Robert Reich to Obama: No to Supply-Side Economics

[amborin]

Why the President Must Come Up With Demand-Side Solutions, And Not Go Over to the Supply Side

snip

Can we get real for a moment? Businesses don’t need more financial incentives. They’re already sitting on a vast cash horde estimated to be upwards of $1.6 trillion. Besides, large and middle-sized companies are having no difficulty getting loans at bargain-basement rates, courtesy of the Fed.

snip

The problem isn’t on the supply side. It’s on the demand side. Businesses are reluctant to spend more and create more jobs because there aren’t enough consumers out there able and willing to buy what businesses have to sell.
The reason consumers aren’t buying is because consumers’ paychecks are dropping, adjusted for inflation. And job losses are mounting. The 83,000 new private-sector jobs created in May represent a net loss because 125,000 jobs are needed merely to keep up with an expanding labor force. The number of Americans filing new claims for unemployment benefits edged higher last week.
At the same time, many Americans are falling behind in their mortgage payments. And housing prices continue to drop – making homeowners feel even poorer.

Close to 60 percent of the half-trillion drop in household debt since the depth of recession has been defaults rather than repayments. This makes it harder for people who’d like to enter the housing market to get new mortgage loans, or for anyone to refinance. Other consumer debt burdens are rising. On Tuesday the Fed reported consumer credit outstanding rose in April – mostly from record-high levels of student-loan debt and an up-tick in credit-card borrowing due to food and gas price increases outpacing wage gains.

snip

But we’re not hearing any of these sorts of demand-side solutions from the White House. In seeking Republican votes, Obama is putting forth Republican supply-side ideas – lowering the employer costs of hiring, cutting corporate taxes – that have nothing to do with this demand-side crisis. He may attract some Republican votes for these, but what’s the point if they’re irrelevant to the real problem?

snip

http://www.commondreams.org/headline/2011/06/10-7

[ProSense]

1. See how hard it is:

Obama would still be wrong, even though he is finally listening to Christina Romer, who is calling for an employer payroll tax cut:

<...>

Targeting the employer side of the payroll tax could both attract Republican support and spur job growth, said Christina Romer, who was the first head of Obama’s Council of Economic Advisers.

“A cut in the employer side of the payroll tax could absolutely help accelerate job creation,” Romer said in an interview. “In addition to the usual beneficial effect on demand, this tax cut would make hiring less expensive.”

<...>

He'd be wrong if he listened to Reich too:

<...>

How to get jobs back, then? By reigniting demand. Put more money in consumers’ pockets and help them renegotiate their mortgage loans.

For example: Enlarge the payroll tax break for workers — not just for employers. Exempt the first $20,000 of income from payroll taxes for a year. Create a WPA for the long-term unemployed. Allow distressed homeowners to declare bankruptcy on their primary residence, thereby giving them more clout with lenders to reorganize their mortgage loans. Lend federal money to (rather than bail out) states and cities that are now firing platoons of teachers, fire fighters, and other workers because state and local coffers are empty.

<...>

[amborin]

2. Obama has NOT listened to Romer, who reviled the continued Bush tax cuts

eta: link:

http://www.epi.org/page/-/old/stmt/2003/nyt_economists_final_web.pdf

[ProSense]

8. That article is from 2003. Many

Democrats voted against Bush's tax cuts in 2001 and 2003.

Christina Romer opposed extending the tax cuts for the rich. She supported extending the tax cuts for the middle class.

Romer: It’s the Big Questions That Slow Growth

[hfojvt]

3. yeah I was disappointed in Romer

I thought she was one of the good people. Makes me glad she is gone if that is the kind of advice she is giving.

As for Reich, his idea is at least not regressive. It's capped at $20,000 instead of being even a 2% break for people making over $70,000 a year. It would sorta be a $1,000 break for every working person (whoops, only about $675 for me, but still much more equal than the stupid 2% cut that was part of the December surrender), and that money is on the demand side.

[girl gone mad]

9. Romer is just another clueless neoliberal.

She was in favor of the Fed's disastrous quantitative easing (in fact, wanted even more of it!), and wants a payroll tax on the corporate side, which is completely useless. Corporations are already sitting on huge cash reserves and not hiring, because there is no surplus demand. Reich is right, the payroll tax holiday needs to be on the employee side.

Romer also believes in http://www.washingtonpost.com/blogs/ezra-klein/post/christina-romer-looks-back--and-forward/2011/05/19/AGBpTWKH_blog.html">raising taxes on middle class families and http://www.washingtonpost.com/blogs/ezra-klein/post/christina-romer-looks-back--and-forward/2011/05/19/AGBpTWKH_blog.html">supports the recommendations of the deficit commission.

Ugh! Some progressive! :eyes:

[ProSense]

11. "Romer also believes in raising taxes on middle class families "

So only a "clueless neoliberal" believes in raising taxes on middle class families?

What about all the people who wanted to end the middle class tax cuts in order to end the tax cuts for the rich?

Romer is OK as long as she can be used to criticize Obama:

Obama Trusted the Wrong Economists

"Reich is right, the payroll tax holiday needs to be on the employee side."

You mean like the employee payroll tax holiday the President signed into law?

[girl gone mad]

15. Always trying to put words in my mouth.

Don't blame progressives for the fact that Obama sat on his hands until the last minute and then pretended to make some bogus deal to save the middle class tax cuts. He had ample time to get it right. He could have even let the Bush tax cuts expire as promised and then forced the Republicans' hand on middle class cuts.

Specifically pushing the ludicrous notion that a middle class tax hike will be necessary to "solve the deficit problem", as Romer does, is in another ballpark of stupid.

And no, not a payroll tax cut like what Obama signed into law. A http://www.ritholtz.com/blog/2009/10/payroll-tax-holiday">full payroll tax holiday.

[ProSense]

16. "And no, not a payroll tax cut like what Obama signed into law. A full payroll tax holiday."

<...>

In June 2008, Warren Mosler proposed three ‘bottom up’ policies to fix the economy. The first proposal is for a full Payroll Tax Holiday for both employees and employers. This stops the government from taking approximately $20 billion a week from people working for a living (a total of $600 per month for someone making $50,000 per year) rather than using that $20 billion to keep some bank limping along. The Government would still continue to credit the social security and the Medicare accounts, so employees and employers will never have to pay back the monies they received.

<...>

What's the difference?

[Buns_of_Fire]

4. Some of this was foreseen (not as if anyone needed a crystal ball)

Obama said at the White House yesterday that he is interested in exploring with lawmakers from both parties extending some of the stimulus measures that were part of the tax-cut package “to make sure that we get this recovery up and running in a robust way.”

So, in the final analysis, it's looking like not only will the last set of tax cuts probably remain, they'll also cut another 2% off the payroll tax -- this time from the poor, downtrodden employer's side -- to balance out the 2% they cut from the employee's side. It's only fair. It's "bipartisan."

And it won't create a single damned job.

[mmonk]

5. You're correct. It will just continue to weaken the accounts

that depend on payroll taxes (SS, medicare).

[amborin]

6. those payroll tax cuts set the stage for undermining Soc Sec

when it comes time to reinstate the employer side payroll tax cut, we'll see the same opposition we saw to eliminating the Bush tax cuts.....

[theaocp]

17. and when the jobs chickens come home to roost

during the election, we're ALL screwed. Obama should understand that people without jobs will blame him and his, no matter how fucking bipartisany he wants to present himself as. Good luck with that.

[Lasher]

7. Reich is absolutely correct.

One thing about the payroll tax cut for employees, though: It does nothing for seniors and the disabled who pay no payroll taxes. They're hurting too and they're an important part of the demand side equation.

[unblock]

10. too many ideologues trying to solve an engineering problem

sometimes there's a shortage of supply, sometimes there's a shortage of demand.

an ideologue insists on either supply-side stimulus or demand-side stimulus regardless of the situation. an engineer studies the sitution and chooses the appropriate remedy.

today's situation is mildly complicated by the fact that the good and bad news of today's economy is not very well distributed across industries and populations. yes, there are certainly plenty of companies who are having a tough time raising capital, which the supply-siders are focusing on keenly to support their views. however, most of the companies in need of money are (a) looking to consolidate (b) looking to refinance higher-interest debt or (c) simply looking to leverage up because having a lot of cash on hand is good protection against all sorts of bad news. NONE of these are things that really deliver any of the promises of supply-side theory. only companies trying to invent, innovate, and/or expand really fulfill that promise. both there are rather few of those companies these days.

why?

because while there's a relatively small supply-side problem, there's a HUGE demand-side problem. the legendary two-thirds of the economy that the american consumer represents is mired in debt, stagnant wages, falling home prices, higher commodity and energy prices, and a terrible labor market. in short, demand sucks these days.

any remotely competent engineer looking at the economy would tell you that we obviously need to stimulate demand far more urgently and strongly that we need to stimulate supply.

in fact, greater demand WOULD BE a great supply-side stimulus as people finally clamoring for goods and services would get companies and banks to finally apply their cash towards invention, innovation, and expansion. oh, and by the way, hiring.



but, of course, out of 535 members of congress, there are something like, what, 3 engineers?

it certainly shows.

[WillyT]

12. HUGE K & R !!!

:kick:

[neverforget]

13. So when are these tax cuts going to help the economy? It's been 10

years and still nothing.

[somone]

14. Recommended

[MadHound]

18. Too late, he's already gone over to the dark, supply side

One has but to look at Obama's policies over the past couple of years to see that.

[Romulox]

19. Surely a few trillion $$$ to the banksters and a new war in Libya will set things right?

This is basic economic theory! Thank GAWD...etc.

[kentuck]

20. Reich is about the only economist on top of this problem..

as far as identifying the causes and possible resolutions.