In his speech tomorrow evening, President Obama is expected to discuss another dose of failed policies to “jumpstart” the economy. According to Bloomberg:
President Barack Obama plans to propose sparking job growth by injecting more than $300 billion into the economy next year, mostly through tax cuts, infrastructure spending and direct aid to state and local governments.
Obama will call on Congress to offset the cost of the short-term jobs measures by raising tax revenue in later years. This would be part of a long-term deficit reduction package, including spending and entitlement cuts as well as revenue increases, that he will present next week to the congressional panel charged with finding ways to reduce the nation’s debt.
Almost half the stimulus would come from tax cuts, which include an extension of a two-percentage-point reduction in the payroll tax paid by workers due to expire Dec. 31 and a new decrease in the portion of the tax paid by employers.
Sounds like a lot more of the same, from the man who promised us “change.”
A few thoughts:
- Government can not “inject” money into the economy – it can only remove that money from those that earned it and then spend it at the discretion of politicians, taking a sizeable “service fee” in the process (of course, the Federal Reserve can “inject” money into the economy by creating it out of thin air, but that doesn’t appear to be on Obama’s agenda for his speech tomorrow)
- Reducing taxes is the right move, but Obama manages even to muck that up. By extending what was originally set to be “temporary” payroll and other tax cuts, he merely creates greater uncertainty for entrepreneurs. Short-term tax cuts are largely ineffective anyway, because companies typically make longer-term plans when it comes to hiring. But now flip-flopping on the duration of these tax cuts will create greater uncertainty, and greater uncertainty depresses business investment.
- Including a promise of higher tax rates in the future as part of a “jobs program” is insane. Higher tax rates lowers the expected income stream from investments. A lowered expected income stream discourages investments, as it eats away at the expected rate of return and lowers it to a point where entrepreneurs find the return too small to be worth the risk. Further, lower expected returns depresses the present value of capital goods like land, factories and other productive equipment.
- More spending on infrastructure projects can not create jobs on net either. It can merely change the mix of jobs. Government diverts resources from other uses toward their politically-selected projects. Real jobs that create value as measured by market pricing are lost at the expense of government spending. Economic recovery requires a replenishment of capital along with a re-adjustment of the economy’s structure of production in line with consumer preferences. Government expenditures both sap the economy of its much-needed capital and distort the structure of production, preventing the necessary readjustments from taking place.
Because government has no resources of its own, by definition the government can not “inject” money into the economy or “create jobs.” Remember this point when you hear Obama make his grand promises about stimulating job growth tomorrow night.