Sunday, November 28, 2010

Thinking Clearly about Budget Reforms

I'm thinking about this editorial in the Times.

Specific questions to ask on a case-by-case basis about each proposal to reform the budget and reduce the deficit at this time: Will this specific reform be large? Will it be temporary or structural? Will it create jobs and growth? And will it be fair?

Let's consider tax cuts for the richest among us. It will be large, adding to the deficit. It is structural, not temporary. It is unlikely to create jobs and growth in the short run. And it's not fair. Extending unemployment benefits, on the other hand, also adds to the deficit but is relatively small. It's temporary. It is likely to create jobs and growth in the short run. And it's fair.

But what about that timeless and perfect idea, often repeated, that tax cuts in a time of recession creates jobs? I'm under the impression from the news that the wealthiest individuals and corporations among us are sitting on lots of cash. I have personal, anecdotal experience confirming this impression. What exactly are they (we) waiting for? Tax cuts? Please! They (we) are waiting for demand to return... and growth, not more cash.

They (we) will take the money and bank it if offered, however.

Extending benefits on the other hand has the opposite effect: because the benefits are spent immediately, they produce demand, growth and jobs. Such benefits also bolster the confidence of those who fear loosing their jobs, contributing to demand, growth, and jobs.

Hmmm.... So why would anyone support tax cuts and oppose jobless benefits at this time? It might be good politics (although for the life of me I can't understand why) but it's crummy policy.

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