Arnold Kling  

Two from the New York Times

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Jerry Jordan on Regime Uncerta... Three Dispositions of (Modern)...

1. Nobel Laureate Edmund Phelps writes,


One reform would be to create a First National Bank of Innovation -- a state-sponsored network of merchant banks that invest in and lend to innovative projects. Another would be to improve corporate governance by tying executives' compensation to long-term performance rather than one-year profits, and by linking fund managers' pay to skill in picking stocks, not in marketing their funds. Exempting start-ups from corporate income tax for a time would also help.

We also need a program of tax credits for companies for employing low-wage workers. That may seem counterintuitive at a time when the Obama administration is pressing education and high-paying jobs, but we need to create jobs at all levels. Early last year, Singapore began giving such credits -- worth several billion dollars -- and staved off a recession. Unemployment there is around 3 percent.

Read the whole thing. I agree with Phelps that the focus on aggregate demand is misplaced. I also really like the idea of tax credits for employing low-wage workers. Of course, as Greg Mankiw pointed out, the minimum wage is like a subsidy for low-wage workers paid for by a tax on firms that hire low-wage workers. Repealing the minimum wage and replacing it with a straight subsidy would be better.

Overall, Phelps is more interventionist than I would be. But his interventions are much more sensible than what we have had the past few years.

2. Ron Lieber writes,


The haves are retirees who were once state or municipal workers. Their seemingly guaranteed and ever-escalating monthly pension benefits are breaking budgets nationwide.

The have-nots are taxpayers who don't have generous pensions. Their 401(k)s or individual retirement accounts have taken a real beating in recent years and are not guaranteed. And soon, many of those people will be paying higher taxes or getting fewer state services as their states put more money aside to cover those pension checks.

As a non-state-employee taxpayer, your stock market beta is double. If stocks go down, not only does the value of your portfolio go down, but your future taxes to pay state pensions go up. The state does not make up your losses. But you make up the state's.


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COMMENTS (10 to date)
Doc Merlin writes:

'One reform would be to create a First National Bank of Innovation -- a state-sponsored network of merchant banks that invest in and lend to innovative projects'

Yes, because cartelizing research lending will of course make it cheaper!
This is the kind of nonsense that permeated the early 20th century, I don't want to hear it here!

Vangel writes:

One reform would be to create a First National Bank of Innovation -- a state-sponsored network of merchant banks that invest in and lend to innovative projects.

Aren't you missing something? This is the typical nonsense that got us in this mess in the first place. What we need is a much smaller state that does less, not a bigger one that meddles in even more areas.

Braden writes:

"I also really like the idea of tax credits for employing low-wage workers."

Isn't this the EITC, given tax incidence equivalence?

Hyena writes:

We do the first already, it's called "the public university system". Few have heard of this massive enterprise whereby the tax dollars are invested into research at all levels--from the most advanced particle physics, to engineering, to the replication of low-level findings for the sake of practice.

Amaturus writes:

"It's called the Temporary Assistance for Needy Families Emergency Fund, and it subsidizes jobs with private companies, nonprofits and government agencies."
http://money.cnn.com/2010/07/09/news/economy/stimulus_job_subsidies/index.htm

Babinich writes:
"One reform would be to create a First National Bank of Innovation -- a state-sponsored network of merchant banks that invest in and lend to innovative projects."

As opposed to projects banks deem profitable? Who (apparatchik) decides what project is or is not "profitable"?

Maybe, just maybe if we had better bankers who were able to gauge which projects are or are not innovative...

"We also need a program of tax credits for companies for employing low-wage workers."

This sounds nice but there are many questions that need to be answered:

  • Which companies qualify? Are hospitality based jobs the focus?

  • What's the spread between the tax credits and the new salaries taken on by the company?

  • Can this initiative be "gamed" by the company?

  • How productive will the new hires be?

  • How does Obamacare figure into this?

  • Why further distort an already perverted tax code?

Rebecca Burlingame writes:

More complexity - on top of more complexity - on top of more complexity: What would individuals simply do for one another to provide for economic wants and needs, if they only had the chance?

Michael Bishop writes:

Why not target the subsidy towards hiring the marginal worker, rather than applying it to every employer/employee? http://www.ilr.cornell.edu/news/jobCreationTaxCredit.html

Michael Bishop writes:

Why not target the subsidy towards hiring the marginal worker, rather than applying it to every employer/employee? http://www.ilr.cornell.edu/news/jobCreationTaxCredit.html

Steve Roth writes:

We already have the subsidy, and IMHO it's the one of the most economically efficient programs we've got: the Earned Income Tax Credit.

It just needs expansion -- especially for part-timers.

The money goes to the workers, not the employers, but the incidence is obvious. People will work for less per hour if they're getting a spiff on the side for every hour worked.

Read the last chapter of Lane Kenworthy's Egalitarian Capitalism.

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