Omama just made a "barn burner" speech - hurrah!

In particular the law of unintended consequences appears to have revealed itself in the decided lack of entrepreneurial activity by Americans and their businesses as they contemplate the unknowns of higher taxes, increased and unpredictable government regulation and an administration that is increasingly given to themes of class warfare and forced redistribution in its rhetoric.

Uncertainly Wrong

Mark Schmitt | September 9, 2010

The buzzword of this election year, at least for Republicans, is "uncertainty." House Republican Leader John Boehner uses the word at every opportunity: "Small-business operators ... are filled with massive uncertainty." "When there is that much uncertainty employers just freeze. ... They are afraid to move forward because they don't know what is coming next." The expiring Bush tax cuts, implementation of financial regulation and health reform, and the lingering possibility that Congress will pass cap-and-trade climate legislation are all blamed for this paralyzing doubt.

Unlike other Republican election-year lines, this one makes superficial sense. These are scary times for anyone thinking about investing or hiring, or anyone looking for a job and trying to decide whether to take a pay cut or change careers. Who isn't aware that the economy's next move could be up, down, or sideways?

And as a political theme, "uncertainty" is also brilliantly evasive. Republicans who are willing to advocate specific and massive spending cuts, like Rep. Paul Ryan, and those who prefer vagueness, which are all the others, seem to agree that we need more certainty. And for independent and moderate Democratic voters who were made uncomfortable by the process of passing health reform but still generally favor President Obama's policies, "uncertainty" plays on their anxieties about the odd twists and turns of Washington.

And yet, for all its superficial common sense and political utility, there are more things wrong with the uncertainty argument than there is space for in this column. Let's start with the question of who's actually responsible for uncertainty. It's true that investors don't know what tax rates will be next year when the Bush tax cuts expire. But why did the Republican Congresses of 2001 and 2003 create tax cuts that were wired to expire? It was because doing so allowed them to exclude Democrats from the negotiations on those cuts. Today's uncertainty was baked in nine years ago, by the same people who are now capitalizing on it.

Obama has proposed renewing the tax cuts only for those who earn $250,000 or less. Since majorities in both the House and Senate support that proposal, in theory there should be no uncertainty. But Republicans will use every institutional power to fight Obama's proposal. Will they succeed in blocking the majority? That big question is the source of uncertainty.

Republicans seem unaware that whining about uncertainty contradicts one of their fundamental economic principles: Entrepreneurs and businesspeople are risk-takers who should be rewarded for their daring. But now we're told that those same daredevils are "paralyzed" if they don't know whether their income-tax rate will be 33 percent or 36 percent. When did conservatives become such wimps?

If this paralysis is real, perhaps it's a legacy of the financial-sector boom of the 2000s, which depended on the illusion of certainty. Most of corporate America fell for the idea that risk could be quantified, calculated, and hedged -- and thus real uncertainty could be eliminated. Uncertainty isn't what caused the current economic situation; it was too much certainty about things that weren't certain at all.

There is a way to provide investors -- as well as workers and families -- with the confidence they need to take risks and move forward. The answer isn't, as Republicans suggest, to do nothing or continue to cut taxes. Rather, it's to build the structures that provide a platform of security and predictability. Health-care reform, for example, if implemented well, should help reduce the spikes in premiums that made businesses reluctant to hire because they couldn't know the actual cost of a new employee. Financial regulation will promote a more stable economy by encouraging "vanilla" products with predictable interest rates rather than exotic instruments with unknown risks. An economic plan focused on steady growth and long-term deficit reduction can create a smooth and predictable path for investors to follow, while helping to restore the productivity of our un- and underemployed workers, whereas the rapid and premature withdrawal of federal stimulus spending proposed by Ryan and other Republicans will spark yet another roller coaster of disasters and bailouts.

The mantra of "uncertainty" is as subtle and smart a political slogan as the Republican wordsmiths have ever cooked up. But rather than being defensive or trying to change the subject, progressives should take it head on: It's the political maneuverings of the Bush administration and the scams of Wall Street that created uncertainty. And it's progressive policies, from the New Deal to the present, that hold the answer. Time after time, we've given people new confidence in their economic potential, and insurance against the greatest risks, and we must do so again.

In the US, 75 percent of the package is supposed to be deployed in the first 18 months – that is, before the end of 2010. So the next few months could be telling.
“It’s very early to make a final or quasi-final judgment” on whether the package provided a good boost to the economy, says Anne Vorce, an economist at the Committee for a Responsible Federal Budget, a bipartisan Washington group pushing for taming the budget deficit. Nonetheless, she figures the cost of stimulus action was lower than the cost of inaction would have been.

Newsweek:
Unfortunately, investing in tomorrow won't automatically stimulate the economy today. The $819 billion program passed by the House would only slowly provide stimulus. The Congressional Budget Office estimates that in fiscal 2009 (through this September) about 21 percent of the new spending and tax cuts would flow to the economy. For 2010, the estimate is an additional 44 percent. The total of 65 percent means that, by the CBO's estimate, about a third of the $819 billion package would be spent after fiscal 2010. That falls far short of Obama's stated goal of 75 percent in the first 18 months.

Forbes:
From this, Romer and Bernstein estimated that the $775 billion stimulus package then being proposed by the administration would ultimately raise GDP by $433 billion or 3.7%. Since we know from experience that each one percentage point rise in real GDP creates approximately 1 million jobs, they concluded that the stimulus would create 3.7 million jobs.

. . . the mantra . . . that publkic [sic] debt doesn't matter.

There's no evidence at all that permanently lowering tax rates leads to recovery in times like this.

Cycloptichorn

Cycloptichorn wrote:

There's no evidence at all that permanently lowering tax rates leads to recovery in times like this.

Cycloptichorn

None ! Not any? Do you really mean that?

Perhaps you could offer some evidence suggesting that the forthcoming increase in tax rates will speed the recovery.