Deficit and Jobs: The Battle of the Washington Philosophers

June 04, 2011

The NYT continues to operate under the bizarre illusion that Congress is filled with philosophers. It headlined a piece today on the stalemate over budget and economic policy, “War of Ideas on U.S. Budget Overshadows Job Struggle.” Of course Congress is actually composed of politicians who get their office by appealing to important interest groups.

If the debate were actually one of ideas, as claimed in this article, then it would be possible to use evidence. For example, the article tells readers:

“Republicans said the slow pace of hiring in May underscored the need for sharp cuts in federal spending and regulation to spur corporate investment. …

“They argue that Democratic efforts to revive growth through public spending programs have failed as the economy remained weak and unemployment high almost two years after the end of the recession.

“‘You talk to job creators around the country like we have,’ House Speaker John A. Boehner said Friday. ‘They’ll tell you the overtaxing, overregulating and overspending that’s going on here in Washington is creating uncertainty and holding them back.'”

There are several specific testable claims in these assertions. For example, Mr. Boehner claims that overtaxing and overregulating are big problems for businesses. It would have been appropriate to ask him what he is talking about.

Taxes are actually lower today than they were in the late 90s when the economy was growing rapidly and adding 250,000 jobs a month. If Mr. Boehner’s view is that taxes are preventing firms from adding jobs, then he must have a good reason for believing that the lower tax rates of 2011 are a bigger problem that the higher tax rates of 1996-2000. The NYT deprived its readers of Mr. Boehner’s thoughts on this key issue.

It would also have been helpful to identify the regulations that Mr. Boehner considers to be major obstacles to hiring. There have been relatively few major increases in regulation since President Obama took office. The most important concern health care and these will have relatively little effect until 2014.

It is not plausible that a regulation that does not take effect for another 2 and 1/2 years would discourage hiring today, especially since turnover in most businesses is rapid enough that firms can easily shed through attrition any workers that prove to be unprofitable in a context of the new health care regulations. And of course, firms could always just increase average hours and hire temps, neither of which they are doing. This suggests that the problem is lack of demand, not regulations.

There is also research on the impact of President Obama’s stimulus package on jobs. If the NYT is going to feature the political battle as a war of ideas it should present evidence on which ideas are right. (NYT reporters have time to find this evidence, its readers generally do not.) For example, a study of the stimulus’s employment impact by two Dartmouth professors found that it likely had a larger employment effect than expected. The problem was that the stimulus was far too small, leading to a net expansion (federal stimulus minus state and local cutbacks) of government spending and tax cuts of around $150 billion a year against a contraction in annual demand in the private sector due to the collapse of the housing bubble of close to $1.2 trillion.

This is the sort of discussion that would appear in a genuine discussion of a battle of ideas. Of course, it is silly to imagine that members of Congress are really arguing about ideas. They are trying to position themselves for re-election. Battles of ideas take place in college philosophy departments, not between elected officials.

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