About This Blog

Ludwig von Mises (1881-1973) was the greatest economist of my time. His greatest works can be accessed here at no charge.

Mises believed that property, freedom and peace are and should be the hallmarks of a satisfying and prosperous society. I agree. Mises proved beyond a shadow of a doubt that the prospect for general and individual prosperity is maximized, indeed, is only possible, if the principle of private property reigns supreme. What's yours is yours. What's mine is mine. When the line between yours and mine is smudged, the door to conflict opens. Without freedom (individual liberty of action) the principle of private property is neutered and the free market, which is the child of property and freedom and the mother of prosperity and satisfaction, cannot exist. Peace is the goal of a prosperous and satisfying society of free individuals, not peace which is purchased by submission to the enemies of property and freedom, but peace which results from the unyielding defense of these principles against all who challenge them.

In this blog I measure American society against the metrics of property, freedom and peace.

Friday, September 30, 2011

The American Jobs Act

I recently commented on a article posted on the Extreme Liberal's Blog. The article is entitled: The American Jobs Act Will Prevent A Recession -- Pass It Now!

Below is my response to the claim that the Act will stimulate "demand."

Thank you for a reasoned response.

If, as you say, a “business does take its cue from the markets” and responds exclusively to the “demand thing,” then by your own argument all the incentives in the American Jobs Act aimed at business owners (payroll tax cuts, a tax holiday for hiring new workers or raising employee wages, tax incentives for new investment, tax credit for hiring veterans, tax credit for hiring the long term unemployed and regulatory reforms and reductions) are worthless window dressing.

Thus, again by your own argument, the only useful measures in the President’s bill are those that increase demand in the economy (preventing layoffs of teachers, police and firefighters, modernizing public schools, modernizing roads, airports and waterways, expanding access to wireless, subsidized employment and job training, cutting employee payroll taxes and “allowing” Americans to refinance their mortgages at lower rates).

However, let’s examine these measures more closely. Preventing layoffs will not add new demand to the economy. It merely preserves current demand.

Modernizing and repairing infrastructure will add new demand to the economy only to the extent that new workers are hired for these projects. Any new demand will be over the very long term.

Even if half of the unemployed workforce found subsidized jobs and training as a result of the bill, new demand added to the economy could be at most 5%.

Payroll tax breaks and refinancing opportunities would increase the incomes of ordinary Americans by a few percentage points at best, but these measures would only add new demand to the economy to the extent that these ordinary Americans spend the increased income rather than save it for a rainy day.

In truth, neither you nor federal government planners can know what exactly ordinary Americans will do with this bit of extra income. They are as likely to hold it or to spend down debt, as to create new demand.

The only consequences of the American Jobs Act that can be accurately predicted are the amounts of money that will be distributed initially by the government to favored political cronies and constituents.

Of course, due to the fact that the bill is “fully paid for,” this money will have been taken from others in the economy in the form of taxes. As a result, those “others” will no longer be able to save or spend it. Thus, the effect on overall new demand will probably be nil.
All efforts by government planners to direct or out-guess buyers and sellers in the free marketplace are vain. All these efforts are eventually exposed as sops to favored constituencies and interest groups. This truth holds true no matter the party in charge of the government. 


skudrunner said...

How can you expect a different response when you visit a blag that consists of people who have no accomplishments other than to live off of the government.

They revere a president who has never been involved in creating jobs. His only accomplishment was having ghost writer publish two books about him.

You so need to tread lightly on that site because they do not tolerate a differing opinion and will demean you until they restrict you from posting.

Sherman Broder said...

Thanks for the warning, skudrunner.

I keep hoping to find an open-minded liberal that will debate me without the name-calling, allowing logic to be the judge.

The trouble is most liberals lack a knowledge of economics, so logic is never even an afterthought.

Thanks for the comment.