Ruminations, etc..

I tend to stay away from politics on this blog, but I read something today that is forcing me to break my silence.  David Frum, former Bush administration speech writer, came out today with an article in the Financial Times that suggests some ideas for a GOP Jobs platform.  Most of it is fairly standard stuff by the GOP standards, like deregulation and tax cuts, because, you know, THAT’S never been tried before.  But this one excerpt stuck out at me:

“Yet there are policy improvements that Republicans could deliver – and which would help lift the country out of the worst recession since 1945. The first is a payroll tax holiday. Mr Obama added $787bn to the national debt with a poorly designed “fiscal stimulus” that did little to create jobs. Now is the time for a Republican alternative. The US collects about $40bn a month from the payroll tax that funds Social Security and Medicare. A one-year holiday from such payments would put money in workers’ pockets and encourage employers to hire, at only a little more than half the cost of the Obama stimulus. The holiday would have been a great idea in January 2009. It still is now.”

Dave, I think you need to take a stress pill and think this over...

This is a fairly useless strategy. First, the Obama administration stimulus plan was half-tax cuts, including a payroll tax cut.  If cutting payroll taxes didn’t encourage hiring then, why would eliminating them cause companies to hire now? Yeah, that would make hiring new employees cheaper and lower labor costs, but what are those new employees going to do?  Demand has fallen off a cliff and productivity is still high.  In this economic climate, how would lowering labor costs increase hiring? My guess is the companies would say, “Awesome. Thanks for the tax cut!” and not invest in additional capital.

Second, depriving Medicare and Social Security funds would add to the deficit problem and hurt those two programs.  Shouldn’t we be shoring up Medicare and Social Security up?  Isn’t that what this drive to privatize Social Security all about?  “Saving” it? (I know,I know,  it’s not about saving it at all, but let’s take their rhetoric at face value.)

Until demand increases, there will be no increase of hiring.  Tax holidays and cuts are great, but they do not stimulate the economy.  But if you don’t believe me, ask David Frum.  In the same column, he attacks the Bush 2001 tax cuts as ineffective.

The entire column can be found here: http://www.ft.com/cms/s/0/36cb3dcc-8eb1-11df-8a67-00144feab49a.html.