- Paul Krugman: The New Voodoo
- links for 2010-12-30
- "Hazards in Interpreting Seasonals"
- Initial Claims for Unemployment Insurance Fall Below 400,000
Posted: 31 Dec 2010 12:24 AM PST
Republicans used to claim that tax cuts paid for themselves so that they could rail against the deficit and cut taxes at the same time. Though some in the GOP still resort to this defense of tax cuts, now that the "tax cuts pay for themselves" myth has been exposed, Republicans are turning to a new defense of simultaneously cutting taxes and giving "impassioned speeches denouncing federal red ink" that is every bit as flimsy as the old one:
The New Voodoo, by Paul Krugman, Commentary, NY Times: Hypocrisy never goes out of style, but, even so, 2010 was something special. For it was the year of budget doubletalk — the year of ... railing against deficits while doing everything they could to make those deficits bigger. ...
In the first half of 2010, impassioned speeches denouncing federal red ink were the G.O.P. norm. And concerns about the deficit were the stated reason for Republican opposition to extension of unemployment benefits, or for that matter any proposal to help Americans cope with economic hardship.
But the tone changed during the summer, as B-day — the day when the Bush tax breaks for the wealthy were scheduled to expire — began to approach. My nomination for headline of the year comes from the newspaper Roll Call, on July 18: "McConnell Blasts Deficit Spending, Urges Extension of Tax Cuts."
How did Republican leaders reconcile their purported deep concern about budget deficits with their advocacy of large tax cuts? Was it that old voodoo economics — the belief, refuted by study after study, that tax cuts pay for themselves — making a comeback? No, it was something new and worse. ...
2010 marked the emergence of a new, even more profound level of magical thinking: the belief that deficits created by tax cuts just don't matter. For example, Senator Jon Kyl of Arizona — who had denounced President Obama for running deficits — declared that "you should never have to offset the cost of a deliberate decision to reduce tax rates on Americans."
It's an easy position to ridicule. After all, if you never have to offset the cost of tax cuts, why not just eliminate taxes altogether? But the joke's on us because ... the incoming House majority plans to make changes in the "pay-as-you-go" rules ... that effectively implement Mr. Kyl's principle. Spending increases will have to be offset, but revenue losses from tax cuts won't. Oh, and ... any spending increase must be offset by spending cuts elsewhere; it can't be paid for with additional taxes.
So if taxes don't matter, does the incoming majority have a realistic plan to cut spending? Of course not. Republicans say that ... defense, Medicare and Social Security — all the big-ticket items — are off the table. So they're talking about a 20 percent cut in what's left, which includes things like running the judicial system and operating the Centers for Disease Control and Prevention; they have offered no specifics about where the cuts will fall.
How will this all end? I have seen the future, and it's on Long Island, where I grew up.
Nassau County — the part of Long Island that directly abuts New York City — is one of the wealthiest counties in America and has an unemployment rate well below the national average. So it should be weathering the economic storm better than most places.
But a year ago, in one of the first major Tea Party victories, the county elected a new executive who railed against budget deficits and promised both to cut taxes and to balance the budget. The tax cuts happened; the promised spending cuts didn't. And now the county is in fiscal crisis. ...
Nassau County shows how easily responsible government can collapse in this country, now that one of our major parties believes in budget magic. All it takes is disgruntled voters who don't know what's at stake — and we have plenty of those. Banana republic, here we come.
Posted: 30 Dec 2010 10:01 PM PST
Posted: 30 Dec 2010 05:31 PM PST
Once again, Menzie Chinn finds that an analysis from Casey Mulligan does not hold up to closer scrutiny:
Menzie also points to this statement from Mulligan:
...the fiscal-stimulus act depresses supply, because many of its major programs -- the unemployment-insurance extension, the food-stamp program expansion, the home buyer tax credit and more -- are directed at people with low incomes.
According to this view of the world, a big part of our economic and employment problem right now is that "people with low incomes" would rather live on unemployment insurance and food stamps than work. It's not the lack of jobs that is the problem, it's the fact that people won't take jobs that aren't there.
It would be silly to say that nobody ever exploits the existence of a government program, of course that happens (but that doesn't mean the costs of these programs exceed the benefits, i.e. the mere existence of a cost is not enough to conclude that a program should be discontinued, it's the net benefits that matter). However, to attribute the major part of our employment problem to this behavior flies in the face of the available evidence on hiring behavior by firms relative to the number of people seeking jobs. There simply aren't enough jobs to go around, and we have not been creating jobs at a fast enough pace to keep up with population growth, let alone reabsorb the millions of workers who have lost their jobs during the recession.
Our problems did not arise with "people with low incomes," though there seems to be a concerted effort to place the blame on this segment of society (e.g., see the claims from conservatives that the CRA caused the crisis, claims that have been thoroughly rebutted but persist nonetheless). To find those who are actually to blame, looking a bit further up in the income distribution -- somewhere up near the very top -- would be more fruitful.
Posted: 30 Dec 2010 09:59 AM PST
At CBS MoneyWatch, a reaction to today's news on initial claims for unemployment insurance:
Update: I should add the cautionary note that seasonal adjustment procedures can be misleading near holidays, so the good news in the report comes with lots of uncertainty.
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