October 25, 2021

Economic View: A Proven Principle Behind Obama’s Jobs Plan

If the winter is unusually long and cold, planting time is delayed and additional projects are undertaken. It’s all very simple and sensible: the idea is not to let people sit around idle, and to use down time to get important things done.

The farm needn’t go into debt to do this. All able-bodied people on the farm are expected to contribute their labor, an imposition we can view as an informal tax. Later, everyone on the farm enjoys the benefits of all that work, by participating in the various benefits — the economic growth — it helps to create.

In many respects, the American Jobs Act, proposed by President Obama but blocked in its full form by the Senate last week — would do much the same thing for the nation during the current economic winter. Parts of the plan would provide for projects like school modernization, airport and highway improvements, high-speed rail systems and redevelopment of abandoned and foreclosed-upon properties to stabilize neighborhoods. Those are the modern national equivalents of fixing the barn and building a fence.

And these projects would be made possible by taxes. As Mr. Obama said last month: “Everything in this bill will be paid for. Everything.” The bill would start public improvement projects in 2012, and raise taxes, in the form of a 5.6 percent surtax on millionaires, in 2013, more than paying for the public improvements part of the bill.

In every depression the nation has faced, there have been proposals for the government to do just this: increase spending on public improvements to create jobs for the unemployed.

An article in The St. Louis Post-Dispatch, written in 1877, during the 1873-79 depression, argued that the government could create a great many infrastructure jobs. “There are many needed improvements: the construction of the Texas and Pacific Railroad, the widening of the entrances to the Mississippi, the diking of its alluvial blanks, the clearing of obstructions from the beds of the great rivers of the West, the improvement of the harbors and rivers in the East, the completion of the post offices, custom houses, seawalls, breakwaters and other useful works of a national character,” the article said.

An article in The New York Times, written in 1893, during the 1893-97 depression, described public improvements to relieve unemployment and said there were plenty of things that could be done to create jobs: “building of lines of rapid transit, widening and deepening the Erie Canal, improving the Mississippi, and building canals across the peninsula of Michigan.”

BUT neither of those proposals got very far back then, because either substantial tax increases or substantial debt increases were politically unacceptable. State, local and federal governments were limited mainly to accelerating the use of existing revenue (or only slightly increasing their borrowing) or to coordinating voluntary donations for infrastructure projects. One observer wrote in The Chicago Daily Tribune in 1877 that it was an outrage “when the government exacts a tax for subsidizing any business scheme, for providing public improvements that are not needed, or in any other enterprise which is intended merely to furnish work for the unemployed.”

In 1894 in St. Louis, the city government backed a campaign to secure private donations to create an artificial recreational lake with picturesque islands in Forest Park. Called the “Lake Poor Fund,” it appealed to dual motives: to improve the city and to hire the unemployed. It paid 750 of the jobless to dig with shovels and picks. (The steam shovel hadn’t yet fully emerged as a dominant technology.) The lake was completed within the year, and city residents still enjoy it today.

It was not until the Great Depression of the 1930s that financing infrastructure programs through serious deficit spending was prominently advocated. A revolution in economic thinking, led by John Maynard Keynes, enabled us to think of the economy as something that can spontaneously fail, that the government can stimulate to get going again and make everyone better off.

In his 1988 book, “The Origins of the Keynesian Revolution,” Robert W. Dimand, a historian of economic thought at Brock University in Canada, says that precursors of Keynes-like thinking about economic stimulus can be traced back to the 1890s, but that their reasoning was muddled and unpersuasive. It was not until 1931, in one of the most influential scholarly economic articles of all time, that Richard F. Kahn, a 25-year-old student of Keynes, clarified his mentor’s ideas and showed how a little government stimulus could have what we now call a multiplier effect.

Mr. Kahn assumed that there would be debt financing of stimulative spending, saying that the effects of increased balanced-budget expenditures — spending that is fully paid for by tax increases — were “a matter for separate study” which, in fact, he never got around to. The terms “multiplier” and “deficit spending” were coined soon thereafter.

Making everyone better off, and a lot better off through the power of the multiplier, was the key to the idea’s success in the political arena.

It wasn’t until the 1940s that economists realized that a balanced-budget stimulus could be effective, too. As I’ve discussed in earlier columns, economists starting with Walter S. Salant and Paul A. Samuelson realized that during a depression or in near-depression conditions, any government expenditure fully funded by taxes will increase national income approximately one for one, without raising national debt. This is known as the balanced-budget multiplier.

The public improvements suggested in the president’s proposal would have been fully paid for by the bill’s tax surcharge. And any new legislation we now consider could also pay for such improvements with tax increases, so as not to raise the national debt even temporarily. This idea should still have common-sense appeal to Americans in this time of high unemployment, just as the idea of winter work does on the farm.

Robert J. Shiller is professor of economics and finance at Yale.

Article source: http://feeds.nytimes.com/click.phdo?i=ef9b4fb208bee7716bfe1c0caa151b75

Obama to Press Committee on Jobs

Much more than he has in past months, Mr. Obama has spent this week combining his pitch for deficit reduction with a renewed emphasis on the need for further temporary spending and tax cuts to encourage businesses to hire and consumers to spend, going beyond proposals like continued payroll-tax relief.

Until the economy showed fresh signs of weakening lately, Mr. Obama had all but shelved additional stimulus proposals, given Republicans’ opposition. But even before he has disclosed details of his proposals — including new tax incentives for hiring, public works measures and state aid for teachers — Mr. Obama has essentially dared Republicans to try to block them, suggesting the onus is on Republicans to prevent a recovery-threatening impasse.

“My basic argument to them is this: We should not have to choose between getting our fiscal house in order, and jobs and growth,” Mr. Obama told an audience Wednesday in Atkinson, Ill., on the final day of his three-day bus tour through Minnesota, Iowa and Illinois.

As for deficit reduction, Mr. Obama suggested that he would call in his speech for the bipartisan 12-member Congressional committee that was created by his debt-reduction deal with Republicans this month to be more ambitious about deficit-reduction than its formal charge requires — including tax increases on the wealthy, which Republicans oppose.

“I’m going to make a presentation that has more deficit reduction than the $1.5 trillion that they’ve been assigned,” he said.

He said the ultimate goal should be $4 trillion in savings over 10 years. Counting the $1 trillion in cuts already agreed to in the debt-limit deal, that would suggest that the committee — and Mr. Obama — would have find $3 trillion more. But he will not seek that much.

“We’ll have more spending cuts than we have revenue,” he said, after expressing concern that Speaker John A. Boehner of Ohio had named Republicans to the panel who oppose any tax increases. “But we’re going to have to take a balanced approach,” Mr. Obama said, without “drastic cuts” in Medicare and Medicaid — though he made clear that changes to those fast-growing programs must be on the table.

The president’s plans for a speech with a broad economic agenda comes after months in which Republicans have ridiculed him as not having a detailed debt-reduction plan, and many supporters have urged him to show more leadership — and more fight — in the battle over the size and role of government.

Yet Republican leaders served notice that they would oppose stimulus measures now or higher tax revenues later. That signals another contentious budget battle this fall, after the summer-long chain of events that ended with the relatively modest deficit-reduction deal, which cleared the way for a needed increase in the nation’s debt limit but also provoked Standard Poor’s to downgrade the United States credit rating and contributed to days of market turbulence.

In a memorandum to House Republicans on Wednesday, Representative Eric Cantor of Virginia, the majority leader, said their agenda must include “stopping the discussions of new stimulus spending with money that we simply do not have.” He accused the president of waging “class warfare” — Republican code for Mr. Obama’s proposed tax increases on high incomes.

Senator Mitch McConnell of Kentucky, the Republican minority leader, criticized “job-killing tax increases” and said, “Continuing the spending spree on failed stimulus programs won’t shrink the deficit.”

Many economists argue that while temporary spending and tax cuts add to deficits initially, such measures can increase tax collections, reduce costs for safety-net programs and ultimately keep deficits smaller than otherwise by spurring business activity and lowering unemployment. How economists would judge Mr. Obama’s proposals will depend on their details; contrary to Republicans’ claims, economists generally judged his 2009-10 stimulus program to have helped, but to have been insufficient to overcome the deep downturn.

While the details, date and venue of Mr. Obama’s speech remain to be finalized, the president throughout his bus tour hinted at his approach for simultaneously stimulating the economy while reducing projected deficits through spending cuts and revenue increases to take effect once the economy recovers.

In Minnesota on Monday, Mr. Obama said he would propose “a very specific plan to boost the economy, to create jobs, and to control our deficit.

“And my attitude is, get it done,” he contined. “And if they don’t get it done, then we’ll be running against a Congress that’s not doing anything for the American people, and the choice will be very stark and will be very clear.”

To sustain the wobbly recovery, Mr. Obama has called for extending for another year a cut in employees’ payroll tax and unemployment compensation for those out of work longer than six months. He has also proposed an infrastructure bank to leverage public and private money for roads, bridges, schools and other public projects, renewed tax write-offs for businesses’ capital investments, an overhaul of patent law to spur innovation and approval of trade pacts to promote jobs in export industries.

This week, Mr. Obama suggested he also would ask Congress to provide aid to financially struggling states and cities to keep teachers on the job — a move many Democrats and local officials have been pleading for.

“I personally believe that one of the most effective ways that we could help the economy is making sure that we’re not seeing more teacher layoffs,” he said, to applause.

Aides say Mr. Obama is also considering expanding payroll-tax relief to employers and a tax credit for new hires. Since an infrastructure bank would take time to start up, he also will propose other ways to encourage construction more quickly, an aide said.

“When interest rates are low, contractors are begging for work, construction workers are lining up to find jobs, let’s rebuild America,” he said this week.

Mark Landler contributed reporting from Atkinson, Ill.

Article source: http://feeds.nytimes.com/click.phdo?i=d6541cfb7051f2ec0ea4b730dcfb0b2a

Bucks: Wednesday Reading: How to Really Use Frequent-Flier Miles

April 13

Wednesday Reading: How to Really Use Frequent-Flier Miles

Making better use of frequent-flier miles, proposals to change Medicare, government warning against hair-smoothing treatment and other consumer focused news from The New York Times.

Article source: http://feeds.nytimes.com/click.phdo?i=7a1c009dbbade137ec504b7a35dbe447