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CBS Comedy: Second Economic Stimulus   September 5th, 2010
They keep floating it...       


More observations...

As fears of a double dip recession increase, Democrats don't know what to do. Their medicine didn't help the first time so all they can think of is to up the dosage with a second "stimulus" package. So, with that, we find a near-comedy piece from CBS.

Laura Tyson, the former chairwoman of the Council of Economic Advisers under President Bill Clinton, and Mark Zandi, the chief economist at Moody's Analytics, told CBS' "Face the Nation" that more stimulus programs - in the form of infrastructure spending, a payroll tax holiday and a research and development tax credit - are needed.

"The federal government has provided a couple hundred billions dollars in additional stimulus beyond the Recovery Act stimulus we put in place a year and a half ago," Zandi said. "In my view the recovery needs more help."

The help the economy needs is the election of a Republican majority in one, or both, chambers of Congress in November.

Tyson, who is a key economic adviser to President Obama, said the issue of the national debt, which the Republicans are ratcheting up as a key economic problem, is not important at all at the moment. The immediate need, she said, is to create jobs.

The national debt is not important at all at the moment? Who is this guy listening to, Paul Krugman? Seriously, the national debt can "become important" in a matter of weeks or months. No-one knows exactly when it will happen, but at some point investors will become more skeptical of U.S. debt and interest rates will rise. Quickly. Then the national debt will be important, but it'll be too late. You can't wait until the national debt is "important" to deal with it.

"Before the great recession, we know that we were vastly under-spending on the nation's infrastructure. You can sort of, therefore, start with the notion that infrastructure spending is terrific in two ways: It creates demand right away when you go out and get the project started and get the workers started; it also creates the ability to grow and be productive in the future," she said.

"We were spending in real dollars about the same amount on infrastructure as we were in 1968," when, she said, the U.S. was one-third smaller economically.

But it was the same size geographically, and we had a debt to GDP ratio of about 28% then--not the 61.2% we have now, and we didn't have a $1.5 trillion annual deficit. Suggesting that we can spend more on something today simply because we could afford it 40 years ago is nonsense.

Zandi also noted that if Mr. Obama were to push through such spending, the money would have to come from a strapped nation.

"He's going to have to take some of the corporate tax benefits away to pay for it. It will be interesting to see how businesses balance that," he said.

Interesting? Let me save you the suspense by telling you how they'll balance it: With layoffs and higher prices. Just what you want in a recession. And not all that interesting.

Also on the program, Gretchen Morgenson, an assistant business and financial editor at The New York Times, said she thinks infrastructure programs won't work quickly enough.

"Let's go for things that will have a more immediate impact, like, say, a payroll tax holiday," Morgenson said. "I think [people are] working down their debt load. They're still in a very difficult spot."

A payroll tax holiday? That doesn't help people that don't have jobs. And it also appears in this quote that the intention is to help people have more money to pay off their debt--which is great, but it won't create jobs, either.

"The stimulus was not big enough, because you would have seen far greater recovery." She said unemployment figures today would be better if last year's stimulus package had been bigger.

In other words, the temporary 1% drop from (so far) peak unemployment would have been a temporary 2% drop? Wow, that's useful.

The suspension of the payroll tax is one of the measures expected to be announced by President Obama on Wednesday. Some analysts are skeptical that it, along with other programs, would be able to lift growth significantly. But Zandi said it will have an impact.

"I think if we suspend the payroll tax for businesses that go out and hire additional workers, expand the job tax credit that is in place today, I think that could be effective and be helpful in the next six, 12 months, when the recovery really needs it. I think that would be a boost to the economy," he said.

So... The idea is to tell businesses they temporarily don't have to pay payroll taxes for new hires, and that they're going to go out and hire a lot of people? I see one of two possibilities: 1) Businesses do that until the payroll taxes kick back in, then they have to lay them off or go out of business. 2) Businesses aren't stupid and see the temporary payroll tax suspension for the gimmick that it is, and don't hire anyone that they weren't going to hire anyway.

Tyson also expects Mr. Obama to announce permanent tax cuts for research and development spending.

"Business accounts for something like two-thirds of all R&D spending in the United States, so this is important," she said. "I don't think this is something that has as immediate a job impact as, say, movement on the current tax credits for the unemployed or extending payroll tax holiday. But I think it's very important in terms of job creation over the longer term."

Interesting... I think this would be far more useful because the tax cuts would allegedly be permanent. Permanent measures are things that businesses can take to the bank and on which they can base long-term hiring decisions.

Tyson suggested paying for this tax cut by rescinding the Bush tax cuts, due to expire in January, for the top two percent of income earners, while keeping them in place for middle class earners.

"Use the revenue, which is $35 to $40 billion a year, to help fund the R&D tax credit; use the revenue to help fund a partial payroll tax holiday," she said. "That's the right thing to do."

Sigh... The R&D tax cut was a good idea, but jacking up tax rates on high income earners to pay for it just amounts to wealth redistribution.

But Zandi said the top two percent of the wealthiest people in the country will not react favorably to their Bush tax cuts ending.

No, ya think???

"I think high income households are psychologically very, very fragile," Zandi said. "They've seen their nest egg significantly diminished because of the high stock values and housing values. I think we're taking a gamble with the recovery.

No kidding... you increase tax rates and you're gambling with the supposed recovery. Not rocket science.

I'm sorry, this wasn't very substantive commentary on my part. But then, it wasn't a very substantive article on CBS's part. It was more like comedy.

What I find interesting is that, about 18 months after the most massive trial of Keynesian economics in our history, the justifications for continued Keynesian economics really do look like comedy.

Have a great Labor Day weekend!

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