Thoughts on a Second Stimulus
By Arnold Kling
No student of public fınance, if left alone, would design a tax incentive as complicated as the jobs credit. Surely the arbitrary distortions inherent in the credit, many of which are discussed below, could have been minimized.
The same might be said of the stimulus, the health care bill, or any piece of major legislation. When you propose something, you might want to take into account the slippage between the concept and the implementation. That is yet another advantage of cutting the payroll tax–it is not a concept that needs to be “designed” by Congress.
Let’s say a real estate agent is laid off and, at some point, needs to start working elsewhere in the economy.
He makes the point that it may take the agent a year to move into the “right” job. Meanwhile, if the agent spends two years in a job artificially created by the stimulus, this merely postpones the year of retraining/searching for two years.
I think that our actual policies are worse than that. It reminds me of Japan. Just as Japan tried to protect its weakest firms (small retailers), we are trying to protect our weakest firms (Citigroup, General Motors). That impedes growth and efficiency according to just about any economic model you can come up with.
Right now, the ideas being batted around for a second stimulus are more money for the states and extension of the new home buyer tax credit. We have already had one stimulus with components chosen on the basis of their appeal to favored constituencies rather than on economic merit. Any chance it can be done differently this time?