StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

If This Is Working Together, I'll Take Gridlock

06 Dec 2010
Posted by Andrew Samwick

A weak economy is not an excuse to spend money we don't have on things we don't need.  I am with Stan on this tax cut deal.  And Paul Krugman, for that matter.  I repeat my view that the Bush era tax cuts should expire on schedule.  The New York Times reports the two-year cost of this tax cut package at $900 billion. What is amazing is how little we have learned in three years.  Quoting from an op-ed I wrote in February 2008, almost nothing has changed (other than the magnitudes, which have all gotten worse):

The agreement reached by the House and White House in January addressed two problems that the United States does not have.

First, the nation does not have an underconsumption problem. The personal saving rate hovers around zero. The government’s budget has been in surplus in only four of the last 35 years. The nation has run current account deficits with the rest of the world for the last 15 years. If we are looking for additional economic activity, consumption is a poor choice.

Second, we do not have an underinvestment problem in the private sector. Interest rates have been very low by historical standards, and the Federal Reserve intervened immediately to lower them even further. With or without additional tax-based incentives, corporations have plenty of access to cheap credit to expand their capital stocks.

Where our country does have an underinvestment problem is in our public infrastructure. The failed levees of New Orleans. The collapsed bridge in Minneapolis. Those are but two recent examples of an area where the federal government is falling down on the job. Regrettably, they are not the only examples. In 2005, the American Society of Civil Engineers released a report card in which it estimated that $1.6 trillion would be required over a five-year period to restore the nation’s physical infrastructure to good condition.

The ASCE released a new report card in February 2009.  It put the 5-year cost of remediating the nation's infrastructure at $2.2 trillion, more than a trillion of which is not currently authorized.  For the $900 billion that this tax cut deal will cost, the government could go a long way toward meeting these objectives.  When all the money is spent, we would have expanded our productive capacity and be in a better position to service the additional debt incurred.  When all of this tax cut deal's costs are incurred, what will we have that compares?

I don't understand how this

I don't understand how this country can prosper with a crumbling infrastructure and without investing in educating its children. These would be much better investments than tax cuts.

When all of this tax cut deal's costs are incurred, what will we have that compares?

Increased inequality

Or Just Perhaps ...

... We've learned that governments *can't* spend us out of an economic downturn? It's never worked before and certainly hasn't this time.

Except for WWII. Other than

Except for WWII. Other than the that glaring example, which got us out of the Great Depression, you are correct.

I don't get it

It would have been so easy for Obama to let all the tax cuts expire and then propose his own tax cut/infrastructure plan that may actually stimulate the economy to replace it. I predict that within 5 minutes of passing this 'bipartisan' agreement, Republicans will be attacking it as reckless spending that will cause our debt to spiral out of control. It seems to be a clear case of political malpractice.

Totally agree

There are plenty of good investments in the US in the public infrastructure. Many of the best investments in the private sector are overseas. They are overseas because other governments provide all kinds of incentives- cheap labor, government pays health care costs, competitive communication and transportation infrastructure. We have a philosophy that government should not be involved. So we are going to lose out to other countries that make the investments that give competitive advantage. The Chinese are emerging as leaders in high speed rail transportation because their government is investing. The Chinese are emerging as leaders in alternative energy, because their government is investing. The US is not even trying to compete. The US government continues to invest in BigOil and Dirty Coal, the next dinosaurs. Big international companies go where they can make money, like the NFL franchise that moves out of town in the dead of night to a more lucrative venue.

This is the deal Obama made:

This is the deal Obama made: The Republicans will get credit for cutting taxes (we just love that)and Obama will get credit for the spiralling deficits (we just hate that). Voters will not make a connection between the two.

Looks like Obama is the loser on this one. He got played like a fiddle. Now, after all the bi-partisan love is over, Republicans can get back to attacking Obama as a big spending, out-of-control socialist and block anything else he wants to do, like the START treaty.

Don't blame the

Don't blame the Republicans.

The Democrats had the supermajority in the Senate, and control of the House, and they did next to nothing with it. They had no caucus discipline, no legislative plan, and no-good leadership. In any other democratic country, the situation would have resulted in a caucus revolt or election.

It is not going to get better now that there have lost the House, and have an irrelevant majority in the Senate.

I'm sort of sad that the Republicans did not gain control of the Senate. They are the party most likely to change its stupid anti-democratic super-majority rules. It might result in the repeal of legislation. A one term silly season. But in the next election, they would be held to account, which encourages legislative majorities to use their power sanely. This is how nearly every other democratic country operates: governments pass legislation, and it is very clear to the public who is responsible for it.


"First, the nation does not have an underconsumption problem. The personal saving rate hovers around zero."

Although the zero bound problem is meant to refer to what the Fed Reserve faces when economic conditions suggest the need for a negative interest rate, "zero bound" can also apply to personal savings rates.

Given the record numbers of people who have been unemployed for a long period, and the large numbers of people who are involuntarily underemployed, a low savings rate reflects much more than profligate consumerism.

It all comes back to the country needing to restore employment, and the $800 billion tax-cut agreement is a very expensive way to do relatively little of that.

That the tax cuts come even as the relentless fear mongering about the deficit continues is just another indicator that our political system is near complete failure. Although the country faces a very serious unemployment problem in the near term and a worrisome deficit problem in the long term, neither party has proposed plans to resolve either problem.

>>Although the country faces

>>Although the country faces a very serious unemployment problem in the near term and a worrisome deficit problem in the long term, neither party has proposed plans to resolve either problem.>>

You don't regard tax cuts which do nothing to solve the unemployment problem and worsen the deficit problem as a good solution?

I wish someone would explain how cutting income taxes on high earners is supposed to create jobs.

where the jobs come from

I wish someone would explain how cutting income taxes on high earners is supposed to create jobs.

Those bags of money won't count themselves.

Or how tax cuts on the

Or how tax cuts on the wealthy somehow might result in increased investment into public infrastructure and public education. (NO, privatizing and pricing them out of reach of the non-wealthy is not an answer.)

Rules for Holiday Shopping

1) Don't interact with the retail staff in the stores. It's depressing. Today I had to buy a new doggie bed for our pet, and the guy (30-ish, part time worker at the Petsmart) said he had four dogs that slept in the bed with them. I groaned. How do you do that? He said, "it's to keep warm -- I can't afford the $500 to fill up the oil tank to turn on the heat in our house." He uses two small space heaters judiciously. He has a wife and 10-year-old daughter.

Folks, it gets down to zero at night here in Minnesota. I was crying as I left the store. The face of the working poor assaults me every time I go out to shop. No wonder we all shop online now -- to avoid having to see these people and know how they struggle.

The place I stopped after that (Great Clips, to get a haircut) presented me with a woman who had an even sadder story. I'm staying home!

How much more of this can we take? The rich don't need tax cuts, and clearly the ones they have are not helping these people. Life is a struggle for many in our communities.

$2.2 trillion - or is it a different sum?

The ASCE's numbers do not add up to $2.2 trillion, so far as I can tell -- maybe the country needs $3.4 trillion instead? My blog has a table, and suggestions for other needs estimates on sewer systems and water works.

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