Thursday, May 26, 2011

Response to the House Republican Plan for America's Job Creators

The full document can be read here: I will abbreviate this initially as the "Republican Jobs Plan," and when I get tired of typing that out, "RJP." Overall, the plan was vague to the point of uselessness, misleading in a number of areas, and economically dubious.

For the past four years, Democrats in Washington have enacted policies that undermine these basic concepts which have historically placed America at the forefront of the global marketplace. As a result, most Americans know someone who has recently lost a job, and small businesses and entrepreneurs lack the confidence needed to invest in our economy.
Contrary to popular Republican belief, it is not entirely the fault of Democrats that we are in a recession. Contrary to popular Democratic belief, it is not entirely the Republicans' fault, either. For example, we can turn to the omniscient Wikipedia: This article briefly discusses many causes which can be traced back to one party or the other, and in many cases both. There's a reason that the country is dissatisfied with virtually all elected officials, and not just one party. The implication in the Republican Jobs Plan that we should think "Democrats' fault!" when we think of anyone that's lost a job is insulting to the complexity of the various causes, and shows a lack of integrity. Own your mistakes! And yes, that applies to all politicians.

Businesses, small or otherwise, do not invest in our economy - they invest in themselves to make an increased profit. Businesses create products or services to sell. That means they have to see (or create) a market. A business will not form or expand if there is not a market - why go into the business of selling something if you have nowhere to sell it? The market is a collection of people or other businesses that have money and a need or desire for your product. A good business idea will cover the "need or desire for your product" side of the market. People only spend money when they have it, or spend credit when they can reasonably expect to have money soon. Americans are referred to by both parties as innovators, entrepreneurs, and creative people. There are plenty of ideas being generated even in today's economy. What we have is too many people with too little money, and thus a lack of markets - a lack of demand to the Econ 101 folks out there.

Cutting taxes for the wealthy also does not create jobs, by and large. The wealthy don't hire people because they have more money to throw away. When they hire people, they hire them because they need to in order to get something done and/or make more money. When do they need to hire someone in order to make more money? When there are untapped markets. In general, business is very efficient at exploiting markets, and markets are inefficient at arising spontaneously and seeking out businesses. It seems to me that government economic stimulus, when needed, should focus on market creation and sustainability over business investment.

Democrats argue that income inequality and accumulated wealth inequality is unfair. Some aspects of that argument are compelling, but that is a topic for another day. Republicans argue that the inequality arises out of merit and hard work, which is only sometimes true, but is also a topic for another day. I would argue that income and wealth inequality is more a question of sustainability. Essentially, some businesses and individuals have become so successful that they have begun to destroy their own markets. They have accumulated so much wealth that not enough is left over for the bottom 21-40% ( to get by on their own. This means they spend less, which lowers overall demand, which lowers the incentive for businesses to expand.

Government takeovers of the economy have failed while the size and the scope of the federal government has exploded.
Generally speaking, the government has not taken over sectors of the economy. Health care is still provided by private enterprises. There was a temporary, partial takeover of GM, which is ending successfully. There is increased regulation in many areas, but that is not necessarily a bad thing. It can be argued that these new regulations expand the scope of the federal government, but the number of federal employees has been remarkably stable (

Background: The House has already acted on several regulations that hurt job creators both large and small including: The EPA’s regulation of greenhouse gases, the Federal Communications Commission’s net neutrality proposal, and duplicative and burdensome pesticide regulations.
The Supreme Court ruled that the EPA did have the authority to regulate greenhouse gases as pollutants, despite the EPA's claim to the contrary. I can only guess that the RJP (look at that, tired of typing already) mentions greenhouse gases in particular because of the public perception that global warming is dubious science. There are a number of sites devoted to debunking global warming skeptics, but it should be noted that there is strong agreement among climate scientists - those that are acknowledged to know the most about it: 97-98% of the most active climate scientists agree (

Net neutrality is very important to the free exchange of ideas on the internet. See for an overview. It is by no means a clear-cut issue, and it is highly technical in nature. Neither side has gotten it exactly right (Democrats are closer, in general, on this one), but no regulation is definitely not the answer. At least, not until the broadband companies do not have monopolies or near-monopolies in many markets.

Duplicative regulations of any type should be eliminated. Pesticides fall into the category of things that most people think should be regulated, though. DDT comes to mind, along with the very simple fact that pesticides are used to kill living creatures, and I am a living creature. I think demonstrating that the product you want to spray on my food is not going to kill me is a great regulation to have. I think it should be just as burdensome as it needs to be in order to ensure that I don't die. I cannot emphasize enough how much I do not want to die.

Congress should eliminate the special interest tax breaks that litter the code and reduce the overall tax rate to no more than 25% for businesses and individuals including small business owners.
At a combined state and federal rate of just over 39%, the U.S. currently has the second-highest corporate tax rate among the developed nations of the world (those in the OECD).
First, the effective tax rate has been estimated to be much lower than the statutory rate cited in the RJP (see Second, President Obama called for a similar overhaul of the corporate tax system in his 2011 State of the Union address: "So tonight, I’m asking Democrats and Republicans to simplify the system. Get rid of the loopholes. Level the playing field. And use the savings to lower the corporate tax rate for the first time in 25 years –- without adding to our deficit. It can be done." (See The question, then, is why are you complaining about the problem instead of actively working to fix it? Also, lowering the tax rate of individuals should be a separate debate from the corporate tax rate.

Finally, the three bullet points in the "Republican Solution" to this section are all the same point - that corporate profits earned overseas shouldn't be taxed again here (much). Either admit to the fact that your solution is only one bullet point long, or think up solutions that require three bullet points.

For more than three years free trade agreements with Colombia, Panama, and South Korea have sat idle, blocked by House Democrats’ political posturing.
The FTA with Colombia has stalled due to human rights abuses in Colombia. (See, specifically Human rights issues are not political posturing. The agreement with Panama was only finally recommended by the Obama administration on April 18, according to Bloomberg. At the bottom of that article is also a report of progress on the Colombian trade agreement.

The issues with the South Korea trade agreement seem to be more general, in that it doesn't help in certain key areas, such as off-shoring of both Korean and U.S. jobs to China, as described in the AFL-CIO's statement opposing it. Furthermore, Dean Baker, for example, has argued that free trade agreements do not actually promote free trade, and the Economic Policy Institute notes how NAFTA has not produced the net export gains claimed, and that the South Korean FTA is very similar.

Sometimes things are opposed for real reasons, and not just political posturing. Sometimes they are opposed for political posturing when they should be opposed for real reasons. This paragraph in the RJP is itself political posturing and does not further the debate.

Possible solutions include keeping the most accomplished graduates in math, science and other critical fields here in America as well as making it easier for start-up entrepreneurs to obtain visas.
I agree completely that motivated and skilled people should be encouraged to stay in the U.S. I take it that Republicans voted for the DREAM Act, which provided a path to citizenship to children who were brought here illegally, but through no decision of their own other than to stay with their parents? And only those children that were motivated enough to attend college or serve in the U.S. military? And then not be allowed to petition for family members until years later? Ah, no, Republicans nearly universally voted against it.

Since President Obama has taken office, American energy production has been halted and the average national price of gasoline has doubled.
American energy production has not been halted. There was a brief moratorium on new deep water drilling, but shallow drilling, land-based drilling, and all other non-oil energy production has continued, for better or worse. Also, it is not credible to blame the rising gasoline prices on Obama policies, even if only by implication (See and and

President Obama and congressional Democrats have overseen the largest budget deficits in the history of the U.S. In the last two years, non-defense discretionary spending has increased by over 80%. They’ve maxed out our nation’s credit cards and are asking us to increase their credit limit so they can spend more.
I would guess that this figure includes the stimulus spending. Dean Baker is worth reading on this topic: In general, accurately assigning blame for the budget deficit is not going to benefit Republicans. There is a reason Democrats point to studies like this:, and Republicans only talk about total spending amounts. Again, it's time for politicians on both sides to own their mistakes, and this attempt to pin the blame on Obama and Democrats exclusively is not welcome.

Speaking of owning mistakes, Obama has done just that in regards to the debt ceiling (See The debt ceiling itself is really not a political issue. It is a necessity if you want to preserve our role in the world financial markets. Deficit spending is more of a political issue, but the debt ceiling should not be tied to it.

This is not meant to be an exhaustive enumeration of all my thoughts on all these issues. If you would like to respond to any statements I've made, I welcome the discussion so long as it remains civil. A full explanation of my political stances is on my eventual to-do list. Debating the issues is how I've arrived at the positions I currently hold, and I always welcome the opportunity to refine my positions further - or even throw them out in favor of better ideas. So please, do comment.


Erin Skornia said...

I would like to note that the republicans really need to work on their typographic consistency. In the RJP (or RIP, as I have been fondly calling it) article, they not only used two spaces after periods but did so inconsistently. I also think that left-justifying the paragraphs would have looked much nicer.

Can anyone identify the brand of the red car in the stock photo getting gas? I certainly hope it is an import.

Lastly, graphically, I don't get the illustration of the dude in the patent office painfully wasting his time reading patent applications (see page 4). The color is drab and connotes indecisiveness as does the undulated line work of the drawing.

As for the topic itself, I would like to comment that national health care would probably help lots of entrepreneurs get their businesses started.

eis271828 said...

I am still a fan of the two spaces, but agree that it should be applied one way or the other consistently. I find it to look better, and helpful for sentences that contain "U.S." in the middle, or other such words/abbrev. with periods in them. I was more concerned with the misspellings than the typography.

No idea on the car. =)

I'm not sure that's necessarily a guy in the patent office. I had originally assumed it was a guy doing tax work, but now I'm thinking it is a general commentary on red tape and bureaucracy.

Agreed on the single payer benefits. It would reduce the direct costs to businesses and/or workers. It would have to be paid for somehow, but other countries are cheaper per person with longer life expectancies: So, there would be higher taxes, but lower overall out of pocket costs.

The main question is how to promote innovation in such an environment, and I don't yet have enough information on the subject to have an answer....

eis271828 said...

Promote medical innovation, that is.

Anonymous said...

Oh good, Mark, I was honestly afraid that you would, like many others, fall prey to the economic misinformation that has so prevailed in recent times.

As I tell all my market-orthodoxy friends, income equality is not about fairness (I couldn't care less about that), but rather about economic robustness, because markets are driven by pulls from demand, not pushes from supply, that whoever said "if you build it, they will come" is full of crap, and that income redistribution is actually constructive to a functional free market.

I just want to further add the point that housing and personal debt bubble was really the market's reaction to the income imbalance. When there is excess capital and more investment than there is demand for production, returns on investments naturally fall. In the fantasy world of econ textbooks, as that ROI falls, you have more incentive to consume than to save/invest which would naturally restore the balance between investment/consumption. But the decision between consumption vs. investment/saving is strongly dependent on additional factors (e.g., vastly diminished marginal utility for consumption for the rich, or an increased necessity to save as traditional non-time-shifting wealth-transfer social safety nets are dismantled in favor of individual time-shift retirement plans that necessitate higher levels of savings among the middle class) such that the dropping of the ROI does virtually nothing to restore that balance.

The result is that people (and institutions, retirement funds, etc.) found that they could "invest" in debt, either directly (e.g., credit card debt) or indirectly (e.g., housing; many people used their rising home values as a source of money for consumption), which effectively gave the poor the money to keep spending. This, essentially, had the same effect as income equality wealth redistribution, but in an obviously unsustainable, chaotic, and ultimately destructive form.

Like a swollen river looking for a release, one way or another, the market will find its way towards the balance. In Eisenhower's day, this was done in a more controlled fashion through a properly progressive tax system (the top marginal rate was in excess of 90% back then), but now that controlled release of the water is no longer being done, the market found its own way: a more chaotic, more destructive way in the form of debt bubbles. This is also why I despair at all the people who paid so much attention to housing and how this particular crisis played out because that is missing the whole point: if you built up the levees around the housing market to prevent a bubble there, the river simply would simply have found another spot to break through.

At the end of the day, the market does work. The problem is that those who advocate market orthodoxy don't seem to realize that the housing crash and the wipeout of all those "investments" made in mortgages *is* the market's way of working and that markets can often work in violent ways (recall that in the 1800's, financial panics happened like clockwork, about once every decade). If those people with excess savings plowed into the debt market lost those savings (instead of being made whole, courtesy of Hank), then the market would have effectively done a crude wealth transfer that our post-Reagan government did not do. People who are stupid enough to think that the answer to our problems is more laissez-faire should be careful of what they wish for.

// Kai