The White House is mulling a temporary cut in the payroll taxes businesses pay on wages. White House advisors figure this may appeal to Republican lawmakers who have been discussing the same idea. It would, in essence, match the 2 percent reduction in employee contributions to payroll taxes this year, enacted as part of the deal to extend the Bush tax cuts.
Other ideas under consideration at the White House include a corporate tax cut, accompanied by the closing of some corporate tax loopholes.
Can we get real for a moment? Businesses don't need more financial incentives. They're already sitting on a vast cash horde [sic] estimated to be upwards of $1.6 trillion. Besides, large and middle-sized companies are having no difficulty getting loans at bargain-basement rates, courtesy of the Fed.
In consequence, businesses are already spending as much as they can justify economically. Almost two-thirds of the measly growth in the economy so far this year has come from businesses rebuilding their inventories. But without more consumer spending, there's they won't spend more. A robust economy can't be built on inventory replacements.
What Robert Reich seems never to have imagined is that the market has an ability to adjust naturally. Even when demand is not growing for the time being, there is still an immense amount of it out there. If companies have so much cash, they could use it to invest and compete for market share, and earn a better return on capital than the zero or less that they get on cash. This would boost demand and create jobs. If this is not happening-- if companies prefer hoarding their cash to investing it-- we can infer that there's something that makes businesses doubtful about whether they will enjoy the returns on their investment. What this might be is not far to seek. We're running deficits of 10% of GDP. The government has no plan to bring this under control. There seems to be a bipartisan refusal to contemplate raising taxes on the middle class. Instead, two big tax hikes on the rich-- for ObamaCare, and the expiration of the Bush tax cuts-- are already scheduled. Meanwhile, ObamaCare is leading to a sort of breakdown in the rule of law as Obama keeps issuing exemptions to favored states and companies in order to mitigate the damage done by the law, and also in the form of bailouts and other forms of intervention. This creates new methods of de facto confiscation by the government: not just taxes and regulation, but political favors to competitors. Where is all this heading? Until that picture becomes clearer, it's best to keep one's money is as liquid a form as possible.
Supply-side economics doesn't work. It's been tried for thirty years, to no avail. And now, when our continuing economic crisis is so palpably being driven by inadequate demand, it's more bogus than ever.
What on earth is Reich talking about? The past thirty years (before 2009) have been widely lauded as the "Great Moderation," during which we enjoyed consistently stable prices and low unemployment. They may not have been paradise, they may not have been the best we can do, but they were certainly far better than what we have now. We need to get back to that. If Reich is writing off the last thirty years as "to no avail," what does he want, and why does he think it's possible? Even Keynesians are supposed to understand that their prescriptions apply only in the short run. Do Keynesians denounce such parodies of their doctrines?