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September 20, 2010

GOP and Welfare for the Rich

Republicans in Congress have been arguing that the Bush tax cuts, set to expire this year, need to be extended. More particularly, they need to be extended for all income groups--not just for those who earn less than $250K a year. The rationale, of course, is that a recession is no time to raise taxes becausing doing so will destimulate the economy. So, even though extending all the tax cuts will increase the debt, it's a necessary price to pay.

The problem here is that if you want another stimulous--and I, for one, do--just giving the money to wealthy people is about the worst way to do it. Why? Rich people don't spend as quickly as poor and middle-class Americans. This is how Krugman puts it:

Now, consider first what would happen if we extend the tax cuts for the next 10 years. This would add $700 billion to the debt (pdf). If the rich spread their windfall evenly across the decade, that’s $70 billion a year in additional consumer spending — or $140 billion during the period when we need it. So, $700 billion in deficits for $140 billion in stimulus; not a good bargain!

Alternatively, suppose we extend the tax cuts for only 2 years. That’s only $140 billion on the deficit. But the rich, knowing that it’s temporary, won’t spend much of it — if they really operate on a 10-year horizon, they’ll spend only $14 billion a year more, so $28 billion of stimulus

The other argument for extending the tax cuts for the rich is those rich people arn't really rich people--they're small business owners. And, of course, even if nobody likes "rich people" enough to protect them from tax increases, the assumption is that small business people always deserve protection because they are the real engine of economic growth. The problem with this argument is that it's phoney. The juice behind this point is not economic theory; it's mythology. The small business owner is the new "common man," the guy who represents all the individual virtues encoded into the American dream. Hence, they're innocent. It turns out, though, that there's not that many of them--at least not that many who are in the $250K tax bracket that would be impacted by the expiration of the Bush tax cuts. As reported by TPM and others, 98.1% of small business tax payers fall below the top two income brackets. That means that letting the Bush tax cuts expire will impact LESS THAN 2% OF SMALL BUSINESSES.

Posted by stevemack at 05:29 PM | Comments (0)

September 10, 2010

Let the Debates Begin

Drawing attention to the fact that this will be an election of “choices,” both Jonathon Alter and E. J. Dionne have suggested mid-term debates between presumptive Speaker-Elect John Boehner and Sen. Mitch McConnell. For Dionne, it’s a matter of institutionalizing the new reality:

Obama has already started a long-distance debate with Boehner, hitting him hard in speeches this week in Wisconsin and Ohio. Boehner, who has been critical of Obama for months, should welcome the chance to take his argument straight to the president himself. And since the Senate is in play, too, the voters should also get to see what McConnell has to offer. If the Republicans take both houses, Boehner and McConnell would become hugely important figures -- remember how powerful House Speaker Newt Gingrich was? The country should get to know more about them before deciding.

Alter sees political advantage:

For Democrats, the advantages are obvious: the debate would electrify (and possibly reshape) the political environment and allow the president a chance to do what he has done poorly so far, which is to frame the choice. To me, it's a simple one: rebuild America (with public-private infrastructure projects to put the middle class back to work) versus more tax cuts for those making over $1 million. It would also give Obama a chance to make the cases for further tax cuts for all but the rich.

It’s hard to imagine this idea actually going anywhere—Obama seems to be much more of a political traditionalist than a scrappy street fighter. And I also am a little uneasy with the idea of putting the president on equal footing with the minority leaders in congress. But still, I like the idea, in part because I think Dionne misstates the reality a bit. While this “should” be an election about choices, it’s not shaping up that way so far. Instead, voters are being given a chance to register their displeasure with the sluggish pace of the recovery—while being told that the very policies that prevented a complete collapse (stimulus spending, bail outs, etc) caused the crisis in the first place. And though Republicans do represent an alternative—higher deficits, deflation, deeper recession, and a never-ending carnival of congressional investigations of nutcase conspiracy theories—that alternative is nowhere on the political radar screen. Debates between Obama and the morally (and ideologically) vacuous McConnell and Boehner (a man far too stupid to be sinister), has the potential to highlight those choices—and make the election about them.

Posted by stevemack at 10:20 AM | Comments (0)

September 01, 2010

Right Wing Bubble Heads

This is choice. Apparently the same right-wing economic pundits who are now telling us that the stimulus was a huge mistake, and that we need to reverse course and pay down the debt in the middle of a recession, are the same guys who who were telling us that there was no housing bubble--that the free market was humming along just fine, thank you. Follow the link for the whole list of suspects.

The housing bubble has precipitated a severe, and possibly catastprophic, economic crisis, so I thought it would be useful to put together a list of pundits and experts who were dead-wrong on the housing bubble. They were the enablers, and deserve to be held accountable. People also need to know (or be reminded of) which pundits/experts should never be listened to again. But most importantly, I have time to do this kind of thing now.

The list includes only pundits and (supposed) experts. That means the list doesn't include policymakers such as Alan Greenspan and Ben Bernanke, because however wrong they may have been, policymakers—and especially Fed chairmen—are undeniably constrained in what they can say publicly. I strongly suspect that both Greenspan and Bernanke honestly believed that there was no housing bubble, but alas, we'll never know for sure. The list also doesn't include pundits/experts who were wrong only about the fallout of the collapse of the housing bubble—that is, the extent to which the collapse of the housing bubble would harm the economy.

Many of the names on the list won't shock anyone, I'm sure. And FWIW, a few of the pundits seemed to deny the existence of the housing bubble simply because Paul Krugman argued that there was a housing bubble, and they absolutely hate Krugman. Unfortunately (for our economy), Krugman was right—again.

The list is a work in progress (though I've been reasonably thorough in my research), so feel free to suggest other people who should go on the list. So without further ado, here's the list:

Posted by stevemack at 09:01 PM | Comments (0)