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June 11, 2009

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stupid Obama. he should've listened to the big brains from the party which was ostensibly running the country when this mess got started! bad Obama! bad!

von, way back when you first started banging the drum for "instant stimulus" you were in favor of direct payments (I assume you meant like the checks sent out last year) and tax cuts.

Well, most people did get tax cuts. And it was pointed out to you then that direct payments had little to no stimulus value.

So do you have other ideas as to what would have been good instant stimuli?

Well, most people did get tax cuts. And it was pointed out to you then that direct payments had little to no stimulus value.

Why do you say that "direct payments had little to no stimulus value". For example, unemployment insurance -- a direct payment -- is wildly regarded as having a significiant stimulative effect (by economists across the board). I can dig up some cites if you want to contest the point .... but I'm having trouble figuring out what basis you have for contesting the point.

So do you have other ideas as to what would have been good instant stimuli?

Red Bull.

On a completely different tangent -- von, what is with the post titles recently? The Shakespeare line was neat, but that Gabriel Garcia Marquez -- really?

Ugh, sounds good to me.
von, since unemployment benefits were part of the plan, you obviously have no problem with that.
So what other direct payments are you talking about? seriously, I am confused on this. Back then it sounded like you were talking about a direct payment to tax payers. Perhaps I misunderstood you. If so I apologize.

I favored some long term spending for targeted, game-changing infrastructure projects like Rep. Mica's high-speed rail proposal.

Unfortunately, I missed his push to have an actual proposal to that effect attached to the stimulus bill. Must have been crowded off the floor by all his peers' showboating to replace the whole thing with tax cuts (see "idiocracy"). Though hopefully, he at least put an angry call in to his Republican colleages in the Senate as they were blocking adding $25 billion for public works, including transit.

Now, if the administration were really serious about transit's next wave, they needed to be out there presenting a bipartisan front with Rep. Mica, calling for bold changes. Dribs and drabs are probably still better than nothing, but I can understand that Rep. Mica felt differently.

But yes, the stimulus bill got less courageous and more bloated as it went along, bringing that old bit about sausagemaking to mind. Making half of it tax cuts was blowing a chance to really use multipliers to the advantage of us all. Again, though, it seemed to be that or nothing, thanks to chin-stroking Senate "moderates" and Obama's own tax cut pandering.

And I am studiously passing over your use of that Innocent Bystanders chart, because my ulcers are already acting up. Though I suppose it illustrates the pitfalls of too-sunny predictions about the economy, even if it tells us nothing else. Which it doesn't. Hmm, then again, maybe the recession won't be over by this fall after all. Perhaps we can do a better job at targeting the next stimulus, if this weak one runs out too soon.

The smart proposal on the right was a payroll tax holiday, for employers and employees. Instant, and it would have allowed some companies to keep some people.

There's going to be a permanent increase in the size of the American federal government. Might as well get used to it and find the extra revenue.

Looks pretty good for those who argued that the stimulus was too small, doesn't it? Yet it was probably the biggest one available. Does the name "Susan Collins" ring a bell?

Do you favor a second round?

Concerning the departure of real unemployment vs. predicted unemployment on the graph:

Hmmm. Not a definitive answer, of course, but not particularly encouraging for Team Obama.

The problem here, of course, is that the predicted unemployment rate absent the stimulus is not owned by Obama, and trying to imply that it is - which is looks like what von is trying to do, if I'm wrong, I'm sure he'll clarify - will simply not past muster as non-partisan, non-ideological discussion. In fact, iirc, most scenarios embraced by the crowd von seems to follow predicted lower unemployment and essentially an end to the recession sometime before June of next year. For von's 'discouragement' to carry weight, he would have to show credible people predicting the higher unemployment rate, or at least, predicting rates higher than Team Obamas'.

I don't see that, and combined with the hilarious innumeracy in the earlier post, doesn't speak well of his basic competence. For make no mistake, these are matters of basic competence. Hmmmm . . . looking back over this series, I see other people making this same point, e.g., the 'crowding out' comments, the unreliability of journalists comments, the fact that housing trends are still down, etc.

To von: Seriously. When this many people are questioning statements you make about rather nonpartisan issues, don't you think that maybe there is a slight possibility that rather than everyone else being wrong, you really aren't doing a very good job here?

Hmmm. Not a definitive answer, of course, but not particularly encouraging for Team Obama.

Well, it's not an encouraging testament to their skills at projecting unemployment, but if you're implying that the stimulus didn't help, you'd have to have some estimate of what unemployment would be without the stimulus, based on the last few months of data.

… you'd have to have some estimate of what unemployment would be without the stimulus, based on the last few months of data.

Why? The administration doesn’t in their “jobs created or saved” claims. That’s pulled right out of thin air with no possible way to support the figures.

But if you need an estimate, Obama’s estimate of what unemployment would be without the stimulus was 8.5%. The stimulus was sold based on claims that if it passed unemployment would level off around 7.8% and be headed down by now. The fear they pushed was that without the stimulus unemployment would hit 8.5% by now. That sounds pretty good right now.

It’s certainly fair to point that out, and certainly before they try to sell us another load. And it makes a lot more sense than “jobs created or saved”.

These numbers are nonsense. Who cares about past projections when actual historical data are available for past years?

The national debt has increased every year since 1958. By definition, if the debt has increased, there was a deficit. What's the point about lying about the past?
go to
http://www.whitehouse.gov/omb/budget/Historicals/

look at table 7.2

What sidereal said. And frankly when i saw that estimate the first time I thought it was probably low considering the number of industries that are in trouble.

shorter GOP: the economy is worse-off than you thought; therefore, you shouldn't have tried to fix it at all.

OCSteve,

It is perfectly fair to say that the Obama's estimates of unemployment were off. They obviously were. But the evidence for that is based on the current reality which is that the stimulus was passed. Which means we do not know what the numbers would be without the stimulus, if you have evidence that indicates that even without the stimulus the number would have remained the same, then you could present that evidence.

But you cannot simply say "The obama's forecast was wrong, therefore the stimulus failed." What we actually know here is that The Obama team did not release a good forecast for unemployment, PERIOD. We cannot draw any conclusions about the stimulus from the evidence presented.

"Why? The administration doesn’t in their “jobs created or saved” claims. That’s pulled right out of thin air with no possible way to support the figures."

So your argument is, because someone else made a baseless claim I also am free to make baseless claims? Logic, Ur Doing It WRONG

So, to sum up: it should have been bigger sooner but, otherwise it was too big…and not “bold” enough. Gosh, if only smart people like you had been in charge.

Yeah, I really don't see how the differences in forecasts has any bearing on the actual performance of the stimulus package. If anything, getting information that suggests the recession will be longer and deeper than predicted seems to boost the rational for fiscal stimulus. The increased output gap makes also makes the backloading look like a better idea.

lol; "we are safer with the Patriot Act, look how many terrorists haven't attacked the United States since it was signed!"

So, to sum up: it should have been bigger sooner but, otherwise it was too big…and not “bold” enough. Gosh, if only smart people like you had been in charge.

Actually, those aren't necessarily nonsensical points. More "front-loaded" might have been the optimal bang for the buck, though with infrastructure projects there's always a lag, "shovel-ready" notwithstanding. Given that it wasn't as front-loaded as it could have been, it was potentially less useful to make it big. And it would have been really useful if it had made a much bigger splash in new mass-transit technology and green energy and what-have-you, with the concomitant separate stimulative effect on entrepreneurship.

Not saying that's precisely what von had in mind, or if I'd agree that all that necessarily follows, but it's not foolish like "eliminate pork" or "abolish capital gains taxation" or "Government is too big. Period."

However, as Cody notes, it might not be bad to have some backloading after all, though this would be fortuitous rather than foresight.

Wait. wait wait wait. That graph in the Obama administration's report shows unemployment with and without his stimulus plan being essentially equal by 2012!? Why on Earth do we need to spend so many trillions of dollars, and risk hyperinflation, for what is essentially a very short term decreases in overall unemployment (and by only 2% points!)?

I thought the point of the stimulus package was to ward off Depression Era unemployment, like 25%. This projection suggests nothing like that.

I agree with the "too big and not bold enough" sentiment. I suggested a large public employment project based on the WPA and estimated we could reduce unemployment by almost 3% for only 64 billion a year. In the process we could drastically improve our public space, with routine things like litter and grafitti removal, invasive species management, and anti-crime patrols.

Well, we're out several time the cost of what I suggested but unemployment is soaring, crime climbing, I see the same ostentatiously graffittied billboard every day on the way to work, and pigeons still wake my husband up every night. Oh well. I expect a round 2 of the crisis from continued deterioration in real estate so maybe they'll try it the second time around.

"But the evidence for that is based on the current reality which is that the stimulus was passed. Which means we do not know what the numbers would be without the stimulus, if you have evidence that indicates that even without the stimulus the number would have remained the same, then you could present that evidence."

I think the point here is that, using the administration's own numbers, it's entirely possible the stimulus backfired.

You know, when you do something to fix a problem, and the problem gets worse instead of better, you really DO have to be open to the possibility that what you did made things worse. And that doing more of it will just exacerbate the situation.

Keep in mind that a lot of the Obama moves on the economy, like nationalizing banks, upsetting the normal rules of bankruptcy, and the like, are rationally terrifying to investors. Restoring liquidity doesn't get the economy moving if investors are scared to go into hock to expand their businesses.

The primary problem I have with this kind of argument (which is the same problem I have with its opposite) is that you can't KNOW what unemployment would have looked like withot the stimulus spending. You're comparing actuals, von, to predictions, and you can't tell whether the difference is due to a bad prediction or poor performance in policy.

On a completely different tangent -- von, what is with the post titles recently? The Shakespeare line was neat, but that Gabriel Garcia Marquez -- really?

They can't all be gems, I guess.

The smart proposal on the right was a payroll tax holiday, for employers and employees. Instant, and it would have allowed some companies to keep some people.

Exactly. Quick, immediate, powerful.

Looks pretty good for those who argued that the stimulus was too small, doesn't it? Yet it was probably the biggest one available. Does the name "Susan Collins" ring a bell?

I didn't agree with Sen. Collins. My view was that the first-in dollars of the stimulus -- the so-called part B -- should have been much larger, while the bloated "back end" dollars -- the so-called part A -- be made much smaller.

The problem here, of course, is that the predicted unemployment rate absent the stimulus is not owned by Obama, and trying to imply that it is - which is looks like what von is trying to do, if I'm wrong, I'm sure he'll clarify - will simply not past muster as non-partisan, non-ideological discussion.

SoV, all Innocent Bystanders did was take Obama's projection and superimpose the real unemployment figures. I'm sorry that it annoys you that Obama's projections were so off.

You're comparing actuals, von, to predictions, and you can't tell whether the difference is due to a bad prediction or poor performance in policy.

Well, for starters, you can test the prediction using the actual data, which is what Innocent Bystanders did. The prediction didn't pass.

Although the predidction was bad, I agree that we can't say for sure that the policy failed. But I think that I properly accounted for this fact when I wrote "Not a definitive answer, of course, but not particularly encouraging for Team Obama."

Sidereal, see, in part, my comment to Slartibartfast (above). But OCSTeve is also correct: The Administration is continuing to make predictions that it's policies are working. The only difference is that these new predictions are, by design, unverifiable. Given the Administration's track record, I don't think it's rational to assume that the Administration's predictive skills have improved (although someone certainly got smarter).

The smart proposal on the right was a payroll tax holiday, for employers and employees. Instant, and it would have allowed some companies to keep some people.

Exactly. Quick, immediate, powerful.

Hey, remember the CBO?

"Increasing the after-tax income of businesses typically does not create an incentive for them to spend more on labor or to produce more goods and services, because production depends on the ability to sell output."
--Options for Responding to Short-Term Economic Weakness, January 2008

Also, the biggest multipliers occur when direct transfers are targeted toward the low end, those who spend more of their total income. Meanwhile, payroll taxes are capped at $106,800. Hey, let's give the guy at the bottom a hundred bucks, but someone at the top a thousand. And since, according to the Brookings institute, about half of payroll taxes come from the top 20 percent of the income scale, this means that half of the employee-side benefit flows to households in the top fifth. And all this for the low price of only about $60 billion a month, if it had been enacted early in the tax year. If it only "needed" to last a few months, I will grant that it would have cost much less than the existing stimulus, if we assume that nothing else was included. Of course, if it lasted only a few months, businesses would hardly bother to use such short-duration excess to raise wages or hire people, even if they would have otherwise.

So "payroll tax holiday" contains a business tax cut that fills their coffers with no incentive to use the savings to "keep some people" during a period of low demand. And it's coupled with individual tax cuts weighted towards the high end of the income scale. And this is a bold break from the usual Republican solution to everything... how, exactly?

It would have been quick and immediate, though. And it would primarily reward the powerful, so I guess you're right about that, too.

Now, an employee-only payroll tax holiday would enhance the bang for the buck significantly, and had some support from the CBO in January 2002 for that reason. So perhaps a compromise? I'd add in a lower cap on who gets the holiday, but I could be talked out of it.

SoV, all Innocent Bystanders did was take Obama's projection and superimpose the real unemployment figures. I'm sorry that it annoys you that Obama's projections were so off.

Posted by: von

Sigh. I know my communication skills aren't that bad. von, what were other people predicting for the unemployment rates?

It occurs to me that people on your side of the fence (I'm sorry, but given the way you've been arguing, I can't see you as anything other than a partisan who is not particularly good with figures - nor thinks that it particularly matters) weren't making any predictions that were in line with the current unemployment rates either. In fact, iirc, your guys predicted that the recession would be over in something like just a year from now, first half of 2010, right? Nor, actually were all that many other people predicting these figures, left, right, or 'middle'.

So to say that 'Obamas' predictions were wrong without including that fact is to imply that he alone got it wrong, or at least, that other, prominent people got it right, i.e., you're trying to force a conclusion that obama 'owns' these figures.

"I think the point here is that, using the administration's own numbers, it's entirely possible the stimulus backfired."

The point that I'm trying to make is that we have no evidence either way. This is true, the stimulus may have backfired, or it may be helping, or it may not be doing anything. But we do not know!!

Forecasting, is AT BEST an incredibly inpresice art/science. And forecasts are ALWAYS WRONG. Creating industrywide forecasts of econometric data is part of my job, and the forecasts that I create are always wrong. (Though they are usually closer than my competitors.) A forecast is an estimate, a wrong estimate, of what might happen in the future. You cannot use it as some kind of benchmark of what should happen, it is essentially what some one thinks should happen based on what they know at the time.

All I'm saying is that the fact that the current unemployment figures vary from the Obama forecast prove nothing except that the Obama forecast was wrong.

Well, for starters, you can test the prediction using the actual data, which is what Innocent Bystanders did. The prediction didn't pass.

Although the predidction was bad, I agree that we can't say for sure that the policy failed. But I think that I properly accounted for this fact when I wrote "Not a definitive answer, of course, but not particularly encouraging for Team Obama."

Posted by: von

. . . And he does it again! von, who, if anyone, with any sort of credibility, made the correct prediction?

But since we're going with incorrect predictions as some sort of character flaw - do you have any posts from the last eight years (preferably pre-2005) where you criticized the Bush administration for making incorrect economic predictions?

And can we drop the pretense that you're trying to argue dispassionately, in a non-partisan fashion? Actually, let me put it another way, what can you offer me in the way of proof that you're not arguing in highly partisan fashion? Starting with that hilariously innumerate post of a few days back(and then looking at your other posts in the series), I can't see you as doing anything but trying to throw mud on the current administration. And doing it in a way that provokes laughter, quite frankly.

Look, there's a place for non-partisan discussion about the state of the national economy, what the guiding philosophy should be, what to 'fix' and how to 'fix' it. But right now you're coming off about as non-partisan and knowledgeable as Brett Kottman.

I didn't agree with Sen. Collins.

I wasn't saying that you did. I was tryig to suggest that there were political constraints on what Obama could get passed, and that it is necessary to keep those in mind when evaluating the stimulus.

Keep in mind that a lot of the Obama moves on the economy, like nationalizing banks, upsetting the normal rules of bankruptcy, and the like, are rationally terrifying to investors.

Why? The businesses you are talking about were generally failing or close to it, with huge systemic consequences. I'd be more terrified if nothing had been done about the banks, for example.

Restoring liquidity doesn't get the economy moving if investors are scared to go into hock to expand their businesses.

For the eumpteenth time, the problem is not lack of capacity. It is lack of demand. Nobody is going to increase production if they have a full warehouse of unsold goods.

mds,

The CBO statement is about business tax cuts in general, not payroll taxes in particular.

If you cut employer payroll taxes, the cost of having an employee goes down. Necessarily. Profit-motivated businesses presumably lay people off because the cost of continuing to pay them exceeds their contribution to the revenues of the firm. (In reality, most businesses try to avoid laying people off even if it isn't the profit-maximizing thing to do.) So, at the margin, there have to have been layoffs that would not have occurred if the employer didn't pay payroll taxes.

Are you more interested in class war than in limiting unemployment?

The other thing about the CBO statement is that it was in January 2008 and is about whether reductions to corporate taxes will result in *new* investment.

The issue here is about Fall-Winter 08/09 and whether cutting payroll taxes would mean fewer layoffs. Apples and oranges.

Are you more interested in class war than in limiting unemployment?

Yes, because it is routinely observed that companies use windfalls to avoid cuts to their workforces. Why won't us class war folks just accept that their masters know what's best for workers?

The CBO statement is about business tax cuts in general, not payroll taxes in particular.

Oh, well, as long as they were talking about all business taxes, and not the single specific magical counterexample to the general rule. I withdraw my objection to telling businesses, "Here's a percentage of your payroll costs back. Do whatever you want with it during a period of low demand."

The issue here is about Fall-Winter 08/09 and whether cutting payroll taxes would mean fewer layoffs.

No, the issue is whether it would be a more effective economic stimulus. Expecting that businesses will use the money to retain employees in the face of reduced demand is not necessarily the best way to increase demand.

And when the payroll tax holiday was bandied about as magic recession medicine in 2001, the American Payroll Association et al. noted that a tax holiday "would require 6 months or more to ensure successful implementation." Well, perhaps businesses would hire people back for a couple of months.

And just how long do you want this holiday to last, if cost is part of the concern? Because again, it's really not going to encourage large-scale worker retention if it lasts a couple of months.

"Are you more interested in class war than in limiting unemployment?"

I'm very interested in getting the extremely rich to quit waging class war against the poor and middle class. If they'd stop agitating for tax cuts that benefit only themselves, that would be great.

[...] The richest 1 percent of Americans currently hold wealth worth $16.8 trillion, nearly $2 trillion more than the bottom 90 percent. A worker making $10 an hour would have to labor for more than 10,000 years to earn what one of the 400 richest Americans pocketed in 2005.
Chart.

"I'm very interested in getting the extremely rich to quit waging class war against the poor and middle class."

Until the extremely rich are paying only for the services they receive, that's not waging class war, it's just asking the poor and middle class to scale back their class war. Even a flat tax is extremely unfair to the extremely wealthy, who pay vastly more taxes than they get back in return.

I'm very interested in getting the extremely rich to quit waging class war against the poor and middle class.

Need I remind you, Mr. Farber, that by definition it's not "class war" when the extremely rich do it?

It's not by definition, but so long as we've got progressive taxation, trying to get the rates at the top end lowered is just a defensive action in a class war waged against the wealthy.

Before you declare who's waging war against who, you've got to look at who's launching the attacks, and who's just looking for shelter against them.

So let me get this straight... Unemployment obviously was exceeding predictions BEFORE the stimulus. (look that the jan and feb plot points, which are conveniently not labeled). Yet somehow we can use this chart to glean anything about the stimulus? The only thing we know is that predict unemployment after AND BEFORE the stimulus was wrong. And since the before was wrong, it doesn't make sense for Obama to own the after. It makes sense to go back and create a new baseline from the jan and feb data.

This isn't rocket science.

"Profit-motivated businesses presumably lay people off because the cost of continuing to pay them exceeds their contribution to the revenues of the firm. (In reality, most businesses try to avoid laying people off even if it isn't the profit-maximizing thing to do.)"

Slightly OT, but this statement is demonstrably untrue.

Businesses, by which I mean management, frequently lay people off because they want to "send a message" that they are "making the hard decisions" to cut costs. Or, even more likely, they just want to bring the numbers in line for the next reporting period, so that they can be favorably reviewed by *their* bosses and get their bonus.

The calculus of what value those people add to the enterprise quite often doesn't come into it. I'd even say that, quite often, the person making the decision to fire would be unable to make an accurate dollars-and-cents analysis of how much the person fired added to the enterprise as a whole.

Happens every day. Really, it does.

"That would be a stupid thing to do!" I hear you say.

Yes, in fact it would. People do stupid things.

The idea that people in the private economic sector only ever make sound, rational judgements is profoundly at odds with reality.

Before you declare who's waging war against who, you've got to look at who's launching the attacks, and who's just looking for shelter against them.

Oh, good point. Now that I look more closely, it's the poor that wield the political and economic power in this country, which is why we've seen taxation become more and more progressive over the years, and Mr. Farber's chart should be read upside down. Look, another flying unicorn!

Why do the evil capitalists pay anyone anything at all?

"Why do the evil capitalists pay anyone anything at all?"

Perhaps because it's hard to be an employer without employees.

Really, employers should try getting rich without all those pesky unfair employees who are so warlike. That'd show 'em who's boss!

"it's the poor that wield the political and economic power in this country"

It's the government that wields the power, and in a democracy, the people running the government buy votes by waging that war on behalf of the poor, the least of which have as many votes as Bill Gates: One.

That last post was not me. I post under my real name. I do not want it spoofed.

Please disregard the 3:29 post by "Brett Bellmore." This is troll again.

The 4:45 post is the troll as well. He's been banned.

What is the basis for claiming that the Stimulus was "back-loaded"? Fiscal 2009 was almost roughly half over by the time the bill passed. FY09 stimulus spending is roughly half of 2010. You greatly overemphasize 2015 given the very small fraction of spending to occur after 2011.

Moreover, if the recession is worse than predicted a short time ago, then that makes the wisdom of a big stimulus, with a multi-year timeframe, that much greater.

Across-the-board Direct payments or poorly targeted tax cuts have relatively little stimulus value according to those who have studied them. This is distinct from unemployment benefits, which are targeted. I have a job and I saved my 2008 stimulus money and if I got more I would save it too.

"Why do the evil capitalists pay anyone anything at all? "

I didn't say anything about "evil". I said "stupid".

And I didn't say anything about "capitalists". I said "managers", the folks who run most businesses above, say, a few dozen people in size.

Virtually all of the wealth generated by the increase of productivity of the last 30 years has gone to the top 20% of income earners.

And disparity of income isn't a patch on the disparity of wealth in this country.

"Class warfare" is when people shoot at each other. It actually happens, and it's actually happened here before. There's no need to just play around with metaphors.

So, kindly hold the "class warfare" language.

Maybe a payroll tax holiday would have saved a bunch of jobs. Maybe not. I can't tell you.

We're currently losing about 600K jobs a month, and have been doing so for, what, six months? So, it would have had to save a hell of a lot of jobs to make a dent.

But I can tell you from direct and quite recent experience that folks get laid off for all kinds of reasons, quite a few of which take little if any consideration of the value they create.

Yes, it's stupid. PEOPLE DO STUPID THINGS. In economics textbooks, they don't, but in real life they do.

"It's the government that wields the power, and in a democracy, the people running the government buy votes by waging that war on behalf of the poor, the least of which have as many votes as Bill Gates: One."

So you explain the drop in marginal tax rates since 1963, how, Brett?

To be sure, all those powerful congressional lobbying groups for the poor just overwhelm the feeble hearing the rich get in Congress, right?

So, at the margin, there have to have been layoffs that would not have occurred if the employer didn't pay payroll taxes.

'At the margins'. There's a phrase that takes a real beating. What else happens 'at the margins'? Does this decrease the amount of money available to SS? Is this decrease multiplied across the years by interest rates and investments?

What you've got to ask yourself 'at the margins' is what are the costs and what are the benefits, and does one outweigh the other.

Are you more interested in class war than in limiting unemployment?

Posted by: Pithlord

Right. [sarcasm]Because as Pithlord notes, there are only two alternatives[/sarcasm]. But as long as we're on the subject . . . do you think that if the 'employers' contribution was discontinued that employees would see their paychecks rise by an equivalent amount(what, 7.5%?) in an ordinary situation? Or do you think instead that their salary would only rise one or two percent, certainly less than 7.5%? If you think that the latter would happen, who would you say would be engaging in class warfare? The employees or the employer?

To ScentOfViolets:

Von isn't acting like a partisan, you are. He is trying to provide a critique of the economic recovery plan, whereas you are trying to discredit him with ad hominem attacks.

If you want an accurate prediction of the current economic mess, I suggest you look here: http://www.youtube.com/watch?v=2I0QN-FYkpw

And I suggest you listen to his advice on what's going to happen if administrations (Bush first, then Obama) keep trying to "fix" things with bloated stimulus bills.

To me, the most frustrating aspect of that graph above, is that the Obama admin. was predicting unemployment levels with or without his plan, to be roughly the same by 2012. If they seriously felt that way, what is the purpose of his bill? It has an awfully high price for such a short term, and short-sighted outcome (3 years of slightly lower unemployment levels).

Dane,

Even Paul Krugman no longer takes that critical a position. Read this interview.

This

"do you think that if the 'employers' contribution was discontinued that employees would see their paychecks rise by an equivalent amount"

The question isn't whether everyone would get a raise. The question is whether the employer would take their piece of the saving and plow that back into either hiring more people, or firing less.

They're not going to hire people just to be nice, they're going to hire people if they need to scale up whatever it is they do to meet increased demand. If nobody's spending money, there's no increase in demand.

Conversely, firing people generally happens either when there isn't enough for folks to do, or when there is some kind of push to cut costs. Giving employers back 7.5% could, in fact, reduce the cost basis enough that at the margins some number fewer folks would be laid off, but that's less likely if there wasn't something for them to actually do. Some employers will carry folks for a while just in case things bounce back, because it's cheaper to that than the fire them and hire them back, but short of that they'll let them go.

And quite often folks will let other folks go whether it makes a whole lot of sense or not.

So, maybe a tax holiday would induce some folks to not fire some employees, but the far larger problem (as has been pointed out over and over and over above) is excess capacity and lack of demand.

"I'm very interested in getting the extremely rich to quit waging class war against the poor and middle class."

Until the extremely rich are paying only for the services they receive, that's not waging class war, it's just asking the poor and middle class to scale back their class war. Even a flat tax is extremely unfair to the extremely wealthy, who pay vastly more taxes than they get back in return.

Posted by: Brett Bellmore

Er, just what are the extremely wealthy getting back in your estimation? And do you have any cites to back up your opinion?

Because when I look the federal budget, I see that the services, such as they are, are heavily weighted towards the rich. Take military spending, for example. That accounts for 54% of all discretionary spending. Yet I fail to see how this benefits me in the slightest. Or funding for the 'Global War on Terror' to the tune of $145 billion? That's 4.75% of the total budget, or 12% of the discretionary budget. Are you going to say with a straight face that this is a 'benefit' for me and mine? Because from here, it looks like an antibenefit, worse than just throwing that money in hundred-dollar denominations down an open sewer. The stuff that does benefit me, Social Security, Medicare (when I'm a little bit older), schooling, that sort of thing? I already pay for that myself and then some from my own taxes.

So tell me again just exactly how the rich being taxed is 'benefiting' me. Use some numbers and name some services this time around.

Last two comments are troll. Don't click the link.

The 'ScentOfViolets' posting at 5:27 and 5:28 is not me. Could someone look into this? Thanks.

ScentOfViolets: I'm sorry, you lost me. Peter Schiff (the man in that video who accurately predicted our current situation, and who considers any stimulus/spending tactics to severely hurt, not help, our recovery) is the exact opposite of Paul Krugman.

Also, how does your response relate to my frustration with the lines on that graph, and the last paragraph of my previous post. (oh, and if you were linking to something, it didn't work).

More precisely, the ScentofViolets comments @ 5:27 & 5:28 are troll work.

hah, that would explain the confusion. Sorry SoV.

"do you think that if the 'employers' contribution was discontinued that employees would see their paychecks rise by an equivalent amount"

The question isn't whether everyone would get a raise. The question is whether the employer would take their piece of the saving and plow that back into either hiring more people, or firing less.

If you look up at what I wrote, I wasn't talking about this as a palliative now, but what would happen(all other things being equal) in normal times:

But as long as we're on the subject[of class warfare] . . . do you think that if the 'employers' contribution was discontinued that employees would see their paychecks rise by an equivalent amount(what, 7.5%?) in an ordinary situation? Or do you think instead that their salary would only rise one or two percent, certainly less than 7.5%? If you think that the latter would happen, who would you say would be engaging in class warfare? The employees or the employer

I'm addressing a narrow behaviour to answer another question, in other words. Nothing to do with stimulus spending at all.

Could the real unemployment rate be going up much faster due to signaling by the Obama Administration o what will be coming in the future such as energy taxes, higher unionization, higher taxes, nationalization of health care.

Why would any private sector industry or company want to expand when the Obama Adminstraiton could either tax or regulate the gains away. Why would anyone want to invest in energy, transportation, health care, or any heavy industry? The risk is incredible and the expected gains are low.

It is interesting to juxtapoze the discussion here with Hilzoy's post on the danger of demonizing your opponents. I have know a number of business people. I don't like all of them. But I've never met one who likes to lay people off.

The textbook employer retains an employee just so long as his or her marginal contribution to revenue is greater than or equal to the cost to the employer (salary plus benefits plus payroll taxes). Actual employers will try to keep people on even when this isn't quite the case.

From the point-of-view of a company, a recession means a big drop in the marginal revenue associated with each employee. The result is a dilemma: there are lots of costs associated with layig someone off and then rehiring a replacement down the road. So a business wants to retain. On the other hand, if it doesn't have the cash to wait out the recession, it has to lower its costs somehow. the global problen is that layoffs from one firm mean the ex-employees cut back on their consumption, which means less demand for other firms, which means more layoffs.

A cut in the payroll tax liability would mitigate this vicious cycle, since fewer employees would have a total cost less than their contribution to revenue.

In normal times, reductions in the employer's portion of the payroll tax would result in higher wages.

In normal times, reductions in the employer's portion of the payroll tax would result in higher wages.

Posted by: Pithlord

That's just wrong. The 'employers portion' properly belongs to the employee. And I repeat: if the payroll tax were reduced by, say, 4%, do you think the employee would see that 4%? Or even 2%? It's interesting that you talk about demonizing the opposition, given that you're the one who brought up class warfare. And invoked the fallacy of bifurcation to force the issue to boot.

In a tight labour market, yesn a reduction in the employer's share of the payroll tax would go to the employee.

In the current situation, it would not, but there would be fewer layoffs.

Sorry, that's class warfare. The employee should get the full amount (it's part of what the employer is willing to pay for the services of the employee, after all.)

So, since it's out in the open now, why do you hate poor people(Or at least, favor the employer over the employed?)

It's not really a matter of "should". There is no just price that people deserve for their skills.

As far as I'm concerned, I wish everyone the best in getting paid as much as possible. That's not much of a guide to policy.

From a policy perspective, the issue is what the US Government could do to minimize the impact of the crisis on employment. Cutting payroll taxes would be better than what Obama in fact did. It would have been a good thing if the Republican Party had advocated this alternative, instead of what it actually did -- which was to freak out.

Some employees are in a situation where the labour market is tight for their skills. Those employees will get all of the reduction in the employer's contribution. Once the economy improves, every employee will be in that group.

"It is interesting to juxtapoze the discussion here with Hilzoy's post on the danger of demonizing your opponents."

Not sure if this is in response to my comments or not. If so, I'd like to point out that nothing I've said comes remotely close to demonizing anyone.

"The textbook employer retains an employee just so long as his or her marginal contribution to revenue is greater than or equal to the cost to the employer (salary plus benefits plus payroll taxes)."

This is 100% true. The only point at which I disagree is in equating textbook employers with real-world ones.

It's a very rare manager who could accurately measure the dollar value of the contribution of anyone other than, perhaps, their direct reports. And that's a big "perhaps".

When revenues do not meet targets, companies commonly cut costs by laying people off. It's extraordinarily rare for the decision of who to lay off to be made based on any individual's marginal contribution to revenue.

When revenues do not meet targets, companies commonly cut costs by laying people off. It's extraordinarily rare for the decision of who to lay off to be made based on any individual's marginal contribution to revenue.

Sure. Even the textbook only claims that these equations work over the aggregate. Some employers overestimate how much they have to cut; some underestimate. The human tendency is to underestimate.

It's not really a matter of "should". There is no just price that people deserve for their skills.

I think you're agreeing with me, that is, my 'should' is an economics 'should' and not a moral or political one. Say an employer agrees on a salary of $60K for an employee. Does this mean that the cost of the employee to the employer is $60? Of course not; assuming the 'employers' contribution to the payroll tax is 7.5%, he is paying an additional $4.5K on top of the salary. So the employee is really worth $64.5K to the employer.

Now drop that 7.5% contribution on the employer's side. Unless the employee gets the entire 7.5%, the employer is engaging in 'class warfare'.

In case you've forgotten, I'm making this point because - as far as I can tell - this digression into class warfare started with you.

As far as I'm concerned, I wish everyone the best in getting paid as much as possible. That's not much of a guide to policy.

From a policy perspective, the issue is what the US Government could do to minimize the impact of the crisis on employment. Cutting payroll taxes would be better than what Obama in fact did. It would have been a good thing if the Republican Party had advocated this alternative, instead of what it actually did -- which was to freak out.

Some employees are in a situation where the labour market is tight for their skills. Those employees will get all of the reduction in the employer's contribution. Once the economy improves, every employee will be in that group.

Posted by: Pithlord

This is the other part of the economics 'should'. There is no good reason I can think of to make a connection between lowering the employer's contribution to the payroll tax and retaining employees. On the other hand, there are excellent reasons to believe, as you say, that returning that 7.5% to the employees themselves would have a substantial and immediate stimulus effect.

There is no good reason I can think of to make a connection between lowering the employer's contribution to the payroll tax and retaining employees.

I'll try to spell out the argument, and you can say where you think I go wrong:

1. Textbook employers layoff (i.e., don't retain) employees when the cost of employing the employee exceeds what the employer can expect in revenue as a result of the employee's contribution.

2.Mass layoffs occur in recessions because of a sudden decrease in what the employer expects in revenue. The decrease is greater in the short-term, because the employer expects the economy eventually to recover.

3. How long the employers time horizon can be depends on how much cash and access to financing the employer has.

4. Both cash and access to financing diminish in recessions, so employer time horizons are shorter.

5. From #2, there will be a large group of employees whom the employer would like to keep on the basis of a long-term horizon (because it is expensive to downsize and then hire again later), but cannot keep based on a short-term horizon.

6. If the government reduces the short-term cost of employing people (by announcing a payroll tax holiday), employers will retain those employees in that group.

7. Those employees will continue to have jobs and therefore will continue to consume more, stimulating the economy.

Even if you accept that an employer payroll tax holiday will mean fewer layoffs, it is still true that much of the holiday will initially go to improve the profitability of employers. (That's because even though the ultimate incidence of the tax is on employees, it takes time for the upward adjustment to take place, and it will take place slower when everyone is worried about their jobs.) But that improved profitability across the economy will help reduce insolvencies without the distortions that ad hoc bailouts produce.

Pithlord -

Thanks for laying out your argument in detail. This makes sense.

A couple of comments:

The way you've stated the situation in (1) seems like the trigger for layoffs is when an employer would basically be losing money by keeping people on.

That will certainly be true, but quite often the bar for laying folks off is quite a bit lower. If a company is making money, but is not profitable *enough* -- not making their earnings target -- they will often lay folks off to make their numbers.

For the reasons you cite -- cost of rehiring when things improve, etc -- this is often stupid, by which I mean counter-productive, in the long term, but in many, many cases there is no tangible incentive for the folks making the decisions to favor long-term considerations. In publicly traded companies especially, maximizing profit in the short term is the name of the game.

None of this especially argues against your basic point, I just wanted to expand the textbook case a bit to reflect real-life practice.

Another thing I note is a basic change in corporate and industrial culture over, I would say, the last ~40 years. Laying people off used to be a sign of ill health and poor management -- it reflected badly on owners and managers. That social or cultural taboo has more or less disappeared. Laying people off in tough times is nowadays considered a signal that owners or managers are serious people, and are "making the tough decisions" to maintain profitability.

One other thing I haven't seen anyone note here is that the cost of employing someone is greater than their salary. Fully loaded cost is normally considered to be about twice (or more) of salary, so the 7.5% bump to the employer of a FICA tax holiday would actually be a little less than 4%. So, the margin is smaller.

I appreciate the point you're making here, but to be honest I doubt that a payroll tax holiday in and of itself would motivate employers to keep that many more people on. To the degree that that extra dollars in both owners' and employees' pockets were spent, it might have a stimulative effect, but simply as a marginal bit of relief on the cost side I don't think it's enough to make a large difference.

The economy appears to be resetting to a smaller size, and I think most businesses get that. The time frame for a return to, let's say, pre-Lehman Bros levels of demand is too long for a ~4% bump to be enough for employers to try to weather the storm and hold on to folks.

And that's why I think we're still seeing 600K jobs go away each month.

Last but not least, I haven't seen anyone here mention that a FICA tax holiday will basically cut off the revenue stream for Social Security and Medicare.

What happens to those programs? Where does their money come from?

Thanks -

Let's see if this is a good argument:

There is no good reason I can think of to make a connection between lowering the employer's contribution to the payroll tax and retaining employees.

I'll try to spell out the argument, and you can say where you think I go wrong:

1. Textbook employers layoff (i.e., don't retain) employees when the cost of employing the employee exceeds what the employer can expect in revenue as a result of the employee's contribution.

2.Mass layoffs occur in recessions because of a sudden decrease in what the employer expects in revenue. The decrease is greater in the short-term, because the employer expects the economy eventually to recover.

So far so good.

3. How long the employers time horizon can be depends on how much cash and access to financing the employer has.

4. Both cash and access to financing diminish in recessions, so employer time horizons are shorter.

5. From #2, there will be a large group of employees whom the employer would like to keep on the basis of a long-term horizon (because it is expensive to downsize and then hire again later), but cannot keep based on a short-term horizon.

Whoa! Stop right there. You're slipping in several assumptions that seem to go against my direct experience. What you seem to be saying is that some companies might find it more cost-efficient in the long run if they knew how long the long rung would be. But where I use the modifiers 'some', 'might', and 'if', you drop them completely and make no attempt at a numerical analysis, nor do you bolster your case with hard data.

In short, you don't have an 'economic justification' for your position, you have a just-so story that you want to treat as an established economic fact.

Take the real-world case of Ron's Country Boy Diner, which at one point employed six cooks, and which got a significant percentage of it's business off-ramp from the interstate. When business went slack, the owner (his name isn't Ron, that's two owners back) cut two cook positions; there simply wasn't enough work for six. I don't think the business has recovered yet, at least, business was still off the last time I went in.

If business ever does pick up, the proprietor of Ron's will simply place an add in the paper(or, more likely, by word of mouth) and get a new pair. Cutting his 'employers contribution' of 7.5% won't entice him to hold onto the guys he has; he'll simply pocket the difference.

And this will be the general case. Bear in mind that while it might be more costly to fire and hire, the difference will never be more (as a good, though not universal, rule) than the salary of the person being dropped and picked up. So if the time frame of fire/hire is a month or so, your point might have some merit. But if you're talking about a time frame on the order of more than six months, many - most - employers won't as a rule retain employees. Especially if they don't know the time frames involved.

There's more to be said on this particular point, but you've made yet another assumption here that bears remarking upon, and that is even if a firm is large enough, and the employees are skilled enough through a long enough training process that this argument has validity, you still have to make the assumption that the company will behave rationally. Is that a good assumption? I tend to think not, or at least, I don't assume it except in the most mundane tried and true instances.

Bottom line, you don't have an 'economic argument' unless you're prepared to go to a little more effort to make it, and back it up with data.

Even if you accept that an employer payroll tax holiday will mean fewer layoffs, it is still true that much of the holiday will initially go to improve the profitability of employers. (That's because even though the ultimate incidence of the tax is on employees, it takes time for the upward adjustment to take place, and it will take place slower when everyone is worried about their jobs.) But that improved profitability across the economy will help reduce insolvencies without the distortions that ad hoc bailouts produce.

Posted by: Pithlord

Again with the assumptions. And why are 'distortions' necessarily bad? Because 'distortion' is a bad word? But then you can make the same argument for just about any sort of tax. And if your one of those types, we really don't have enough in common to have a meaningful discussion.

Hmmm. Not a definitive answer, of course, but not particularly encouraging for Team Obama.

Dero points this out, but it's worth emphasizing- the actual data depart from the predictions before the stimulus was supposed to have had any effect whatsoever. The only rational interpretation is that the recession is worse than predicted.
Which is discouraging for Team Obama because they've got a bigger problem to fix, not because of some inferred mistake on their part.

Of course, you're in the position to claim that, whatever happens, it would've been better with more frontloading. If things go bad, they would've been better. If things get better, they would've been better faster. etc. But claiming that and proving it are two different things- a chart showing that the recession came on faster and stronger than expected doesn't advance the position at all.

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