As for your crack about government workers it may be true if they’re Federal employees. But state and local employees are in big trouble. One of the few positive results of the stimulus was the fact that it allowed states to fire fewer people.

Economically the rational decision for most people to make, if they received a payroll tax cut, would be to spend money. It looks like the economy is gonna recover, which means prices will go back up. But most people aren’t gonna be thinking that way until they know the economy’s recovering for sure.

A payroll tax cut would do some good. I just don’t think it would do enough because most potential recipients are in a very frugal mood.

Personally I’m leaning towards a second stimulus that’s free money to states. Get the accountants to figure what every state would need to not fire cops if it were well-run, and then give that much to every state. I’d also love it to include a more efficient jobs program. Just gives states $50,000 a job, and tell them to hire people to do whatever.

Yea, the clip is truly an embarrassment for everyone but Schiff. I’m amazed Stein has the audacity to open his mouth and give any financial advice publicly.

Laffer and Stein were I think the most annoying in their arrogant dismissiveness. IIRC, it was Laffer who acted dumbfounded when Schiff said that the wealth growth of home and stock owners wasn’t real and would disappear when inflated valuations burst. How could he not understand the plausibility of this?

And Stein’s blithe “you’re simply wrong” was pricelessly embarassing.

But wasn’t the most comical that long perm-haired blond real estate guy? The one who looked like he was probably an aerobics instructor or infomercial salesman who lucked into the real estate boom and probably had no clue. What a f%^%king moron. He called 10% annual growth in real estate prices normal. NORMAL! I guess because it was normal for his vast 8 years of experience. Makes me so mad!

Payroll taxes are by and large paid by people like who have good-paying jobs. In this economy those folks would have to be extremely stupid to buy anything. Just look at what happened to Saturn’s employees. In early December last year they worked for one of the best-known companies in the world, which was in some trouble but seemed to be stable. By February they were in bankruptcy and Penske was their only hope for continued employment and/or a pension.

Your Saturn anecdote is interesting. But I doubt whether anyone working for any domestic auto manufacture had strong reasons to believe their company was “stable.” Not when the entire domestic industry was on the ropes.

Your notion that anyone with a good paying job would be stupid to spend money seems strange to me. I suspect that there are plenty of people who have good reason now to think their job is stable. I am not saying all or most or even the majority. But plenty. Gov’t workers for starters, though not all pay all payroll taxes.

Further I simply doubt whether your opinion about the wisdom of spending will be predictive of actual behavior.Those who have survived this serious downturn without losing their jobs can be expected to vent some of their pent-up demand. And I’m not just saying this to be sanguine about the economy. As you know, I am pessimistic about our prospects over the short and intermediate terms. I simply think that people who haven’t lost their jobs and who have lived below their means due to economic fear will start to spend.

I do question how much a payroll tax holiday would lead to new jobs.C ompanies do of course need a means to add employees if they want to expand their productive capacity. But no enterprise expands its productive capacity simply because it can. They need to believe that they can profit from the additional capacity. Arguably that’s missing these days.

But I do think that Americans with jobs who find extra money in their pockets due to a tax holiday will spend a substantial portion of that money. As you believe, prudent folks may indeed view that spending as folly. Doesn’t mean it won’t happen anyway.

You would have had to be crazy to take out a $500,000 adjustable rate mortgage if you had a weekly income of $1000 to $1500. But look how many folks did something like that. We both know that “you’d have to be crazy to do x” is different from predicting that no one would do x, right?

Payroll taxes are by and large paid by people like who have good-paying jobs. In this economy those folks would have to be extremely stupid to buy anything. Just look at what happened to Saturn’s employees. In early December last year they worked for one of the best-known companies in the world, which was in some trouble but seemed to be stable. By February they were in bankruptcy and Penske was their only hope for continued employment and/or a pension.

…and arrogant and dismissive of Schiff’s analysis.

As Milo points out very few people will spend this money. Everyone else knows that we are in the midst a downturn that pretty much nobody predicted, that’s been worse than anyone predicted, and is greatly affecting their own personal bottom line. They’re gonna take that 3%, and if we’re lucky, they’ll put it into a bank.

The only people who won’t spend it are those having no trouble making ends meet. I can promise that folks living paycheck to paycheck will spend it. Further folks who haven’t lost their jobs and think the recession is over will spend at least some of it.

As to predicting this downturn, pretty much no one predicted it except Peter Schiff. He might not be right with his predictions now ( I pray he isn’t), but he was right then. About a right as person could possibly be about something this big. I watched this clip again, and every time I watch it I am astonished how blithely idiotic and wrong everyone else was.

As Milo points out very few people will spend this money. Everyone else knows that we are in the midst a downturn that pretty much nobody predicted, that’s been worse than anyone predicted, and is greatly affecting their own personal bottom line. They’re gonna take that 3%, and if we’re lucky, they’ll put it into a bank. If we’re not it’s going straight under the mattress.

IMO if there is a new stimulus it will have to be mostly direct aid to local and state governments. If they agree to rehire everyone they fired, plus a few more, the Feds will cover their budget deficits.

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As for health care radical change will come. If this particular proposal passes we may get it incrementally. If it doesn’t DC will conclude health reform is political suicide, and will refuse to face the issue for at least 10 years.

In the meantime we’ll get half-assed reforms like the stupid automatic pay cuts Clinton and Gingrich implemented.

Does this mean the stimulus has created a bunch of new jobs? No. But, as mentioned, it’s been 6 months since the money started really flowing into the system. Give it some time!!!! What is wrong with everybody???

However, that’s not the only way the stimulus was sold. There were dozens of other reasons as well.

Second, since a lot of the recent tax breaks were actually saved, not spent, I don’t know how you can say this so definitively.

Last, I agree with both you and Milo on that notion. We’d all be better off if health care wasn’t so closely tied to employment. It’s a broken system and we need a radical change.

We’ll never know if unemployment would have gone higher without the stimulus, but we do know the administration has been wrong so far. I’ll avoid saying they “lied” about unemployment numbers, because I don’t think they are devious. Just wrong.

On the effect of a “tax holiday”: A three month reduction in the payroll tax would be spent. Unlike a single payment of a few hundred dollars, the 6% increase in wages would be deposited into checking accounts and appear in the balance. It wouldn’t be deposited into savings accounts without intervention by the wage earner. That did happen with many of the one-shot “bonus” tax reduction checks under the Bush administration (a stupid idea if I ever heard one). The withholding deduction started this year for the “Making Work Pay” tax credit is being spent, but its just too small to make much of a difference in buying decisions ($400 spread over 8 months isn’t that much in each check).

Milo, I agree with you on most points. We should move from an economy where the employer sweetens the deal with benefits and other inducements, and just pays the worker. That would improve not only the tax situation, but also move health care into the market where people can make buying decisions (its actually hard to find out what a procedure costs if you have health insurance because you are not the customer, the insurance company is).

I agree with DougL. 8.6% was an original estimate, but they revised it up because of worse than expected economic downturn and consumers spending A LOT less. The government can only work with the numbers they have, they can’t force people to spend money.

Also, the banks have been incredibly stingy with new business loans, and the administration is working on that too.

In any event, I don’t think it’s that cut and dry that the stimulus hasn’t had an impact. We’re 8 months from when it passed and 6 months from when the money first started truly flowing in. We all knew it was going to take some time to take effect.

As far as pay roll tax holiday, this could incent people to spend, but they could just save it. So I think what Obama was looking to do was create more long term, sustainable gains by rebuilding our infrastructure, thus creating the groundwork for jobs. We have to move away from consumer spending and into an economic structure that doesn’t rely on people going into debt, agreed?

On June 16, 2009, in an interview, Pres. Obama predicted that unemployment would rise to 10% before the end of the year.

Any chance Independents will get behind this, since obviously the two existing parties are too corrupt to do anything about it?

The problem with any form of tax relief (like the ineffective Bush tax credit in 08) is that the nature of our problem includes a shortfall of demand, as people quite rationally choose to horde money for an uncertain future rather than spend it now. Studies have shown this propensity to save is particularly acute when the extra money appears as a bonus rather than a predictable increase in long-term income that might instigate a bump to a higher standard of living.

However, where I agree on the need to address the payroll tax is as part of a set of structural changes to encourage employers to hire more freely as the end of the recession approaches. The current system of benefits and payroll taxes makes it an expensive proposition to bring on a new worker if you are not certain there will be enough demand to require one. We need to move to a system where everyone works more like a freelancer, rather than like a union employee. Remove as many costs from the employer as possible and transfer them to the employee directly, so that bringing back employees part time carries no extra risk for the employer.

This is what needs to happen, though I doubt the Dems have the will to do it, since so many people want the union jobs of the 50s that no longer exist. But look at how temporary employees have been the source of employment in Japan lately, or Sarkozy’s ideas for simpler employment contracts to reduce unemployment among the youth.