Steve Forbes
Just caught Steve Forbes on Larry King, making the argument that the government's plan to deal with the economy should have included an immediate freeze on all payroll taxes, a freeze that could remain in effect for a year or two. Admittedly not having thought about it all that much, I like the idea- As Forbes was saying, it has the effect of putting cash in the hands of a substantial majority of Americans, poor and rich alike and putting cash in the hands of employers and their businesses.
The brief back and forth between Forbes and his stimulus-favoring opponent was telling. When Larry King asked Forbes's opponent (who's name escapes me) about the payroll tax freeze, the opponent's response was that we need to take action that would have an immediate effect. Forbes chimed in, "But a payroll tax freeze could take effect for everyone's next paycheck!" to which his opponent responded that a payroll tax freeze wouldn't help build the schools and hospitals we desperately need.
Just keep in mind, this is the debate we've had on this stimulus. We're told we need this particular package and we need it right now, no matter what the concerns about the particulars, pushing aside any real intellectual debate.
The brief back and forth between Forbes and his stimulus-favoring opponent was telling. When Larry King asked Forbes's opponent (who's name escapes me) about the payroll tax freeze, the opponent's response was that we need to take action that would have an immediate effect. Forbes chimed in, "But a payroll tax freeze could take effect for everyone's next paycheck!" to which his opponent responded that a payroll tax freeze wouldn't help build the schools and hospitals we desperately need.
Just keep in mind, this is the debate we've had on this stimulus. We're told we need this particular package and we need it right now, no matter what the concerns about the particulars, pushing aside any real intellectual debate.
posted by lonely libertarian at 9:13 PM
6 Comments:
This is a bit of non-sequitor, but it ties into the whole economy discussion.
Do you believe that so much negative media attention makes matters worse?
I fully believe the media -- whether it be in print, internet or tevelsion form -- impacts public opinion even if it is not intended. The Vietnamese admitted that the strong sense of dissent in America toward the Vietnam War helped keep spirits alive. I think that win or lose you might here something similar from Iraqis someday. Global Warming was made so much worse by countless studies that were reported. So isn't it possible that so many stories about lay-offs, how bad things could get and all the other negatives of an economic downturn are forcing the American public to be even more protective of money?
I almost McBlogged about it myself one day a week or two ago when even the headline for the Super Bowl was about the economy. On one hand I can't blame media outlets for reporting stories that relate to the major story in America, but at the same time, when does it become overkill?
After an episode of 24 the nightly news came on and the lead story was what companies laid off employees and how many people lost their job. Go to Yahoo! at any point in the day and you'll see some story about tips to save money or how you know you're about to be fired or what lies ahead.
Yes, the economy deserves attention but I feel like if it just keeps getting forced down our throat then we'll be seeing some self-fulfilling prophecy.
I watched the same segment. Steve Forbes did seem to make sense and the Google CEO couldn't directly refute Forbes ideas. However, shortly after the show I googled "payroll tax" and "stimulus" together. There are reasons why Forbes suggestion doesn't work even if the Google CEO wasn't knowledgable enough to diffuse Forbes.
The Center on Budget and Policy Priorities (CBPP) outlines the counter arguments. One is that it puts 10x more money in the pockets of the 100K earner than the 10K earner. The 100K earner is more productive so I think some extra money in his/her pocket is earned but a linear relationship doesn't really fly.
But the bigger issue is how much Forbes idea costs. CBPP talks about a 2 month full payroll tax holiday costing 120 Billion. Forbes wants to reduce the payroll tax in half for 24 months. Leveraging CBPP's estimates I work that out to $30B*24 months=$720B. That's roughly the entire amount planned for the stimulus bill. That means it is all we could do or the stimulus bill would have to surge to well over a trillion to accommodate other things.
McMc, there is no doubt whatsoever that pessimism is a self-fulfilling prophecy. The worse you expect the future to be, the less you'll spend and you're more likely to stick your cash under the bed than invest in the stock market. No doubt.
In fact, Keynes' entire basis for advocating fiscal stimulus was to change the "animal spirits". So its ironic that you'd have a president running around trumpeting fear.
fourthandeye:
Is the goal of the stimulus to reduce income inequality? Or to create productive jobs? I thought the goal was exclusively to stimulate the economy and create jobs.
The people making the hire/layoff decisions are wealthy people.
I don't know how to link articles in here. I had to post this op-ed from the WSJ today, its truly mind-boggling.
"A Spending Education"
To understand the problem with the stimulus bill, it helps to focus on specific parts. Take the $142 billion for schools, which is nearly double the total outlays of the Department of Education in 2007. Now consider that much of this cash would go to public-school systems that don't even need the money for its earmarked purposes.
The Milwaukee Public School system, for example, would receive $88.6 million over two years for new construction projects under the House version of the stimulus -- even though the district currently has 15 vacant school buildings and declining enrollment. Between 1990 and 2008, inflation-adjusted MPS spending rose by 35%, per-pupil spending increased by 36% and state aid grew by 58%. Over the same period, enrollment fell by a percentage point and is projected to continue falling, leaving the system with enough excess capacity for some 22,000 students.
"In general, MPS facilities have been described by school officials as being in good to better-than-good condition," reports the Milwaukee Journal Sentinel. "The kind of situations that create urgent needs for renovation or new construction in some cities have not been on the priority list for MPS officials in recent years."
The Milwaukee situation is instructive for another reason. The city is home to the country's oldest and largest school voucher program, which provides public funds for children to attend private schools. Families who participate in the means-tested voucher program receive $6,700 per pupil, while the city spends more than $13,000 per student. In addition to saving the taxpayers money, voucher students graduate at higher rates and outscore their counterparts on reading and math exams, which is one reason waiting lists for the program are common.
Yet language in the stimulus bill expressly prohibits any dollars from going toward financial assistance to students attending private schools. In other words, Milwaukee can use the money to build schools it doesn't need, but not to expand education programs that are producing better outcomes for disadvantaged kids. The Senate version excludes provisions in the House bill for teacher merit pay and charter schools now serving more than a million students, two more education reforms that are gaining popularity nationwide despite opposition from teachers unions and local school boards.
President Obama says education spending belongs in the stimulus because it will help the economy in the long-term. Fair enough. But if the goal is to increase productivity, lawmakers need to be use the money as a lever for better results. Simply doubling or tripling the amounts for states to spend on the same failing schools isn't going to produce different outcomes. A growing body of education research suggests that kids perform better in schools where teacher pay is based on effectiveness, not seniority and credentials. Studies also show that charter schools help the children who attend them and put competitive pressure on nearby traditional public schools.
That $142 billion is little more than a huge stimulus to the teachers unions and lousy school districts to keep doing exactly what they've been doing.
LL: I spent a couple hours today reading a bunch of prominent economists' opinions on the stimulus and what it should look like. There's lots of overlap in the areas of payroll tax cuts and accelerated spending on eventually necessary infrastructure investment. There also appears to be no one except Paul Krugman who thinks this is a good stimulus bill. Larry Summers had previously stated a stimulus bill should be targeted, temporary and timely; and the bill fits none of this criteria.
Krugman is an outlier, which I never really understood until today. The guy is just a saavy businessman. Simple supply and demand. He knows there's plenty of demand for credible, liberal economists to justify extreme ideas and there's no supply of them. So he does serious work in the international arena for credibility and then leverages that w/ his angry rants in the NYT. The fact that no one else w/ credibility is willing to say this stuff guarantees him prominence.
Thanks for all the comments. If you guys are interested, take the time to read through some of the recent posts in Will Wilkinson's very excellent blog, The Fly Bottle. He's been blogging recently about Krugman and the philosophical underpinning of what you discuss McMc, how negative media attention can make the economy worse.
Without a doubt, public perception of economic conditions do affect the economy, but just think for a moment the complications that actually means. The whole idea of a stimulus package of any sort is to restore public faith in the economy, so businesses start hiring again and people start spending more of their money. What we're really talking about here is an exercise in mass psychology, which Wilkinson wonders contemplates isn't at all possible.
It's one thing to push putting money back in the hands of business and individuals and hope for the best- it's quite another to assume that bridges, schools, hospitals and all the other stimulus money is going to help restore consumer confidence.
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