Posts Tagged ‘Mark Thoma’

Economist’s View – “Springtime for Hypocrites”

December 18, 2010 Leave a comment

From the Economist’s View:

“Springtime for Hypocrites”

Paul Krugman:

Just two weeks ago, the deficit was the great evil, and all the VSPs insisted that we needed fiscal austerity now now now. Then, magically, a big tax cut — increasing federal debt by more than the original Obama stimulus, and substantially raising the probability of making unaffordable tax cuts permanent — was the greatest thing since sliced bread.

Why, it’s almost as if all the concern about the deficit was a front for opposing anything progressives might want, to be dropped as soon as debt was being run up on behalf of conservative goals. But that can’t be true, can it?

Many Republicans are still playing starve the beast. The next step for the GOP is to use the deficit problems that are created by the tax cut legislation as evidence that government spending is out of control. The biggest target for cuts will be social insurance programs. I wonder how many people realize that the revenue loss from the tax cuts will be more than three times the shortfall in Social Security (the tax cuts to those making over $250,000 alone would eliminate the Social Security shortfall)?

Economist’s View – “Republican Members of FCIC to Promote Crisis Urban Legends”

December 15, 2010 Leave a comment

From the Economist’s View:

“Republican Members of FCIC to Promote Crisis Urban Legends”

I’ve taken on the “CRA and Fannie and Freddie did it” myth so many times that I hardly have the energy to do it again (e.g. see here and here for several posts debunking this idea). So let me turn it over to Yves Smith:

Republican Members of FCIC to Promote Crisis Urban Legends, Shift Blame From Bank, by Yves Simth: Lordie, the Big Lie is with us in force. The New York Times reports that the Republican members of the Financial Crisis Inquiry Commission are going to pre-empt the report (due in mid-January) and issue their own 13 page screed later today focusing blame for the crisis on…Fannie and Freddie, and no doubt the CRA too.

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Mark Thoma – Why We Need an Individual Mandate for Health Insurance

December 14, 2010 Leave a comment
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Mark Thoma – Obama’s Belt-Tightening Plan Won’t Help the Economy

December 8, 2010 Leave a comment

From the Economist’s View:

Obama’s Belt-Tightening Plan Won’t Help the Economy

I have a new column:

Obama’s Belt-Tightening Plan Won’t Help the Economy

The column argues that we are unlikely to return to full employment anytime soon, and that, if we are wise, we will take advantage of idle resources in the interim to set the stage for robust future growth. It also argues that Obama’s belt-tightening plans will be counterproductive if they are implemented prior to recovery. It was written in response to Obama’s federal pay freeze and his fiscal commission, but before details of the tax deal emerged. The tax deal may have temporarily suspended the deficit reduction fever that has gripped politicians lately, but the push for deficit reduction has not ended and the danger of premature austerity remains.

Economist’s View – A Few Reactions to the Tax Cut Agreement

December 7, 2010 Leave a comment

From the Economist’s View:

A Few Reactions to the Tax Cut Agreement

Update — More Reactions:

Paul Krugman:

So the tax deal is out. Obama extracted some concessions, with the big surprise being a payroll tax cut. How much better do these concessions make the thing? …[T]his raises GDP by 0.7 percent relative to otherwise; rule of thumb is that one point on GDP is half a point on unemployment, so add 0.35 points to the CBO numbers.

That’s a two-year average; what about timing? Both the payroll tax break and the unemployment extension are for the first year only. So, a bigger boost next year, fading out in 2012. Since all the evidence says that elections depend on the rate of change of unemployment, not its level, this is actually bad news for Obama: he’s setting himself up for an economic stall in the months leading into the 2012 election.

Oh, and he’s overpromising again:

“It’s not perfect, but this compromise is an essential step on the road to recovery,” Mr. Obama said. “It will stop middle-class taxes from going up. It will spur our private sector to create millions of new jobs, and add momentum that our economy badly needs.”

Millions of new jobs? Millions? Not by my arithmetic.

So, was this worth it? I’d still say no, although it’s better than what I expected over the weekend. It still greatly increases the chances of the Bush tax cuts being made permanent — especially because the front-loading of the stimulative stuff actually worsens Obama’s 2012 electoral prospects.

Overall, enough sweetener has been added to diminish, but not eliminate, the bitterness of the disappointment.

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Mark Thoma – Deal Reached to Extend All the Bush Tax Cuts

December 7, 2010 Leave a comment

From the Economist’s View:

Deal Reached to Extend All the Bush Tax Cuts

Here are the details of the agreement on the Bush tax cuts:

1) The Bush tax cuts get extended for two years — with one ugly surprise: For the next two years, estates up to $5,000,000 will be protected from the estate tax, and the tax rate for the few estates that are taxed will be 35 percent. … The difference in expected revenue between the 2009 levels and the compromise levels is $10 billion or so.

2) The refundable tax credits are extended: The Earned Income Tax Credit, the Child Tax Credit and the American Opportunity Tax Credit were all pumped up in the stimulus, but set to expire this year. All of them will be extended. Price tag? $40 billion or so.

3) Unemployment insurance gets extended for 13 months: … In perhaps the most important part of the deal, there’s going to be a 13-month extension at a cost of $56 billion.

4) A 2 percent cut in the payroll taxes paid by employees: This is perhaps the most unexpected part of the compromise. Rather than extending the administration’s Making Work Pay tax credit for two years, which would’ve been worth about $60 billion a year, they’ve agreed to a one-year cut in the payroll taxes paid by employees, which’ll raise $120 billion in 2011. …

5) Business expensing: Remember back in September, when the White House announced a proposal to give businesses two years in which they could deduct 100 percent of the cost of new investments? That’s in the deal, too. The cost of this is a bit complicated — it’s $30 billion over 10 years, but it works by offering huge tax cuts in the next two years and then paying that back over the next eight. …

On net, the package probably adds around $200 billion in new stimulus for the economy, maybe a bit more. Notice, however, that it is entirely tax cuts.

The estate tax and the extension of high end tax cuts are causing the most heated reactions, and the payroll tax cut is generally being applauded. But I see the payroll tax reduction as potentially troublesome as well. Though the revenue the Social Security system loses due to the tax cut will be backfilled from general revenues, the worry is that the tax cut will not expire as scheduled — temporary tax cuts have a way of turning permanent. That’s especially true in this case since labor markets are very unlikely to recover within the next year and it will be easy to argue against the scheduled “tax increase” for workers. In fact, it will never be a good time to increase taxes on workers and if the tax cut is extended once, as it’s likely to be, it will be hard to ever increase it back to where it was. That endangers Social Security funding — relying on general revenue transfers sets the system up for cuts down the road — and for that reason I would have preferred that this be enacted in a way that produces the same outcome, but has different political optics. That is, leave the payroll tax at 6% on the books and keep sending the money to Social Security, and fund a 2% tax “rebate” out of general revenues. The rebate would come, technically, as a payment from general revenues rather than through a cut in the payroll tax, but in the end the effect would be identical. But the technicality is important since it preserves the existing funding mechanism for Social Security even if the taxes are permanently extended.

Economist’s View – Off Message Watch: “I Don’t Know That for Sure”

December 4, 2010 Leave a comment

From the Economist’s View:

Off Message Watch: “I Don’t Know That for Sure”

The administration just cannot admit that it made a mistake in proposing a stimulus package that was too small. This is from a Q&A with Austan Goolsbee::

Q. Would our economy be in better shape right now if the initial stimulus when the administration took office had been bigger?
A. I don’t know the answer to that for sure. There’s a bit of a crystal ball in that. It obviously depends on what the things were.

The right answer here is “of course if would have been better,” and to then talk about how Republicans blocked any hope of additional stimulus once it was clear the economy was doing much worse than anticipated. But because the administration refuses to admit its mistake and concede that the stimulus was too small, it cannot bring itself to argue that the economy needs more help from fiscal authorities. There were nods in this direction now and again, but the administration never really tried to make this argument, a strong push for a job creation program for example, and it has thus given up the chance to make clear which party is standing in the way of providing more help for distressed households.

Update: I see that Paul Krugman, referring to this statement by Jared Bernstein, is thinking along the same lines:

Getting Obama’s Drift: I felt sorry for Jared Bernstein, who surely knows better, having to convey the administration’s attempt to downplay the terrible jobs numbers.

I know what’s going on: the administration decided, more or less a year ago, that rather than admit that its stimulus package was inadequate and call for more, it would put on a happy face and hope for better news. But here’s the thing: by now we know that this strategy has been a political disaster. So you would think that the administration would change its line.

But to do that, someone at the top has to make the decision to change direction. And clearly, nobody has. I don’t think there was a deliberate decision to persist in an obviously losing strategy; I just think top management has gone missing. And so the administration drifts …

Economist’s View – Toles: There is No ‘Rest of the Trick’

November 28, 2010 Leave a comment
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Mark Thoma – What Impact Will the Election Have on Financial Reform?

November 3, 2010 Leave a comment

From the Economist’s View:

What Impact Will the Election Have on Financial Reform?

The editors at MoneyWatch asked me to look at how the election might impact efforts to reform the financial sector:

What Impact Will the Election Have on Financial Reform?: How will the takeover of the House of Representatives by Republicans affect recent regulation to reform the financial sector, in particular the Dodd-Frank bill and the recent Basel III agreement?

Since the Senate remains in Democratic hands, we shouldn’t expect any significant changes to the Dodd-Frank bill, particularly since Obama would likely veto any attempts to significantly alter the bill if it somehow reached his desk.

But the election does bring to mind questions about potential changes in financial regulation over the next few years, and over the longer-run, particularly if this is a sign of larger Republican gains in the future. One question is whether existing changes to financial regulation in the Dodd-Frank bill that appear to be working to restrict financial markets will be preserved. A second is whether we’ll be able to fix holes in the existing regulatory structure that Dodd-Frank left unfilled. And a third question concerns the extent to which we will continue to participate on the international stage as we did in the Basel III process. …


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Mark Thoma – The Election: The Dangers of Gridlock in Economic Policy

October 26, 2010 Leave a comment

From Money Watch:

The Election: The Dangers of Gridlock in Economic Policy

By Mark Thoma | Oct 25, 2010

I have been a asked on several occasions how the election might impact the economy. I have three big concerns.

The first is that we will be gripped by the austerity movement that has captured Europe and that, as a result, we will withdraw stimulus too soon. Republicans have been promoting policies to reduce the deficit for some time now, spending cuts in particular are on the agenda. Many among the Republican leadership would have canceled the remaining stimulus already, including extensions to unemployment insurance, if they were in control.

If Republicans make big gains, as it appears they will, these calls to balance the budget will grow louder and they will be echoed by Blue Dog Democrats. If Obama could be trusted to veto any such initiatives, my concern would be eased. But it’s not at all clear that Obama won’t trade spending cuts for progress in other areas, for example environmental legislation. His actions to date reveal a tendency to compromise rather than draw lines in the sand, but this is not an area where compromise is the right approach. A movement to balance the budget too soon sent the economy into a tailspin in 1937-38, and the same could happen today if we begin withdrawing stimulus too soon. The time will come to do reduce the deficit, and we should plan for it now, but moving on the plan too soon could be disastrous.

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Fed Stimulus Can Yield a High Return to Taxpayers