Remember this chap, Gauti B. Eggertsson?
Gyro here has cranked his model machine and concluded: Anything but a payroll tax cut! That would cause a rise in job supply and reduce money wages!
"Tax cuts can deepen a recession if the short-term nominal interest rate is zero."According to what, one might well ask? Umh err, according to "a standard New Keynesian business cycle model."
Imagine a model that loathes tax cuts! What a weird new Kansas we're in, that can turn tax cuts -- the Reagan-era panacea -- into a "growth" disaster.
The payroll tax cut would defeat itself by causing a massive rise in "job seekers" (supply), and of course this could only reduce money wages for the select legion to get actually hired, given the a priori self-evident demand-side constraint on employment, eternally decreed from before all time and forever.
And hey, the blade cuts both ways: "a cut in capital taxes [also] deepens a recession because it encourages people to save instead of spend at a time when more spending is needed."
Paul Krugman has a crush on this guy... is he only interested in him for his results? Maybe so, since they "confirm" his own anti-tax-cut remedy for our slumpfest.
See, what does work in this model-train economy, we're told, is "Fiscal policies aimed directly at stimulating aggregate demand... These policies include... a temporary increase in government spending."
Great! Sez googoo Klug: more parks, more campus museums, more cultural infrstructure of all kinds; or "... tax cuts aimed directly at stimulating aggregate demand rather than aggregate supply."
Better "an investment tax credit or a cut in sales taxes." Ugh! Job creation and machine purchases as sold to us by Obama's Austen Ghoul's-bee, eh? Or uncle-sponsored "take an additional x% off", or cash for clunkers, or anything but money in people's pockets.
It's a calculation only an uber-nerd like Krug could fancy. My favorite part (this is the Krugster):
"The general point is that we’re really through the looking glass."Indeed, you and your crush Gauti are, Paul.
Oh, here's the paper's caveat:
"The results are specific to an environment in which the interest rate is close to zero, as observed in large parts of the world today. "In other words: feel free to follow this up NOW!
Comments (6)
btw
feeding last nights jobs plans into this "model"
well specifically
the net new job tax credit incentive
is grand since it creates demand for job takers not supply of job seekers
just like tax credits for machines
the whole complex of modeling knotted
around this incentive plan
looks like a full post however
Posted by op | January 28, 2010 2:36 PM
Posted on January 28, 2010 14:36
So tax cuts don't create jobs, unless they are tax credits - in which case they do.
It must be so nice to talk about job creation without actually saying what these jobs actually are.
Workers of the world! Out of work, well just take out student loans to train for new and exciting jobs that won't be outsourced ever. We'll even give you a tax credit for all the money you're not making
Posted by fledermaus | January 28, 2010 9:14 PM
Posted on January 28, 2010 21:14
OP, why wouldn't anyone have a super crush on the sexy Icelander? I mean, those gray-blue eyes, the tousled auburn hair that hints of redder nethers, the delicate, pale wrist. What matter that he spouts the most ridiculous nonsense? Who could hear it when his face is shoved into the pillows? Priorities, comrade!
Posted by Phillip Allen | January 29, 2010 8:48 AM
Posted on January 29, 2010 08:48
He is kinda cute. Of course, I always liked Icelanders, from Snorri Sturlusson right up to the Cod War.
Many and many a long year ago, I flew Icelandic Airlines from New York to.. Luxembourg, was it? -- with a stopover in Reykjavik. It was the cheapest way, back then, to get from North America to Northern Europe.
I had spent the previous coupla years studying mediaeval Icelandic, so I could read writers like Snorri Sturlusson.
The plane was a shabby old 707, deaccessioned, I suppose, from some American fleet. The stewardesses -- as we called them then -- were spectacular blonde six-foot Valkyries, incredibly gorgeous and intimidating.
They made cabin announcements in Icelandic, and to my utter mortification I couldn't understand a word. Even Icelandic, it seems, has changed a bit in the last 900 years.
I bought a sweater in Reykjavik, made from itchy hairy Icelandic sheeps' wool, and it has worn like iron. I still have it.
I wish I had a story to tell about the stewardesses -- but alas, I don't.
Posted by MJS | January 30, 2010 12:45 AM
Posted on January 30, 2010 00:45
problem in some of this is simple enough
despite what snorri might have opined on this
algebraic parameters never game each other
like the devil's pitchfork
the infamous reactionary loki of macro
bob lucas and his critique
have righteous applications
http://ideas.repec.org/a/eee/crcspp/v1y1976ip19-46.html
Posted by op | January 30, 2010 6:11 PM
Posted on January 30, 2010 18:11
I thought it was the Craig's List Killer.
Posted by Son of Uncle Sam | January 31, 2010 9:14 AM
Posted on January 31, 2010 09:14