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Friday, September 02, 2011

Josh Marshall has a very good (as usual) post on the terrible employment numbers and Obama's big job speech.

He notes "The limitation on the president's plan should be the reality of anti-government turn of public opinion not the prospect of willing cooperation from his Republican foes." I have been arguing this for months (Krugman say does not seem to accept the limit due to the extreme unpopularity of further stimulus).

The same point was made by Jon Chait and a similar point (with bonus hack gap) by Matt Yglesias. It seems everyone knows.

I do find two words in Marshall's post a bit odd "small" and "bore" with context

" small bore jobs initiatives (payroll tax holiday, etc.)"

A payroll tax holiday is an inefficient stimulus with small employment bang for the deficit buck. However, it does not have to be small bore. A complete payroll tax holiday -- no tax not for employers either -- would be a mega gigantic bore initiative.

The initiative which Obama has proposed again and again is, indeed, small bore -- a 2% of payroll reduction of the payroll tax. but it is small bore because that was what the Republicans would accept in exchange for extension of Bush tax cuts on family income over $250,000. Some how extending the plainly insufficient holiday has become the upper limit of conceivable temporary payroll tax cuts. How did that happen ?

Similarly, it is agreed by all people who have run the numbers that the medium term budget deficit can't be handled by raising taxes on the rich. It is noted that this is one fourth the size of budget changes needed to stabilize the debt to GDP ratio. Wait how did I get a number (one fourth) out of a sign (raising). Well it is just agreed that the highest conceivable tax rates on the rich are the Clinton rates -- that the biggest possible tax increase is to allow Bush tax cuts to expire.

Now note that we are not talking about proposals that might be approved by Congress. So why not a large bore tax cut for the non rich combined with a large increase in taxes on the rich (to reduce the increase in the deficit without damaging the recovery since the marginal propensity to consume of the rich is tiny) ?

OK seriously people don't care much about the deficit, so the maybe just going up to Clinton rates for the rich would be the best political theater (say the increase is permanent so the 10 year deficit would decrease yada yada).

Somehow limits due to Congress are allowed to limit political theater too. Why ?

1 comment:

Anonymous said...

There seems to be an idea that pundits should only suggest ideas that are "doable". This means lots of moral suasion aimed at Ben Bernanke. This means lots of small-beer proposals that the administration could impose unilaterally. It means that the left-most policy in mainstream discussion is a watery mixture of tax-cutting and monetarism. Milton Friedman would have laughed his ass off if he'd lived to see this.

I think history suggests that this is not going to be productive. Left policy proposals at this point are all good cop, no bad cop. You need a bad cop threatening something more unpleasant to the wealthy than "stimulus" for them to go along with the sane, technocratic proposal.