"I am concerned about the fact that the recovery that we're on is not producing jobs as fast as I want it to happen," President Obama said Tuesday, amid the flood of bad economic news, including last Friday's alarming jobs report.
Does this mean we're about to see a bold package of ideas from the White House for spurring growth of jobs and wages? Sadly, it doesn't seem so.
Obama says he's interested in exploring with Republicans extending some of the measures that were part of that tax-cut package "to make sure that we get this recovery up and running in a robust way."
Accordingly, the White House is mulling a temporary cut in the payroll taxes businesses pay on wages. White House advisors figure this may appeal to Republican lawmakers who have been discussing the same idea. It would, in essence, match the 2 percent reduction in employee contributions to payroll taxes this year, enacted as part of the deal to extend the Bush tax cuts.
Other ideas under consideration at the White House include a corporate tax cut, accompanied by the closing of some corporate tax loopholes.
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.
In consequence, businesses are already spending as much as they can justify economically. Almost two-thirds of the measly growth in the economy so far this year has come from businesses rebuilding their inventories. But without more consumer spending, there's they won't spend more. A robust economy can't be built on inventory replacements.
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.
All this translates into a continuing crisis on the demand side. Consumers can't and won't buy more. Between January and March, sales grew just .15 percent around the country -- perilously close to no growth at all. May sales look even worse. Chain stores are reporting weaker sales. Consumer confidence has dropped sharply.
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.
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?
The president's putative embrace of the false notion that businesses need more financial incentives in order to hire also risks giving legitimacy to other Republican supply-side nostrums being pushed by House Republicans and GOP presidential aspirants. On Tuesday, Tim Pawlenty called for lower taxes on corporations (down to 15 percent from the current 35 percent), and lower taxes on the rich (to 25 percent from the current 35). Newt Gingrich wants to lower corporate income taxes to 12.5 percent and eliminate the estate tax altogether. And so on.
Better that the president advance ideas that work, and go to battle over them.
Supply-side economics doesn't work. It's been tried for thirty years, to no avail. And now, when our continuing economic crisis is so palpably being driven by inadequate demand, it's more bogus than ever.
The last thing we need is for the president to go over to the supply side.
Robert Reich is the author of Aftershock: The Next Economy and America's Future, now in bookstores. This post originally appeared at RobertReich.org.
Follow Robert Reich on Twitter: www.twitter.com/RBReich
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Rep. Edolphus Towns: Lessening the Burden of Student Loans
Chuck Collins: Pawlenty's Reckless Tax Plan: 10 Years After the Bush Tax Cuts
How is being "progressive" always include failed and outdated economic theory that didn't resolve the Depression of the 30's either?
You folks really have no clue, do you? 30 years of Keynesian economics (during which we experienced unprecedented growth) ended in the bobble of the early seventies. On its heels, thanks to Reagan, came the switch to supply-side thinking, which has brought us to where we are now. It's ironic that the party of personal responsibility refuses to accept responsibility for the economic morass we're in because of their blind adherence to ideology over evidence.
Pappy Bush called it "voodoo economics," and he was right. Now your juju has come home to roost. All the money in the world won't protect the new American aristocracy should the people ever truly come to realize what's been done to them. Swallow your lies, friend. We've heard them all before.
Anyway, I think the Democrats, regardless of their lip service to expanding the economy, actually want a contracting economy because it conforms with their religion - Gaia environmentalism. They think we are ruining "the Planet" with our economic activity. Reality is, economic activity will continue regardless of whether we are major participants are not. Coal will be mined, oil will pour from wells, and someone is going to use it. And those with healthy, energy rich, economies will be in a better position to develop so-called "environmentally friendly" alternative energy forms.
By the way, where is the electricty for all those electric cars going to come from in this energy starved economy the Democrats think will "save the planet"?
While Keynes studied war time economics carefully the idea of adopting a permanent war management economy was never a desired social goal.
The liberal labels for anyone who bemoans the corrupt redistribution programs are racist, women-hater, etc. Liberals miss the point. Conservatives are not opposed to helping those who have no chance because of disabilities or disadvantaged circumstancdes. Conservatives are also not opposed to people choosing to live life in a less economically productive fashion (a more simple life). For many, this is a good choice and there are many times when I have envied them. What conservatives oppose is rewarding them economically through the government under some misguided need to rescue them from their choice.
Get the government out of the economy and let it recover naturally. It will take awhile, but will be healthier in the long run
Any demand side solution that the government comes up with will have to be funded. The cost of extracting that money from wherever it comes from will outweigh the benefits that come from spending it. That is why government lead Keynesian economics is dead.
A supply side initiative would work but it would require the liberals and progressives in charge at the White House and in the Senate to do the opposite of what they are programmed to do. That is get government the heck out of the way of the private economy. Cut corporate tax rates down to 15%. Eliminate the taxes (permanently) on capital gains. Cut the top individual rate down to 25% (this is the rate paid by small businesses) leaving them more money to invest and their businesses and to hire.
Rein in the regulatory state. Require that every agency retire two regulations of equal compliance cost for every new one that they issue. Prohibit the EPA from regulating C02 as a pollutant.
There is $4T of cash sitting in business bank accounts waiting for a reason for it to be deployed. Businesses will take risks to expand existing activities and build new activities if they see a favorable investment climate (which they do not see today).
No, of course they don't. And of the two of us (Robert Reich and me), I'm not the expert. But isn't it true that the largest corporations all pay zero tax, not because that's the assessed rate, but because there are too many loopholes?
Yes.
So the assessed rate could be cut in half, and if loopholes close at the same time, tax revenues from corporations would increase because tax loopholes allow these corps to pay zero percent of the assessed rate, and zero percent of anything is zero. It's not as bold as a WPA, or Reich's other ideas, but we selected Barack Obama in the primaries, not a more confrontational, populist candidate like ... John Edwards.
Now, aren't ya glad we did?
US corporations pay the highest tax rates of any nation on this planet and you say they pay no taxes?
I thought the more we taxed US corporations the better my life would get. Are you telling me that paying the highest corporate tax rate of any country still leaves us in the Obama Depression - all the money those evil rich folks don't get and I'm still hurting?
Well then we need to double the US tax rate - that should make my life a lot better - right?
Heck, if doubling the US corporate tax rate will make my life better then I vote we quadruple it - I could pay off my house in half the time and retire earlier. I've got my eye on a huge LCD TV at Best Buy and maybe half that money will come back to me in the form of taxes. This is better the perpetual motion machine my Liberal congressman just gave me in exchange for my vote.
Jeez - I'm such a dumbbell - if 4 times the US tax rate is good for me then I double vote for 10 times the US tax rate. Really stick it to those rich folks.
Who's with me???????
Niall Ferguson estimates that excluding the housing bubble, the economy grew just 1% annually under Bush, far below the number needed to create jobs for those entering the workforce.
Our housing bubble covered this massive exodus of jobs (and failure to create new ones) by creating jobs making and selling homes. Now that the bubble has burst, we've got these 10 million folks looking for work again. Not only that, but they are also carrying a debt to disposable income ratio of 120%, versus 80% in 1990.
Free trade makes sense provided both countries have equivalent living standards, but if workers in one country are willing to do the same job for one-third the price, most new jobs will go there.
We can fight the former with protectionism in various forms and the latter by allowing the courts to relieve homeowners of their debt in bankruptcy as the author suggests.
It is NOT government workers that are killing our economy, but American companies that refuse to hire Americans to work for them. they prefer to buy more robots and hire non-Americans for pennies a day.
If AMERICAN companies do not hire, there is no one with any money to buy the stuff the American companies are selling (other then the few government workers that still have jobs).
YOU ARE COMPLETELY WRONG ABOUT GOVERNMENT WORKERS!
This is akin to saying, "if I move a dollar from savings to checking, I now have two dollars." Think about it....
The money from this tax increase would then allow the government employee to retire earleir...say age 45....and to also work less hours,,,,,say 30 or 32 hours per week.
If certainty is really the issue, doesn't the uncertainty faced by the American worker count equally with uncertainty for business? American workers face uncertain wages, job loss, uncertain costs for many required things like transportation, food and health care. If Republicans have their way, workers will also face new uncertainties about their own retirement and health care costs. When things are uncertain for workers, DEMAND goes down. Businesses need CERTAINTY OF DEMAND, or so they say.
so why do Republicans care about business uncertainty, but not uncertainty for the American worker that they are actually trying to make WORSE. Policies proposed by Republicans would dismantle our social safety net. Wage earners must now consider that they will likely have to prepare for a retirement without any safety net, and face uncertain but likely higher costs in almost every area. Republicans are trying hard to gut unions, reduce wages and push deficit costs onto wage earners, even while they give businesses more tax breaks and less regulation.
Republican ideas show disdain for workers, and a poor understanding of the DEMAND side of economics. These ideas are out of balance, impractical and dangerously wrong. Somebody should say something.
Never in all of human history have businesses ever had any certainty, NEVER.
You are very right.
In a bottom up society, the formula is in reverse and makes a much stronger foundation for stable and long term prosperity because the money is used to encourage demand thus providing support for the majority of people to maintain their equity and allowed the same support as business, mostly allowing them to save, flexibility in choices, ability to discharge debt as easily as corporatioÂns and access to credit among other things. It will create sustainablÂe markets with less and less ability for business to transfer overseas and run after profits instead of earning them. While ultimately their will be bigger winners as there always has been, there will not be giant TBTF winners where everyone else loses, suffering in debt, as we have witnessed over the last 30 Republican driven economic years.