like being hooked on a drug. The tax cuts have lost their stimulative power.

    On numbers 13 and 15: Well thirteen has nothing to do about jobs, but we have a weight problem in our country. It is just the right thing to do. The merits of learning anything and everything without the punishment of bad grades will make students take and learn many subjects. I did not take certain subjects because I was afraid of failure. You can find out if you like a subject or hate it. If you like it beyond the month you had learning it, you can pursue it further. If you don’t, know harm done. In a globalized world, I think it makes sense to learn as much as you can.

    Again, on cheap labor. I want the best for everyone. The points I have made out, flawed as it may be, points to the fact that we need to invest in our country, in our people, and in the future, if we want to exist in a globalized world. While we have done some of the things I pointed out. It would be nice to have someone in Washington to be more articulate and to be a leader. Just listening to Piers Morgan tonight, and like he said, people are waiting for something gigantic and no one is delivering. It is all the same political talking points. The point I wanted to make clear is that we did not prepare for globalization and if you are going to give away millions of jobs, then you need to replace those jobs. And, I am wondering what they are? They all talk about jobs, but they have not said anything to me.

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  62. Moosebreath says:

    ” Business pays for goods and services out of cash reserves”

    Clearly PD Shaw has never heard of corporate bonds, commercial lines of credit, etc. Unfortunately for his argument, they do exist.

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  63. john personna says:

    @sam:

    I think Ben’s point (and mine) is that with a fiat currency, the sovereign can just issue money as it wishes, as policy dictates. The big freakout, of course, is the spectre of inflation.

    As with my conversations with Ben, I keep getting hung up on your second sentence negating your first.

    [Shorter answer: Zimbabwe]

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  64. john personna says:

    @Ben Wolf:

    No, there is in fact no need to issue treasuries other than, as I’ve said before, to drain excess reserves thereby hitting the target interest rate set by Treasury and the Fed in conjunction.

    As I said in the other thread, I’m familiar with that perspective. But I know that is more alternate accounting than conventional reality.

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  65. john personna says:

    As I understand the history, governments for years thought they were either (1) spending reserves, (2) printing money, or (3) floating debt to cover spending. That’s what they thought their bonds were for, to borrow monies to pay bills. Later this “add/drain money from the economy” model was added. It works in a descriptive sense, and provides an alternate metaphor … it sheds some light.

    But I think Ben you are the only person I know who thinks this is what is actually happening, and that this is the only valid perspective.

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  66. Gerry W. says:

    @Robert Prather:

    I just wanted to say, that when it is all said and done, it is more or less too late to recover years of neglect. And that most of the politicians, including Obama, are clinging on free trade as if it is a win win situation. I suppose there was winners and losers, but in any case, we were led to believe those that are in charge. I find those that are supposed to have brains, either misled or just don’t know what is going on. No matter what they are saying, the damage has been done, and I see little in what they say as encouragement.

    Rudy Guiliani on Piers Morgan last week said we needed more tax cuts and that you always had recoveries with tax cuts. And he praised the Kennedy tax cuts. What he omitted was that Kennedy had much higher tax rates to begin with, that we have had the Bush tax cuts for years, and Kennedy did not have to deal with globalization.

    David Keating said that we trade with the states and that we can trade with anyone. This was on C-span and he had a number of angry callers on lost jobs and he dismissed them.

    Veronique De Rugy, economist for George Mason Univ., on C-span, said that it was okay to lose our jobs and that we had Wal Mart jobs to go to.

    William F. Cohen, said that we will trade more with India. I just wonder if we don’t make the toasters and irons, just what we will trade with India. Then he referred to high end products, as that is the new slogan, as we lost the low end jobs.

    We were told years ago, by the experts, that we were going to have an information and/or service society, but in areas you had factories, that is not happening.

    So, while I have sounded like a broken record, it is only in reply, to the failed broken record of our leaders. I have given everything I can think of to create jobs, others have given good points too, but is it enough to hold on to a middle class? Thomas Friedman said that we need 50,000 new entrepreneurs to start new businesses. He may be right, but it is difficult to imagine, what new business will be and it will take a long time to see that. There are only so many services and widgets to make. You basically have housing, autos, hi tech, medical, and everyday items and variations of them. The hope would have been for the Chinese to buy our products, but they took the products we made along with other countries. And you add lean principles and more loss of jobs, automation and more loss of jobs, and mergers and consolidation and more loss of jobs and we are in a world of hurt on jobs. It is something we should have prepared for, but other ideologies and instances came into play, and most all the politicians think it is business as usual.

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  67. snarky bastard says:

    @PD Shaw: Business take on debt all the time to pay for goods and services.

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  68. Ben Wolf says:

    @john personna: Hyperinflaton in Zimbabwe and Weimar Germany was catalyzed by collapse of the tax system. If this were untrue Japan would be experiencing hyperinflation right now.

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  69. john personna says:

    @Ben Wolf:

    So, the world over, legislators pass tax and spending bills, and think they are borrowing to bridge the gap. Just to confirm, you are not saying you have an alternate model for analysis, you are saying they are wrong?

    (The Japan thing doesn’t prove that at all. It just proves that there are different upper limits on debt and money creation, at different times and in different places. It depends, as you often admit, on managing the expectations of currency and bond investors.)

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  70. Churchlady says:

    We have abundance, not scarcity. We are not in peril. The drumbeat of fear about the “deficit” fails to take into account the productive use of those funds 2009-10 rather than the wasteful run-up under the previous administration. We do not have to cut – but we will. Fear has prevailed. Never does under the GOP but is rampant under the Dems. The spending of this administration is only 7% of the total deficit from Clinton to now. But this form of spending is generating jobs. And the credits stimulating buying HAVE LASTED as in the auto industry. The naysaying and second guessing of this president is based on ideology from both sides rather than reliance on facts. One president up against a rapacious global capitalist system cannot do miracles overnight. He IS staying the course, fighting for us – the agreements in December and now got US more safety and steadfastness than ever the GOP got – and good thing too since the GOP have never produced a steady and reliable economy for the mainstream American families. Deficits do NOT matter nearly as much as stimulus. But once again the GOP will make sure to pull defeat from the jaws of victory. Always have. Always will. Progressives – that’s your enemy. Not this president.

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