{"id":259676,"date":"2010-02-01T11:02:48","date_gmt":"2010-02-01T16:02:48","guid":{"rendered":"tag:business.theatlantic.com,2010:\/\/3.35099"},"modified":"2010-02-01T11:03:06","modified_gmt":"2010-02-01T16:03:06","slug":"why-obamas-job-creation-plan-might-not-work","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/259676","title":{"rendered":"Why Obama’s Job Creation Plan Might Not Work"},"content":{"rendered":"

President Obama’s $3.8 trillion budget for fiscal 2011 includes a jobs bill that could cost around $100 billion. In addition to small business credits and continued state aid, the White House has proposed a $30 billion job creation plan that would give employers $5000 dollars for each new hire. Last week I wrote that while the job creation tax credit has broad support among policy groups, including the CBO and the left-of-center EPI, it’s also easy to game the system<\/a>. Richard Posner finds a deeper flaw: It does nothing to juice demand.
Here’s Posner<\/a>:<\/p>\n

\n

The Keynesian theory of stimulus (the only theory that makes
\neconomic sense) is that if private demand for goods and services falls
\nsubstantially below the economy’s productive capacity (as it has done),
\ngovernment can replace the shortfall in demand by increasing its own
\ndemand. It can buy roads and airports and military equipment with
\nborrowed money (so as not to take money out of people’s pockets, in the
\nform of taxes, and by doing so depressing private demand)<\/b>. And it can
\nborrow cheap, because consumers are saving more than usual, and, with
\ndemand weak, businesses are borrowing less than usual. So the private
\ndemand for credit is weak, and interest rates therefore low. The surge
\nin government demand increases production, and increased production
\nresults in increased employment.\n <\/p>\n

The job-stimulus plan is not aimed at increasing demand, and
\ntherefore is unlikely to increase employment. For think: if a company
\nis producing 1,000 widgets a year with a work force of 30, and it adds
\na 31st employee and thereby earns a $5,000 tax credit, the company’s
\ntotal costs will have risen by the wages and benefits that he pays the
\nnew employee minus the $5,000. But his sales will not have risen.
\nParticipating in the job-subsidy program will actually reduce his
\nprofits (revenue minus cost).<\/p>\n<\/blockquote>\n

Last year I offered reasons for and against 9 big ideas to beat unemployment,<\/a> from business tax credits to public works projects. One of those ideas is infrastructure spending — that is, buying roads and bridges with borrowed money. The downside of infrastructure spending is that sometimes it takes a while to get the bridge-building projects off the ground. That’s one reason why the CBO found that the jobs tax credit would actually be not only faster, but more effective at creating work hours. <\/a><\/p>\n

At the same time, it’s not clear even to the CBO that a hiring tax credit could work, or if it ever has. After the 1973-5 recession the New Jobs Tax Credit
\ngave firms a tax break if they increased total employment by at least
\ntwo percent. The policy was too complex for many firms to apply, and
\nlater studies struggled to agree that the tax credit boosted jobs by a
\nsignificant number. A Department of Labor report ultimately concluded
\nthat it was impossible to observe what hiring would have been done
\nwithout the credit.

\n

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\n\"\"<\/p>\n","protected":false},"excerpt":{"rendered":"

President Obama’s $3.8 trillion budget for fiscal 2011 includes a jobs bill that could cost around $100 billion. In addition to small business credits and continued state aid, the White House has proposed a $30 billion job creation plan that would give employers $5000 dollars for each new hire. Last week I wrote that while […]<\/p>\n","protected":false},"author":1534,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-259676","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/259676","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/1534"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=259676"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/259676\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=259676"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=259676"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=259676"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}