TCS Daily


Stimulating Ideas

By James D. Miller - January 15, 2008 12:00 AM

I'm scared. Fears of a future recession are giving politicians an excuse to splurge. Hillary Clinton, for one, wants to spend $70 billion on a so-called anti-recession stimulus package that includes $30 billion in mortgage relief and $10 billion for extending unemployment insurance.

Alas, increasing unemployment benefits will increase the chances of the U.S. entering a recession. When the government pays people for doing something, more people will do that thing. So, for example, if the government gives money to people who become unemployed more people will take actions that cause them to become unemployed. Higher unemployment benefits will cause some workers to put in less effort into their jobs because the cost to them of being fired goes down. Furthermore, by raising unemployment benefits the jobless have fewer incentives to find work. Consequently, Clinton's proposal to increase unemployment benefits could reduce the total number of hours worked by Americans and so worsen our economic predicament.

Clinton's $30 billion mortgage relief would cause long-term harm to credit markets by rewarding foolish lenders. Subprime mortgage lenders made many foolish loans to borrowers who now can't repay their debts. If the government temporarily helps borrowers pay their mortgages, then the government will be reducing the foolishness cost that lenders would otherwise suffer and so the government will reduce lenders' incentives to improve their lending practices.

Clinton's $30 billion mortgage relief would also prolong our current subprime mortgage crisis. Banks are not certain how many of their lenders will eventually default. And such uncertainty makes it difficult to properly evaluate the health of banks. As Paul Krugman has written "Markets won't start functioning normally until investors are reasonably sure that they know where the bodies — I mean, the bad debts — are buried." But Clinton's mortgage relief would allow insolvent borrowers to postpone foreclosures, and so would push back the day when we find Krugman's metaphoric bodies.

All of the money that Clinton would spend on a stimulus package would eventually have to be repaid by taxpayers. So her package would cause rational businesses to expect higher tax rates in the future. And whenever businesses perceive higher future tax rates, they invest less today.

If politicians want to use a stimulus package to reduce the threat of recession they should follow economist Kevin Hassett's advice when he said "If you want to do a stimulus package, it should juice up activity this year and then go away." Perhaps the best way for politicians to satisfy Hassett's criterion would be to implement a one-year easing of land use restrictions. It's extremely costly and time consuming for developers to put up new commercial buildings. But imagine if developers knew that for one year only they could build near anything they wanted on their own land. A massive building boom would materialize that could save us from recession.

Another way to stimulate the economy would be to allow companies to easily fire anyone they hire over the next year. Firms often refrain from hiring someone for fear that if the employee doesn't work out it will be difficult or impossible for the business to fire him. If, however, firms know that anyone hired in the next year could be fired with no hassle and no questions asked then they would significantly expand their workforce.

The final way I'll propose to starve off a recession is for the government to sell assets and use the proceeds to offset tax cuts. The government could, for example, auction off the parts of the electromagnetic spectrum it still owns or even sell off public lands. Such sales would allow the government to cut taxes today while not causing businesses to fear that the current tax reductions would be paid for by future tax increases. So, candidate Clinton, if you are reading this article I urge you to drop your current stimulus plan in favor of selling Yellowstone National Park to the Chinese and using the proceeds to lower corporate tax rates.

James D. Miller writes "The Game Theorist" column for TCS and is the author of Game Theory at Work. He keeps a blog here.


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107 Comments

Redlining
About a decade ago, banks were being castigated for what activists called redlining. That is, they were not making lots of loans in poor neighborhoods.

What they were actually doing was not making loans to poor credit risks.

Politicians started grandstanding and threatened punitive new laws if this situation did not change.

The result was inevitable. In order to keep Washington off their backs and out of their pockets, banks started making loans to people they wouldn't have ordinarily made loans to.

Today, many of those loans are going belly up. But as usual, now that it is time to pay the piper, the only thing politicians are doing is blaming banks for doing the very thing politicians pressured them into doing.

Cut corporate taxes
Lower the cost of doing business in the USA.

With the dollar low relative to other currencies, why wouldn't foreigners want to invest?

Foreigners are buying condos in Miami and shopping in NYC.

Being a politician means never having to say your sorry
...

Absolutely
In fact, why tax corporations? They simply pass this on to the customer. By eliminating corporate taxes you end the double taxation and also make all US products automatically cheaper.

Dividends would remain taxable as ordinary income.

The entire tax structure really tells a tale of how silly things are.

Taxing those evil corporations is really just taxing ourselves.

Nobody would advocate selling Yellowstone
However, there are vast areas of the West that are Federal land that should be sold. There is no justifiable reason why massive parts of Nevada, Montana, etc should be or need to be owned by the feds.

Additionally, how about a budget cut? The largess is astronomical.

Alas, Hillary is just once again showing off her utter lack of economic sense. Like all big government liberals, she thinks she can just throw other peoples money at the problem.

After all, why should she have to worry about every under-capitalized business?

A bogus argument
The author offers that "increasing unemployment benefits will increase the chances of the U.S. entering a recession. When the government pays people for doing something, more people will do that thing. So, for example, if the government gives money to people who become unemployed more people will take actions that cause them to become unemployed."

BS. You can't qualify for unemployment when you quit your job. And there's no one out there just waiting for the benefits period to go from 26 weeks to 40 weeks so he can stick his hand in the shredder and get laid off. I can't believe you people actually fall for this stuff.

"Furthermore, by raising unemployment benefits the jobless have fewer incentives to find work."

Whether 26 or 40 weeks, the clock starts ticking as soon as you get your pink slip. In areas where there's full employment, some people do go to the end of the period. But they are in a minority. For the rest of us, the checks are a lot less than what we're used to making, while the payments keep coming due. Most of us can't afford to live on unemployment, even for a little while.

In areas like Michigan, where there's far less than full employment, being laid off is a disaster. Extending the benefits period is staving off that disaster-- a duty our government owes to Americans separated from their jobs for no fault of their own.

The author's suggestion that the USG should start selling off its assets reeks of desperation. Maybe we could sell our public lands to China? What a brilliant way to solve our problems-- for the moment.

Next time around, what do we sell then?

I would.
It's practically private now. The Park Service solicits bids from vendors to provide service.

Compare some of the private parks in the Black Hills with the 'public' parks.

Certainly a private concern could opeate Yellowstone much better than the federal government.

Government owes you nothing
Michigan is in dire straits because the Governor, a Democrat I might add, raised taxes. Business has dried up or fled and nobody wants to invest in Michigan. They never can equate tax policy with economics. Static analysis of tax policy is simply ignorant. Simply running radio ads to move your business to Michigan is feckless. So due to the smokestack mentality of Unions and the shift in auto manufacturing we "owe" employees help ad infinitum? How about helping industry by cutting taxes, making investment incentives adadada?

How many people milk UI until it runs out? I have known several. For that matter, why stay in Michigan? Move on? Why this notion that the worker bears absolutely no personal responsibility? I was laid off after 9 years at a major corporation and I packed up, sold the house and moved 2300 miles. I was unemployed exactly 7 days. In fact, in 22 years since college I have been unemployed 7 days total.

If I can do it why not others?

Time to quit sniveling.

100% tax rate on income over $200k
Rush described a study by a Congressional tax office asking what the revenue would be if the tax rate was increased to 100% for incomes over $200k. I think what they wanted was if you anyone made over $200K, ALL of your income would be paid in taxes.

The report stated the first year their would be this much revenue and the next year there would be this much and so on.

If this tax were implemented, only fools would report, or make an income over $200K.

I reality, after 1 or 2 years, such a tax rate would generate ZERO dollars in tax revenue.

When people have choices, they take them.

You are really, really idiotic today, Beanie Baby
Um, guess what, you jerk. You most certainly can quit your job and get unemployment. You just have to wait a little while longer before you're permitted to start collecting, and anyone with any savings at all won't care about that.

You also seemed to miss the part about easy-to-get unemployment money having the psychological effect, whether conscious or unconscious, of causing a worker to feel that he doesn't have to try or work as hard.

Can't you make like Eric and stop wasting bandwidth--and our time?

So would I
Private enterprise would do a better job of protecting what people want to see, and making it easier for visitors to see it.

Arnold Kling doesn't believe so
At least he declares that it's ridiculous (even cult like) to talk about embedded taxes.

roy's economic illiteracy continues unabashed.
I've known many people who would rather sit at home and collect unemployment than get up early every morning and go to work.

Additionally, I've known people who don't start looking for work until unemployment is about to run out.

If you don't think such people exist, you must live in some kind of dream world.

I wonder why then the IRS calles a corporation a pass through entity?
Does he know something I do not?

Seems that the IRS knows something Roy does not
..given how Roy insists that Corporations are persons even though the government doesn't have its legal act together on that point (Hey Roy! How come corporate 'persons' 18 years or older aren't allowed to vote?)

Shows what little Roy knows
"BS. You can't qualify for unemployment when you quit your job. And there's no one out there just waiting for the benefits period to go from 26 weeks to 40 weeks so he can stick his hand in the shredder and get laid off. I can't believe you people actually fall for this stuff."

I have talked to people who can and do just that, Roy. Just because your anecdotal view of the world exists doesn't mean others don't.

Personally, I am waiting to get laid off myself. I get a two months package plus another two months of accrued vacation if they send me packin'. That doesn't involve unemployement affecting my decision, but lower income folks w/o debts or dependents do make exactly those same trade-offs with unemployment benefits in mind, I assure you.

It is said about Ronald Reagan...
...that he was an ardent New Deal Democrat until he got slammed by the 91% tax bracket FDR's class warfare tax policies put him in. Then he switched sides and became a Republican -- one who was very instrumental in dismantling the last vestiges of FDR's class warfare tax policies.

Oppression in all forms breeds resistance.

OK OK, let me rephrase that.
Yellowstone is very unique and thus should be preserved as a park. In fact, it the case of SOME of the national parks, let private companies run them but ownership retained?

However, I see no need to either add to the roster of park lands. My reference was to the vast lands unused for anything. What really chaps me is the federal lands that the greenies are attempting to lock up so nobody can use them. Wilderness means only lefties can use it by permit. No jeeps, no trails.

These lands should be sold.

In fact, the coast of Florida on the pan handle is owned by the USAF Eglin AFB and is worth BILLIONS as development land.

worse
It was 91% federal taxes and something like 15% state of California taxes.

Yes that's right, combined, he was paying more than 100%.

What Roy knows
Roy only knows about Marxist economics, but he'll never admit he's a socialist. He keeps thinking we're dumb enough not to see thru it.

I would
Or I would at least sell off a lot of the outlying timber area and lease the main geo-thermal site for energy production.

I live in Montana, and I would like to see a goodly portion of the 30,000,000+ acres of federal land revert to private ownership. Exempt the core national parks and a couple of winderness areas and sell the rest.

Aren't you lucky
It's all the governor's fault, for raising taxes? Then why are all the other Rust Belt states in the same shape? Wouldn't that be because heavy manufacturing jobs in the USA can't compete any longer with the same jobs in Korea?

There's also the problem that Detroit management can't compete with Toyota management, even when the Toyota plants are in the US.

You must feel very smug, never having gone through a serious bout of unemployment. There are millions of us out here who haven't had that pleasure. It may be that they own a house and can't afford to move because when the factory closes, the whole town closes and you can't get your equity back out.

There are a hundred other reasons why, even with one's best efforts, he can't always get a job. Yes, if his field closes down and no one needs a welder, he can always go back to school. And ten months later maybe he can come out with a fresh degree in something where he has to compete with the 22-year olds.

Of course by then his house is repossessed, his car is repossessed and the kids have had to go live with the in-laws because he can't feed them any more. That's the reason we have unemployment-- even though there are a few who take it to the limit. It's our insurance against unjust and unexpected terminations.

I remember hearing the story...
...of some famous boxer* during that time. He was all rev'd up for another fight when his manager told him, "You're not fighting this one. In fact, you are not fighting for the rest of the year." Same reasons.

* Obviously he wasn't that famous or I would have remembered him.

unjust and unexpected terminations
There is no such thing as 'unjust' terminations. Nobody is 'entitled' to a job. Any attempts to engage in 'half-assed' capitalism to the contrary only makes things worse, not better.

Hey, when are we going to get stories on TCS...
...that talk about the de facto race/gender riots breaking out in the Dem primary process that could endanger said liberal coalition and how it impacts Libertarians?

Or the hypocrisy of liberals over the new Tata Nano $2,500 car slated for a 250,000+ unit production run this year? (the 'global poverty' wing that claims 'ownership' over issues improving the lot of the poor in direct clash with the enviro-mental head case wing that is against it)

All of those are 'simulating ideas' if I ever heard one. Fresh ones, too.

Do you have any proof?
Like any articles from 10 years ago highlighting this theory? Seems pretty far-fetched.

I checked myself and couldn't find anything. Almost all of what I read talks about competition between lenders and push-pull relationship between lenders and the Fed, that led to this debacle. And none of it talks about 10 years ago. If these bad loans originated 10 years ago, why did so many start going bad in just the last couple years? You saying those poor black people managed their loans just fine for 8 years and then bam, all of a sudden they have trouble?


Redlining is a term that goes back to the 60's. Its not a word created by activists, it is literally what lenders would do- draw a red line around inner-city neighborhoods that were off limits to lending.

Besides, lenders are the ones who designed these loans and offered them to the people they offered them to. Banks have lobbyists too, politicians weren't going to bring about "punitive new laws" and upset their corporate masters.

The only people to blame in this housing situation are lenders and consumers. Lenders for making high-risk loans because they thought they knew what the market would do. And consumers who bought homes above their heads, because banks would give them the money, and equally thought they knew what the market would do. Government should stay out of it and let the market sort it out. If that means it melts down our economy, so be it, thats the free market.

yeah, cut out the middle man
End corporate taxes and raise income taxes.

The money has to come from somehwere. Or should we just charge it to the national debt? You haven't had enough of that the last 6 years?

Libertarian plan
Sell of all public land.

Put the funds into a REAL trust fund to replace social security.

Malignant corporate behavior
There is absolutely such a thing as an unjust termination. Prior to the mid-1980s it was a part of the social contract that employers would only fire good employees as a last resort.

But then we had that brainstorm-- that companies could waste all their investment capital on mergers and acquisitions, and downsize the work force to make up for the resulting losses.

Eight million of us abruptly lost our jobs, sending a shock wave across the country. Those who still had a job were given the job the missing guy who used to work next to them used to do, to do-- along with his own. Thus we were now working two jobs and getting paid for one.

Conservative economists crowed about the tremendous increase in productivity this signalled.

The human costs were immense. But by then, more and more people in power no longer cared. They're like you. Get rid of the expendables and let them wait for the next wave to lift them off the bar.

That's why, at the very least, we need a solid unemployment comp program. This kind of behavior is beyond despicable. It's Republican.

Or we could cut spending
Or maybe the increase in economic growth will more than offset the cuts and we would end the double tax on C Corps as well as be among the most competitive countries on Earth.

Why does the money have to come from somewhere? Static analysis is a feckless argument.

The last six years?
Exactly what does that mean? You talking about the 1.8% of GDP deficit?

This is an area where you have no experience
You really don't have to answer, if all you can do is hurl insults and repeat inaccurate rumors. You say

"You most certainly can quit your job and get unemployment. You just have to wait a little while longer before you're permitted to start collecting..."

It's not so easy as that. You can only file for UC if you meet the following qualifications:

"Some reasons that can be "good cause" for quitting include: not getting paid wages or overtime, harassment by supervisors or coworkers, major changes in your job that make your job worse, unsafe working conditions, and unfair discipline. Before you quit, you must tell your employer about the problem (preferably in writing or with a witness present) and give the employer a chance to fix it. Also, if you can prove that you quit to avoid being fired, your employer will have to prove that you committed "work-related misconduct."

http://www.claiminformation.com/unemployment-comp.htm#goodcause

So you can't just quit your job and collect.

Then you say "...and anyone with any savings at all won't care about that."

Where've you been? American working families don't have savings any more, they have debts. The average working family in this country can skip only two paychecks before it starts entering into serious payment arrears. That's the average-- meaning only some of us have more cushion.

Then you say "You also seemed to miss the part about easy-to-get unemployment money having the psychological effect, whether conscious or unconscious, of causing a worker to feel that he doesn't have to try or work as hard." (same source)

Also silly. In most cases you can't collect if you're fired for cause.



"Work-related misconduct" involves serious misbehavior that you knew or should have known could get you fired. Often, misconduct involves violations of an employer's policies about issues like absenteeism or work procedures.

"Some examples of misconduct include: missing work without properly notifying your employer, using the employer's supplies or services without permission, lying to the employer, disobeying direct orders by a supervisor, and refusing to cooperate with co-workers."

What you object to is not my "wasting your time" but my telling you what my own experience has been. I was an employee for a fourteen year period before going into business for myself. I never was tempted by the so-called allure of unemployment insurance. Not even close. The money was lousy and the conditions demeaning.

So what you are doing is extrapolating on the basis of your imagination. And what I've been doing is telling you what life is like when you're a member of the work force.

"Simulating ideas"?
The thought that only Democrats ever hurl insults and innuendos at one another during the primaries is a simulating idea.

And the idea that all the environmentalists are upset that there's a new little affordable commuter car out now is another simulating idea.

Please spell out the hypocrisy of liberals over the Tata. I don't get it.

Buggy Whip makers
Then the family stays there while he takes a job elsewhere. I have done just that until the house sold. In other words, you do what you have to do, period. I have no smugness. I simply do not understand why you expect others to constantly bail you out. If I met a roadblock, I moved to plan b.

No, the problem in Michigan was made far worse by raising taxes and it is in the worst shape of most states. So if you economy is sucking wind you raise taxes on the poor suffering masses and business?

Finally lets talk about those jobs going to Korea. Why do you suppose that is? Is it the greedy corporations trying to increase profits or is it that the economy changes? Seen a buggy whip lately?

As to Detroit management, no argument. I will argue that the deals they cut with Unions are coming back to haunt. Your always pontificating how the workers need more and are getting screwed. Well see the results of your arguments? These industries are dying off because they cannot compete and management bears much blame for decisions made often decades earlier.

Boeing has eliminated thousands of jobs solely to reduce the high labor costs.

As to taxes, WA state taxed the new Boeing plant to the tune of 125 million. So much Boeing announced they would never expand the facilities in WA again.

So how did the politicians help?

If Michigan had a clue they would create investment incentives and slash state business taxes and offer tax breaks for new businesses.

The solutions are quite simple in reality but they eliminate both the need for government and the need for politicians and empower the individual.



\\

Supporting a strong safety net
Yes, I know there are some slackers who game the system out there. Just like there are a few cheats in your isnurance pool, who drive up your rates by faking injuries. But they're not the rule-- nor does there existence form a good argument against our having a national unemployment insurance plan.

When I used it I needed it. I was in a profession where personnel people were conducting a hundred interviews for a single job. It took a few weeks to get relocated.

And I know there are also a few self professed drains on the system who are waiting, as you say you are, to get laid off so you can get some free benefits. But you aren't the general rule-- nor is the lower income person you describe, without debts or dependents. They're a small minority.

Most employees are supporting families. They have mortgages and auto debts. And they have credit card debt also. They haven't put much of anything away. They can't in fact, because the pay ain't good for a lot of people. So if the checks ever stop coming, they're terribly exposed. People live in fear of this, out in the world I'm familiar with.

Those are the vulnerable ones. And those are the reasons we need UC.

It's Republican?
Come on Roy, and Democrats are so benevolent.

I have no idea where you got the idea you were entitled to a job.

Sorry, the days of company men are long gone. The economy will never return to the good old days.

You know, this is all silly. Start a business. What a better way to get even than being self reliant.

Your correct except that regulators eased lending requirements.
For example the loan to equity ratios primarily and debt to credit ratios.

As to the market, I agree, let them sort it out.

Why are so many CEOs democrats and/or liberal?
Because they want a big government to protect their market share.

Real conservatives, many who are Republican, are the small and medium sized business owners who can't afford to play politics and I would suppose many don't fire on a whim.

If you doubt, note the number and quantity of donations to each party. Republicans get more, smaller donations and dems get few, large donations. Like that evil Republican Soros.

And??
Done right, it would do much more than fund SS. Depending on how you count it, 30M to 50M acres in Montana alone. All federal lands in the nation? That is a lot of acreage.

If you don't remember, you weren't paying attention
No, redlinning is what the activists acussed the banks of doing. The banks themselves never did it.

It didn't matter where you lived. If you were a good credit risk, you got the loan. If you weren't you didn't.

People in poor neighborhoods tend to be poor credit risks.

If we cut the govt back to the things it does well, we could just about eliminate taxes
Not really, but we could cut taxes back by half to 2/3rds.

SS's unfunded liability is huge
And most of the land that we could sell isn't worth that much per acre, especially if it was sold over a short period.

Not true
Michigan is much worse off then the other members of the so called rust belt.

It's not that Toyota's management is better than Detroits (for a large part, they are the same people) it's that Toyota is much less unionized, which makes managements job a lot easier. Not to mention saving huge amounts of money.

I was unemployed for 9 months, and under employed for over a year. I worked three jobs, the total of which paid about half of what I made before being laid off, and I agree with everything dbt3481 says.

The problem with you roy is that you honestly believe that a perfect world is possible, if only govt is powerful enough.

In roy's world, people are entitled to a perfect world
and if they don't get it, it's the fault of some evil businessman.

There never was a "social contract". That's nothing more than a fancy term invented by socialists to try and justify their taking what they wanted.

evil
Pauled once told me that the only way to advance in a big company is by doing evil things. Therefore the people who run big companies are inherently evil.

Some people actually do believe this cr*p.

is a waste of time
The only true safety net, is the one you generate for yourself.

Power
The only way CEOs can obtain power is to side up to the socialists in the government.

They can then use that power to control competition.

See what happened when Gates didn't play ball?

Cinderella Man
Remember the part when the Cinderella Man returned the welfare money?

Also, in the 30s, FDR declared all debts null and void. Many small business ownerw who were carrying people on the books were screwed.

We've lost a lot
You're right, the days of company men are by now long gone-- or at least they've been gone since the 1980s. Before then there was such a thing as a social contract between labor and industry. Working people gave the company their loyalty and good work, while in return the company gave them benefits and as great a degree of job security as could be managed.

It was industry that reneged on the deal. And you may think it was inevitable. But only if you assert that industry has been and always will be run by shameless slimeballs.

"You know, this is all silly. Start a business. What a better way to get even than being self reliant."

Well that's exactly what I did. You must have missed those posts. I got tired of promulgating the corporate whim on my work force, and went into business for myself. And I did well enough at that to be able to retire in all the comfort I require.

None of that obviates the point. It was a better world back when business and labor were in some degree working together. And the path of further cooperation would have been the one to take. The world we've chosen instead is one where if you're not a cutthroat you're a loser. And what kind of person would ever choose that?

How come nobody else knows this?
Yup. I must have got that backwards. Democrats are the party of Big Business. Republicans are for the little guy. Thanks for straightening me out.

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