August 30 2011

Will Pivot To Jobs XVII Be A Clunker?

Charlotte Hays

As the president plans Pivot to Jobs XVII, It's already been widely noted (including on Inkwell) that Alan Krueger, the Princeton economist the president has nominated as his new chairman of the Council of Economic Advisers, apparently was one of the geniuses who dreamed up the "cash for clunkers" program.

I am not sure that having Mr. Krueger on the team gives me a great deal of confidence that we'll have fresh ideas when the presisdent announces his long-awaited (two and a half years?) jobs plan next week. 

Krueger has ideas that should alarm anybody who wants the government to back off and let the private sector create jobs. Krueger, as also previously noted, believes that it is a "myth" that higher minimum wages lead to higher unemployment, ignoring an employer's natural propensity to reevaluate the job performance of a worker as the worker becomes more expensive. (Don't miss Carrie's incisive take on this.) Krueger is also an advocate of higher taxes, including a European-style VAT; Krueger's VAT would be added to the federal income tax rather than replacing it. He likes cap and trade to control global warming.

But on one issue, the Wall Street Journal notes, Krueger does differ from his boss: 

As early as next week the President is expected to call for another extension of unemployment insurance benefits, which are currently available for 99 weeks, or nearly two years. Here is what Mr. Krueger wrote in a study with Bruce D. Meyer for the National Bureau of Economic Research Working Paper series in 2002:

"This chapter examines the labor supply effects of social insurance programs. . . . The empirical work on unemployment insurance (UI) and workers' compensation (WC) insurance finds that the programs tend to increase the length of time employees spend out of work."

The authors found that the incentive effects of unemployment insurance on recipients to delay finding a job are not insignificant and that "the estimates of the elasticities of lost work time that incorporate both the incidence and duration of claims are close to 1.0 for unemployment insurance."

For people who didn't attend Princeton, this means that paying people not to work increases the incentive not to work and thus tends to encourage longer periods of joblessness. This sounds closer to what critics of endless jobless benefits have been saying than to the White House policy line.

Regarding tax policy, I want to add something about Warren Buffett, who has been complaining that the rich such as himself aren't taxed heavily enough. Well, as it turns out, Mr. Buffett isn't paying the federal taxes he already owes. The New York Post reports:  

This one's truly, uh ... rich: Billionaire Warren Buffett says folks like him should have to pay more taxes -- but it turns out his firm, Berkshire Hathaway, hasn't paid what it's already owed for years.

That's right: As Americans for Limited Government President Bill Wilson notes, the company openly admits that it owes back taxes since as long ago as 2002.

"We anticipate that we will resolve all adjustments proposed by the US Internal Revenue Service ("IRS") for the 2002 through 2004 tax years ... within the next 12 months," the firm's annual report says.

Yeah, Mr. Buffett should pay up. In addition to not having paid some taxes, Buffett, according to another piece in the Wall Street Journal, is pretty good at "minimizing his own corporate tax bill." But this is a Good Thing:

We're tempted to suggest that Mr. Buffett should do what he might call the patriotic thing and volunteer Berkshire to pay the full 35% rate as a good corporate citizen. But even if Mr. Buffett won't say it, most Americans know that more jobs will be created if the money is deployed by the Berkshire bunch than by the Beltway boys.

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