How to Fix What Ails Us

[badlydrawnjeff.livejournal.com]

Intel's CEO, Paul Otellini, had some fairly harsh words for the folks in power this week:

Otellini singled out the political state of affairs in Democrat-dominated Washington, saying: "I think this group does not understand what it takes to create jobs. And I think they're flummoxed by their experiment in Keynesian economics not working."

Since an unusually sharp downturn accelerated in late 2008, the Obama administration and its allies in the U.S. Congress have enacted trillions in deficit spending they say will create an economic stimulus -- but have not extended the Bush tax cuts and have pushed to levy extensive new health care and carbon regulations on businesses.

...

As a result, he said, "every business in America has a list of more variables than I've ever seen in my career." If variables like capital gains taxes and the R&D tax credit are resolved correctly, jobs will stay here, but if politicians make decisions "the wrong way, people will not invest in the United States. They'll invest elsewhere."

Take factories. "I can tell you definitively that it costs $1 billion more per factory for me to build, equip, and operate a semiconductor manufacturing facility in the United States," Otellini said.
The rub: Ninety percent of that additional cost of a $4 billion factory is not labor but the cost to comply with taxes and regulations that other nations don't impose. (Cypress Semiconductor CEO T.J. Rodgers elaborated on this in an interview with CNET, saying the problem is not higher U.S. wages but anti-business laws: "The killer factor in California for a manufacturer to create, say, a thousand blue-collar jobs is a hostile government that doesn't want you there and demonstrates it in thousands of ways.")

"If our tax rate approached that of the rest of the world, corporations would have an incentive to invest here," Otellini said. But instead, it's the second highest in the industrialized world, making the United States a less attractive place to invest--and create jobs--than places in Europe and Asia that are "clamoring" for Intel's business.

This is similar, as CNet reports, to what Carly Fiorina had to say on the matter, with the difference being that Otenelli isn't running for office. But clearly the business class is less concerned about speaking up right now.

We do need to think ahead to what's going to fix the problems, though. "Unexpectedly," unemployment claims are increasing again, home sales are in decline, and the stimulus, which was supposed to save us all, has "done exactly as we expected it to", which is to mean not performed as intended at all.

So let's see - we have a failed stimulus, a looming tax hike, new costs associated with health care and financial reforms, and businesses are not spending money in anticipation of this uncertainty. What's the way out? How do we fix this problem? Where do we go from here?

Comments

[surferelf.livejournal.com]

PEr Keynes, that shouldn't have happened, though.

Reasonable people can disagree about that. Also the Austrians have a point when they assert that things are always more complicated than they may seem.

Okay, so what if it's causing suckiness, or enhancing existing suckiness?

Given that the reason for the stimulus was to try to mitigate the fallout from the collapse of 2008, I just think it's entirely more likely that the suckiness was caused by the collapse, rather than the attempted remedy.

But you asked "what if". I'm not sure what the alternative is. Five years of IMF-style austerity and North Korean Tree-bark soup for everybody?

[badlydrawnjeff.livejournal.com]

Reasonable people can disagree about that.

Well, wait - what's the reasonable disagreement. At least from this perspective, the economy did not act in a way predicted by Keynes following WW2.

Given that the reason for the stimulus was to try to mitigate the fallout from the collapse of 2008, I just think it's entirely more likely that the suckiness was caused by the collapse, rather than the attempted remedy.

Okay, I think I'm confusing things.

1) Things sucked going into 2009.

2) The government acted.

3) The stimulus is either a) causing further problems or b) enhancing the existing ones.

But you asked "what if". I'm not sure what the alternative is. Five years of IMF-style austerity and North Korean Tree-bark soup for everybody?

Well, where I'm going is that it's time to place Keynes in the proverbial dustbin.

[surferelf.livejournal.com]

3) The stimulus is either a) causing further problems or b) enhancing the existing ones.


You're forgetting: or c) did nothing or d) helped, but not enough.

I think Keynesianism is useful because, while it may not be effective, it doesn't really hurt anything either. It's impossible for a politician to do nothing during a financial crisis, and this option keeps them from doing something that might really cause harm. Also, this way we get a bunch of infrastructure upgrades that we needed to do anyway.

Clarification

[surferelf.livejournal.com]

I should say that I still believe that Keynesianism is effective. However, it appears to be nearly impossible to do correctly, due to political constraints. It is therefore effectively rendered ineffective.

[badlydrawnjeff.livejournal.com]

You're forgetting: or c) did nothing or d) helped, but not enough.

Fair enough, but those also don't seem like realistic options, given history.

I think Keynesianism is useful because, while it may not be effective, it doesn't really hurt anything either.

What? How about crowding out? How about artificially fabricating demand, leading to longer slumps? How can you say that?

Also, this way we get a bunch of infrastructure upgrades that we needed to do anyway.

We'd already be getting those. What usually happens is that places that need upgrades get ignored in favor of more poltiically-expedient ones.

[surferelf.livejournal.com]

If crowding is a problem, and I'm not convinced that it is, it's a short term one. Sellers might get the money now that they would have received later, but the fact is they're still getting the money. So, it all averages out in the end. To some extent, fabricated demand is not a problem, it's the goal. It seems to me that it doesn't become a problem until it gets inflationary. At the moment, it's not politically feasible to spend enough money to do that.

We'd already be getting those. What usually happens is that places that need upgrades get ignored in favor of more poltiically-expedient ones.

All I can say is that's not the way it's happening in my locality. The sexy projects continue to get financed from dwindling state coffers because the local politicians can use them as props for their re-election campaigns. The stimulus funds are going to the boring but necessary projects that keep getting put off for "later".

[badlydrawnjeff.livejournal.com]

Sellers might get the money now that they would have received later, but the fact is they're still getting the money.

That was the argument for Cash for Clunkers and for the Home Buyers Tax Credit. Both are considered failures.

All I can say is that's not the way it's happening in my locality. The sexy projects continue to get financed from dwindling state coffers because the local politicians can use them as props for their re-election campaigns. The stimulus funds are going to the boring but necessary projects that keep getting put off for "later".

Then you're one of the lucky ones.