I’m planning today’s study schedule around tonight’s State of the Union address, so I may as well comment briefly on it: the state of the union is poor.
When President Obama was elected in November 2008, I was elated. However, I said, “now it’s time to get to work.” While I have admired the President’s approach on many issues, too much has remain unchanged in Washington. Despite the President’s early efforts at bipartisanship, the hyperpartisan environment continues. The President allowed much of the stimulus package to take the form of tax cuts to appease the Republicans, rather than direct a greater percentage of the stimulus toward infrastructure spending and other job-creating proposals. Yet, since then, the Republicans have complained about the lack of job creation. The President has since squandered whatever political capital he had left on health care reform without advancing other major initiatives (see, e.g., environmental legislation, immigration).
I support the President, and his goals have been frustrated by his efforts to govern in a post-partisan fashion in an uber-partisan atmoshere. But, this approach is, sadly, incompatible with the current environment. A year later, as difficult as it is to do, the President needs to step back, reflect on the failures of his first year, speak directly to the People, and conclude, “now it’s time to get to work.”
I hope you’ll all watch.
January 29, 2010 at 12:02 am |
i’d like to get your thoughts on the theory that corporate tax cuts would create jobs here.
January 31, 2010 at 12:28 am |
juice,
i’m not an economist, so we may have to enlist GIB’s help on this one. but, my off the cuff musings are as follows:
in hiring additional employees, it seems that a manager would conduct a form of cost-benefit/breakeven point analysis to determine whether it is an appropriate time to hire another worker. the cost portion is easy enough to determine, ie, salary and applicable payroll taxes, while with quality data, even qualitative benefits should at least be amenable to being assigned a dollar figure. for example, if one is hiring a salesperson, a manager should be able to predict the amount of additional sales the employee would generate. if it is a support role, such as an accountant, one should at least be able to assign the value to that person that it would cost to outsource that function combined with any perceived benefits of performing the job in-house. then, to continue with the salesperson example, a manager can determine whether the benefit derived from hiring the additional employee, ie, additional revenue generated, will exceed the predictable cost of the hire. and, this is where i’m getting to my conclusions.
first, we have to presume that, if an additional salesperson is going to generate additional revenue, that an unfulfilled demand exists in the marketplace. if there insufficient demand exists, one must seek to create demand. clearly corporations attempt to do that through marketing, however, if marketing reflects the law of diminishing returns. That is, if each additional dollar of marketing produced a net benefit, it would theoretically sustain itself, without the need for additional cash on-hand (which corporate tax breaks would presumably provide). so, how else can demand be generated? it would seem that one route would be to increase the available funds of the consumer. this would call for tax breaks on individuals, rather than corporations. (i’m not calling for that; i’m a liberal, i’m for raising taxes, haha. i’m kidding, i’m talking out my economic theories as they continually evolve).
consider the scenario where the threshold for hiring an employee is not quite met. that is, there is slack in the market (some additional demand), it’s just not quite worth the expenditure to capture it (ie, the cost exceeds the benefit). in order to capture that bit of revenue and justify it, an employer would be forced to cut his cost. typically, one would imagine that would consist of hiring someone at below the market rate salary for that position (you can see there are many contingencies here, w/ commission hiring, presuming that there is a competitive job marketplace, etc.). that is the only variable the employer can control. one other suggestion i have seen, however, is a bipartisan proposal put forward by senators schumer of ny and hatch of utah. it would relieve employers of the burden of social security taxes on new hires for the remainder of the year. this proposal seems to make sense because it is targeted directly at jobs, and it lowers the cost of new hires. who’s to say, for example, that corporations wouldn’t use the additional cash on-hand for purposes other than hiring (this could lead to a discussion of my understanding of the fallacy of trickle down economics…).
i can see other arguments, however. in small businesses, for example, an additional employee may be like startup costs. when starting a business, you don’t necessarily expect to break even in year one, but you are investing in the future, creating a market, and projecting profits in the future. an employer may, therefore, project an additional employee’s benefits will exceed the cost of hiring him in a few years. but, with small businesses, their success is often linked to the owner/manager’s own well-being, ie, food on the table, and they can’t afford a year in the red. therefore, freeing up some capital may allow them to hire an additional worker, but again, the targeted tax break would seem a more reliable means of achieving this. additionally, even the small business example presumes a growing business, which presumes a growing economy/demand. and, the great unspoken here is how businesses overcome this initial loss, DEBT. banks aren’t lending. that is the single greatest argument i can come up with in favor of corporate tax cuts. otherwise, i think i believe (haha, yes, i just said that) that corporate tax cuts are too blunt of an instrument to reliably achieve increased hiring.
going back to cost-benefit analysis on a macro level, rather than decreasing government revenue by allowing tax breaks, the government could increase government infrastructure spending (because, again, i would argue, one has the same effect as the other; take a pay cut or spend more, you still end up at the same bottom line). increasing infrastructure spending creates demand not by increasing the purchasing power of consumers, but by creating a market. the government says, we’re going to build a bridge, who wants in? then, jobs trickle down.
again, i’m just rambling. i realize there is little structure, and probably little meaning to this nonsense. but, i would like anyone with any opinions on the subject to chime in.
February 3, 2010 at 3:11 am |
I just finished reading your post and I am responding on a cell phone so I will keep it short. Govnt spending might pull us out of a recession and might be needed but this would not be a long term solution. just some things to consider. what do we have in the usa that makes us more competitive? labor costs, energy costs, regulatory/legal costs…wouldnt it be nice to have one in the usa’s column for the long term. we could say brain power but the rest of the world has caught up. it used to be input costs put regulation killed that. we could create tariffs to compete against foreign companies and subsidies of foreign governments but we have used these products to better our lifestyles without wage increases. this change would shock consumers.
by allowing govt to spend the money it is hard for them to ever stop spending the money.
do u ever remember how easy and cheap it was to satisfy us? the problem is once you change your lifestyle incrementally it is hard to back up. remember pre hd tv days. I was satisfied until bam I have hd and my bill is 70 more a month. Could I go back? I doubt it unless forced. people just can’t seem to do it.
I am currently in a room of one of the most successfull companies in the world DIS. when they lay concrete they are not thinking short-term. When they hire new employees they are not thinking short-term. things they do have a staggering price tag but they think long and hard about the impact of decisions being made. in a land where independent decisions make us great it would be nice to have a long term plan. also as a business owner and tax payer I think more than 48 percent of people should pay taxes. we cannot afford what we have so we definitely cannot layer on more. I would say corporations do need incentives to keep jobs here. they need a system to be competive and they need to know what the long term plan is with reasonable expectations.