There’s not much to say about President Obama’s “jobs” (f/k/a stimulus) speech last Thursday. Now I will admit that my posts over the last couple of years worrying about inflation have been – um, what’s the word, oh yes – wrong. But that doesn’t mean I think more attempted stimulus spending, more temporary tax cuts, etc., are going to help.
The additional one-year cut in the Social Security tax will give people more money to spend, but it’s not going to help the economy grow. Employers aren’t going to increase hiring because of a one-year tax cut (or a one-year increase in consumer spending). We need long-term tax reform. To be honest, even if we cut federal spending (and I will believe it when it happens), we are so far in the hole we still need to collect more tax revenues. But that can be done without raising tax rates.
On Thursday night, President Obama asked: “Should we keep tax loopholes for oil companies?” No, we shouldn’t have loopholes for oil companies. But we don’t need tax credits for people who buy electric cars, either. We need to get rid of lots of the special deductions and credits in the tax laws, provisions that people call loopholes if somebody else is getting them. Let’s collect more money with a simpler tax system. The President’s National Commission on Fiscal Responsibility and Reform suggested this last December. Unfortunately, the President ignored these ideas when they came out. (Leading Republicans didn’t do any better since the Commission called for increased tax collections, as well as spending cuts.)
Similarly, the President’s call for an infrastructure bank seems to ignore the President’s own comment earlier this year that he didn’t realize, back in 2009, when the that stimulus plan was passed, how few really shovel-ready projects there were out there. That hasn’t changed. Maybe we need to increase infrastructure spending (though we are going to have to cut spending someplace else, if we do). But it’s not going to be a quick fix for unemployment.
The thing the President doesn’t seem to understand is that there isn’t an unlimited supply of money out there to spend. So far, the federal government has been able to borrow as much money as it wants to spend. But that is not going to go on forever. Someday we are going to have to reduce our national debt as a percentage of our national income. Either we are going to have to pay some of our debt back (by spending less than we collect) or we are going to have to have inflation reduce its relative size.
Which means that, unless the spending President Obama is proposing will really do some long-term good (which based on the results of the 2009 stimulus plan seems unlikely at best) and we have a real plan in place for getting spending and tax collections in line with each other in the future (which we don’t have yet), President Obama’s plan, whether you call it a jobs plan or a stimulus plan (or a banana*), should not be passed.
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* When Alfred Kahn served as President Carter’s Chairman of the Council on Wage and Price Stability, he at one point said certain administration policies could lead to a depression. President Carter was, not surprisingly, very upset with Dr. Kahn’s statement, so Dr. Kahn stopped using the word “depression” and used "banana" instead. He later switched to kumquat when banana producers complained.
Update (9/13/11 10:40 pm): Fixed a typo in the second paragraph.
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