Wednesday, November 30, 2011

Payroll Tax Fictions

In a piece at Politico, John Podesta takes Republicans to task for not embracing an extension of the payroll tax cuts, while simultaneously--and quite unintentionally--demonstrating why policymakers can't be counted on to solve economic problems.

Podesta argues--in typical ideologue fashion--that the Republicans only care about the fabled "top 1%," that they think only this portion of the citizenry matter, at all:
This vote also exposes the GOP to an inconvenient truth about the difference between conservatives and progressives. They argue the top 1 percent are the most important drivers of the economy; we insist a strong middle class is the engine of economic growth.
It's a truly fascinating delusion, given that it requires nearly half of the voting public--those that vote Republican--to be mindless drones, conditioned to vote again and again against their own interests. Of course, it's a patently false claim. Note that Podesta merely asserts it--that the GOP thinks the the top one percent are the chief drivers of the economy--but doesn't do anything in the way of backing it up.

And, in keeping with a now-fashionable technique for faulty arguments, Podesta switches from "GOP" to "conservative," as if the terms were interchangeable. They're not, of course. But it's an exercise in futility explaining this simple reality to those who will not listen, who are unconcerned with actual facts.

But he's not identified any kind of "inconvenient truth," regardless. Moreover--given that Republicans already accepted a payroll tax holiday in the past, not to mention extensions of unemployment benefits--he's basically fabricating the point, entirely. For we can all recognize that tax holidays and benefit extensions cannot simply go on forever. Can't we?

And that's the real inconvenient truth here: people like Podesta aren't worried about paying bills and don't care how empty the treasury is, because their entire game is class warfare, nothing more.

Now, Podesta supports his position on the benefits of extending the payroll tax holiday with the opinions of Mark Zandi, who claims--I kid you not--that extending these tax break will create three-quarters of a million new jobs in 2012. Hell, let's just do away with the taxes entirely and create a couple of million more jobs!

But I digress. John Tamny at RealClearMarkets has an excellent piece on Zandi--from way back in June--and his economic prowess. Some highlights:
Regarding Social Security tax cuts, implicit there is Zandi's thoroughgoing Keynesian view that "more money in people's pockets" will drive up consumer spending, with a boost to GDP the end result. What he misses is that temporary tax cuts, far from driving up economic growth, merely reschedule it. Assuming what's hard to assume, that Americans will fall for a near-term increase in their take home pay, any increased consumption in the present would be matched by a decrease later on when the tax cut is revoked... 
Keynesians such as Zandi always seem to leave out that with all consumption, production must come first. And if the productive don't "consume" the fruits of their productivity, it should be stressed that no act of saving ever detracts from demand. Consumption delayed is merely a shift of consumptive ability to other individuals, and even better, money saved is often capital supplied to entrepreneurs and businesses that will use it to expand, and hire new workers... 
Secondly, and as mentioned earlier, governments can't create economic growth as much as they can reschedule it. This lesson has been learned the hard way once again by Washington through temporary measures meant to stimulate housing and automobile purchases. In the near-term the subsidies surely did boost purchasing, though at the expense of future demand; recent limp demand for housing and autos yet another example of the faulty nature of the temporary tax cuts that inexplicably appeal to Zandi.
Read the rest, it's worth it.

But to simplify, what Zandi is tragically wrong about--like most progressives--is the idea that the government can simply create growth via policy, the idea that the economy is a simple thing and turning this valve over here--or adding an extra foot of pipe--will have an entirely predictable result over there.

It's why we're knee-deep in a pathetic recovery, because policy wonks in Washington think they have a full understanding of something that is beyond their ken.

Cheers, all.

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