Thursday, November 4, 2010
- How Obama Can Fix It All (But Won't)
Here is a great example of why a doctrinaire bureaucracy loving 'big labor' liberal like Obama has no business in the Whitehouse. Current monetary policy is providing him an opportunity to fix the bulk of what’s wrong with the US economy with the stroke of a pen, but he’ll never do it because it would violate his idealistic (and economically illiterate) view of how the world works.
If Obama wants to create jobs all he has to do is eliminate the corporate income tax… all of it… forever. If he then chooses the worst case spending scenario and makes no cuts to spending at all, then assuming my math is right, he’ll need to borrow an additional 250 billion dollars or so to patch the hole that creates in the federal budget for the coming year . But in an environment where the Federal Reserve is buying 100% of all currently issued Treasury bonds, this is a trifle. The bond market won’t even notice. It can be managed by simply extending the Fed’s current policy by an additional 2 months.
And when the US corporate tax rate goes to zero, instead of having US companies trying to figure a way to move to China, you will instead have Chinese and other foreign companies trying to move here. The hiring boom that would come from a tax code change like that would be unprecedented in history. It would solve many of our current economic problems in a heartbeat.
The corporate tax is a sham anyway because the corporations never really pay it. It's either passed on to consumers in the form of higher prices, or employees in the form of lower wages. That means that if it's eliminated, much of the savings will be passed on to consumers in the form of lower prices, but the rest will take the form of rapid investment and expansion. The resultant "Obama Boom" would make the "Reagan Boom" seem like small potatoes.
As for the repatriated jobs, it was always a fallacy that we need to pay wages equivalent to what workers make in China in order to see hiring here. Since we are the end market, the elimination of the corporate tax will let businesses redo the math. They will be in a position to offer a wage premium for hiring in the US which amount of the difference in shipping costs at the very least. In reality it would be even more since managing American workers is so much easier than managing workers in China. That might mean that the lowest paying jobs will remain overseas, but the better a job pays, the more likely it will be worthwhile to move back to the US.
Those jobs might not pay what the unions would like, but when you’ve been on unemployment for 2 years I think you’re probably willing to be a little flexible. After all, there was never any such thing as a job that American’s wont do, only a price they wouldn’t do it for. That price has fallen in the last 2 years – at least for the 10% of Americans whose unemployment is about to run out and can’t pay their bills. And in a booming economy all wages will begin to rise again instead of fall.
It would work...but regrettably, it will never happen. Obama will never do it because it would weaken unions. And the unions are what Obama is all about. He’s taken his every domestic policy cue in the last 2 years from former SEIU chief Andy Stern. And Obama isn’t going to go against the unions just to reduce unemployment and cause the US economy to boom. It's just not worth it to him or to them.
And that's a real shame because a Republican president would never be able to get a change like that past the left wing media. They’d call it ‘corporate welfare’ and complain that ‘evil corporations’ were getting a benefit they don’t deserve while evil Republicans force poor people to eat their children to survive.
But if there is a sector of America willing to give Obama a pass it's the media. He'd be able to insulate himself from criticisms like that long enough for the effects of the policy to be felt. Then the booming economy would solve so many our budget, entitlement and employment problems that he be hailed as a hero for thinking outside the box. It's a shame he won't do it.
It’s just one more reason to lament the economic illiteracy of the political left.
If you came here from Esquire then you might also be interested in this response to that confusing bit of criticism.