THE PSYCHOLOGIST : Obamanomics Takes a Holiday

Obamanomics Takes a Holiday

A two-year tax reprieve is better than current law but far from ideal

Does President Obama like or loathe the two-year tax deal he has struck with Republicans? It was hard to tell from his grudging, testy remarks Monday and yesterday, but perhaps that's because he realizes he is repudiating the heart and soul of Obamanomics as the price of giving himself a chance at a second term.

In accepting the deal to cut payroll and business taxes and extend all of the Bush-era tax rates through 2012, Mr. Obama has implicitly admitted that his economic strategy has flopped. He is acknowledging that tax rates matter to growth, that treating business like robber barons has hurt investment and hiring, and that tax cuts are superior to spending as stimulus. It took 9.8% unemployment and a loss of 63 House seats for this education to sink in, but the country will benefit.

In this sense, the political symbolism is as important as the policy. Mr. Obama is signaling that businesses must be encouraged to make profits again so they can hire more workers, that "the rich" he so maligns should be able to keep more of what they earn, and even that wealth built up over a lifetime shouldn't be confiscated wholesale at death. In policy if not in Presidential rhetoric, class war and income redistribution are taking a two-year holiday.

This is not to say the deal is optimal for economic growth, and Republicans should not pretend it is. A two-year reprieve is far better than an immediate tax increase amid a still fragile recovery, but it also means that the policy uncertainty is carried forward. In the Keynesian universe, "temporary" tax cuts are virtuous because they stimulate immediately while ostensibly allowing government to reclaim the revenue later when the economy is stronger.

In the real world, businesses make investments based on the estimated return on capital over time, including the expected tax rate. What matters is the overall cost of, and return on, capital. The temporary nature of the tax cuts will provide less incentive to invest than would permanent reductions in the cost of capital

The provision to allow business a 100% expensing deduction for 2011, and 50% in 2012, will help growth in those years. But it will do so in part by pulling investment forward from 2013. This is good for President Obama's re-election chances, but not so good for increasing the permanent level of business investment.

The same goes for the temporary cut in the payroll tax in the name of encouraging more hiring. The one-year cut to 4.2% from 6.2% in the employee portion of the Social Security tax increases the incentive to work. Because it doesn't favor some workers over others, it is also superior to the tax credits that Democrats wanted. But the proposal does nothing to reduce employer costs, even as ObamaCare is raising those costs as its mandates and regulations take effect.

This incentive to work also conflicts with the disincentive to work provided by another extension in jobless benefits. The deal's 13-month extension will cost taxpayers about $56 billion. As economist Larry Summers noted before he joined the White House, every jobless person has a "reservation wage," or the minimum wage he'll accept to take a job. The jobless rate will thus stay higher for longer as benefits induce some people to hold out for a better job than those that are available.

Another half-victory is the provision to set the estate tax at 35%, with an exclusion of $5 million. The rate was set to return to 55% with a $1 million exclusion on January 1, and Mr. Obama had wanted 45%. While the 35% rate also lasts only two years, the level of bipartisan support will make this rate politically difficult to increase even if Mr. Obama wins re-election...

As for Democrats, many and perhaps most in Congress will oppose this deal as an ideological betrayal by Mr. Obama, but it is really an admission of reality. Democrats lost the election because their economic policies failed. Their caterwauling now is mostly short-attention-span theater for the MSNBC crowd.

More HERE

1 comment:

ScoremoreDecember 10, 2010 at 12:38 AM
It’s time to start bringing troops home from Iraq and Afghanistan. They’ve had enough time. We’ll always have troops there, just like we do in Germany or Korea, but we can’t sustain these troop levels. It’s ruinous.
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Background

The essence of conservatism is caution. The essence of Leftism is anger

This blog is written solely by John Ray, who has a Ph.D. degree in psychology and 200+ papers published in the academic journals of the social sciences. It does occasionally comment on issues in psychology but is mainly aimed at giving a conservative psychologist's view on a broad range of topics. There are very few conservative psychologists.

The blog originated in Australia and many (but not most) posts discuss Australian matters. Australians have an unusually good awareness of events outside their own country. Australian newspapers feature news from Britain and the USA not as an afterthought but as a major part of their coverage. So Australians do tend to have a truly Western heart, which is the reason behind the old name for this blog. So events in Australia, Britain and the USA all feature frequently here, plus occasional coverage of other places, particularly Israel.

A primer in American politics for non-Americans:

SCOTUS is the Supreme Court of the United States, the highest court in the land

The "GOP" stands for "Grand Old Party" and refers to the Republican party. The GOP is at present center/Right, while the Democrats have been undergoing a steady drift Leftwards and now have policies similar to mainstream European Leftist parties.

The ideological identity of both parties has however been very fluid -- almost reversing itself over time. In the mid 19th century, the GOP was the party of big government and concern for minorities while the Democrats advertised themselves as "The party of the white man" -- an orientation that lasted into the mid 20th century in the South. The Democrats are still obsessed with race but have now flipped into support for discrimination AGAINST whites.

Was Pope Urban VIII the first Warmist? Below we see him refusing to look through Galileo's telescope. People tend to refuse to consider evidence— if what they might discover contradicts what they believe.

Global warming

Calibrated in whole degrees. Larger graph here

Climate scientist Lennart Bengtsson said. “The warming we have had the last 100 years is so small that if we didn’t have meteorologists and climatologists to measure it we wouldn’t have noticed it at all.”

The term "Fascism" is mostly used by the Left as a brainless term of abuse. But when they do make a serious attempt to define it, they produce very complex and elaborate definitions -- e.g. here and here. In fact, Fascism is simply extreme socialism plus nationalism. But great gyrations are needed to avoid mentioning the first part of that recipe, of course.

Two examples of Leftist racism below (much more here and here):

Beatrice Webb, a founder of the London School of Economics and the Fabian Society, and married to a Labour MP, mused in 1922 on whether when English children were "dying from lack of milk", one should extend "the charitable impulse" to Russian and Chinese children who, if saved this year, might anyway die next. Besides, she continued, there was "the larger question of whether those races are desirable inhabitants" and "obviously" one wouldn't "spend one's available income" on "a Central African negro".

Hugh Dalton, offered the Colonial Office during Attlee's 1945-51 Labour government, turned it down because "I had a horrid vision of pullulating, poverty stricken, diseased nigger communities, for whom one can do nothing in the short run and who, the more one tries to help them, are querulous and ungrateful."

Defensible and indefensible usages of the term "racism"

The book, The authoritarian personality, authored by T.W. Adorno et al. in 1950, has been massively popular among psychologists. It claims that a set of ideas that were popular in the "Progressive"-dominated America of the prewar era were "authoritarian". Leftist regimes always are authoritarian so that claim was not a big problem. What was quite amazing however is that Adorno et al. identified such ideas as "conservative". They were in fact simply popular ideas of the day but ones that had been most heavily promoted by the Left right up until the then-recent WWII. See here for details of prewar "Progressive" thinking.

R.I.P. Augusto Pinochet. Pinochet deposed a law-defying Marxist President at the express and desperate invitation of the Chilean parliament. He pioneered the free-market reforms which Reagan and Thatcher later unleashed to world-changing effect. That he used far-Leftist methods to suppress far-Leftist violence is reasonable if not ideal. The Leftist view that they should have a monopoly of violence and that others should follow the law is a total absurdity which shows only that their hate overcomes their reason

Franklin Delano Roosevelt was a war criminal. Both British and American codebreakers had cracked the Japanese naval code so FDR knew what was coming at Pearl Harbor. But for his own political reasons he warned no-one there. So responsibility for the civilian and military deaths at Pearl Harbor lies with FDR as well as with the Japanese. The huge firepower available at Pearl Harbor, both aboard ship and on land, could have largely neutered the attack. Can you imagine 8 battleships and various lesser craft firing all their AA batteries as the Japanese came in? The Japanese naval airforce would have been annihilated and the war would have been over before it began.

FDR prolonged the Depression. He certainly didn't cure it.

WWII did NOT end the Great Depression. It just concealed it. It in fact made living standards worse

Joe McCarthy was eventually proved right after the fall of the Soviet Union. To accuse anyone of McCarthyism is to accuse them of accuracy!

The KKK was intimately associated with the Democratic party. They ATTACKED Republicans!

People who mention differences in black vs. white IQ are these days almost universally howled down and subjected to the most extreme abuse. I am a psychometrician, however, so I feel obliged to defend the scientific truth of the matter:

The average African adult has about the same IQ as an average white 11-year-old and African Americans (who are partly white in ancestry) average out at a mental age of 14. The American Psychological Association is generally Left-leaning but it is the world's most prestigious body of academic psychologists. And even they have had to concede that sort of gap (one SD) in black vs. white average IQ. 11-year olds can do a lot of things but they also have their limits and there are times when such limits need to be allowed for.

America's uncivil war was caused by trade protectionism. The slavery issue was just camouflage, as Abraham Lincoln himself admitted. See also here

Did William Zantzinger kill poor Hattie Carroll?

Did Bismarck predict where WWI would start or was it just a "free" translation by Churchill?

Leftist psychologists have an amusingly simplistic conception of military organizations and military men. They seem to base it on occasions they have seen troops marching together on parade rather than any real knowledge of military men and the military life. They think that military men are "rigid" -- automatons who are unable to adjust to new challenges or think for themselves. What is incomprehensible to them is that being kadaver gehorsam (to use the extreme Prussian term for following orders) actually requires great flexibility -- enough flexibility to put your own ideas and wishes aside and do something very difficult. Ask any soldier if all commands are easy to obey.

A good article on Leftist hate

The real history of social Darwinism

Some personal memoirs

Memoir highlights