1. Obama’s Newest Tax Credit: First Houses and Cars, Now Jobs
To the surprise of nobody, President Obama has proposed new tax subsidies for businesses that hire additional workers by the end of the year. Structured as a payroll tax holiday, the plan would give companies a $5,000 credit against their share of Social Security payroll taxes for each net new hire, plus a “bonus” 6.2 percent credit for real increases in overall wages. Because the subsidy would be capped at $500,000, small business would be the big winner.
Think of this as a jobs version of cash for clunkers or the homebuyers’ credit. The explicit goal is to get employers to accelerate hiring into this year. An optimist would see this as a plan to jumpstart hiring and accelerate the virtuous demand cycle that usually kicks a sluggish economy into gear (the more people who go to work, the more likely they’ll buy stuff, and the more people companies will hire to make the stuff these new consumers want to buy). On the other hand, a cynic might say it is an effort to bail out terrified Democrats by paying companies to hire new workers before the November elections. It might even help Democrats take credit for hiring that was going to happen anyway. A jobs bill, true, but not quite what most of us have in mind.
The problem with subsidies such as this is that they are exceedingly sloppy. A lot of money goes to those firms that would have hired anyway. This, in fact, was the experience with the homebuyers’ credit. It set off a flurry of new home sales last fall as buyers rushed to beat the deadline for getting the subsidy (Congress eventually extended it, but that's another story). Once the tax-generated boomlet ended, the market fell off the table in December.
To its, um, credit, the White House seems to have carefully designed this version. It set reasonable anti-abuse rules (one can think of all sorts of ways unscrupulous firms could game this subsidy). On the other hand, it is trying to keep the credit simple, so it doesn’t discourage companies from participating.2. How to Reform Our Financial System
Volker on the Volcker Rule:
Aggressive action by governments and central banks — really unprecedented in both magnitude and scope — has been necessary to revive and maintain market functions. Some of that support has continued to this day. Here in the United States as elsewhere, some of the largest and proudest financial institutions — including both investment and commercial banks — have been rescued or merged with the help of massive official funds. Those actions were taken out of well-justified concern that their outright failure would irreparably impair market functioning and further damage the real economy already in recession.
A large concern is the residue of moral hazard from the extensive and successful efforts of central banks and governments to rescue large failing and potentially failing financial institutions. The long-established “safety net” undergirding the stability of commercial banks — deposit insurance and lender of last resort facilities — has been both reinforced and extended in a series of ad hoc decisions to support investment banks, mortgage providers and the world’s largest insurance company. In the process, managements, creditors and to some extent stockholders of these non-banks have been protected.
The phrase “too big to fail” has entered into our everyday vocabulary. It carries the implication that really large, complex and highly interconnected financial institutions can count on public support at critical times. The sense of public outrage over seemingly unfair treatment is palpable. Beyond the emotion, the result is to provide those institutions with a competitive advantage in their financing, in their size and in their ability to take and absorb risks...3. Volcker vs. Volcker?
Andrews on Volcker's explanation of the Volcker rule:
Volcker starts off well, identifying the core problem of protecting institutions considered too big to fail. "Public outrage over seemingly unfair treatment is palpable," he says. It creates "moral hazard'' and it gives the biggest institutions "competitive advantage in their financing, in their size and in their ability to take and absorb risks." He even invokes Adam Smith, the father of free market theory, as a supporter for keeping banks small.
But then there is this jolt:
That approach does not really seem feasible in today’s world, not given the size of businesses, the substantial investment required in technology and the national and international reach required.
Huh? What about Obama's idea to limit the size of the banks, based on the size of their liabilities? Even if it was nothing more than a call to limit the biggest banks to their current size, where was that? Nowhere. Volcker simply pivots to the other proposal, on keeping banks out of prop trading.
I became even more suspicious by the way Volcker made only glancing reference to other key initiatives that could reduce TBTF -- namely, better capital requirements.
If you really want to rein in moral hazard and risk-taking associated with the implicit goverment backstop for huge institutions, then your most potent tool is to impose sharply higher capital requirements on the giants. Aligning the risks of size with much bigger capital reserves to offset that risk would be a huge disincentive for institutions to get as big as they possibly can. Structured properly, capital requirements could even induce banks to divest parts of their business before they become too big to fail.4. Market-Driven Hysteria and the Politics of Death
If we take seriously the ideology, arguments and values now emanating from the right-wing of the Republican Party, there is no room in the United States for a democracy in which the obligations of citizenship, compassion and collective security outweigh the demands of what might be called totalizing market-driven society; that is, a society that is utterly deregulated, privatized, commodified and largely controlled by the ultra-rich and a handful of mega corporations. In such a society, there is a shift in power from government to markets and the emergence of a more intensified political economy organized around three principal concerns: deregulated markets, commodification and disposability. In spite of the current failure of this system, right-wing Republicans and their allies are more than willing to embrace a system that erases all vestiges of the public good, turning citizens into consumers, while privatizing and commodifying every aspect of the social order - all the while threatening the lives, health, and livelihoods of millions of working class and middle class people.
If we listen to the likes of Rush Limbaugh and Glenn Beck and an increasing number of their ilk, free-market fundamentalism is not only sexy, it is an argument against the very notion of politics itself and the power of the government to intervene and protect its citizens from the ravages of nature, corrupt institutions and an unregulated market. In this discourse, largely buttressed through an appeal to fear and the use of outright lies, free-market capitalism assumes an almost biblical status as an argument against the power of government to protect its citizens from misfortune and the random blows of fate by providing the most basic rights and levels of collective security and protection.5. Debating Defense
An international defense debate is going to be webcast. Details:
The Haitian earthquake has made two things horrifically clear: security challenges are not only man-made, and military forces are often a vital part of humanitarian aid. This is a timely reminder, because security and defense are now the focus of a major debate within both NATO and the European Union.
How America and Europe should engage with governments around the world will be crucially important in the coming years. In addition to issues like climate change, there is also a sense that other players are flexing their muscles. Is the comparatively new Shanghai Cooperation Organization a flimsy grouping of China, Russia, and the Central Asian countries, or is it shaping up to be a new global defense and security player whose existence will have serious implications for the West?
Does the birth of the G-20 strengthen the Atlantic security relationship, or does it contain the seeds of NATO’s eventual demise? Indeed, does the West’s security thinking reflect the realities of a world which within two generations will number some nine billion people?
Right now, the future of Western security is being shaped by tensions within the Atlantic relationship. There is really no consensus on whether Afghanistan is a “winnable” war, and whether the Bush administration’s “war on terror” set the West on a long-term course that may prove comparable in scale to the Cold War.
So where do we go from here? A dozen international think tanks are organizing a worldwide on-line debate, to be held from February 4-9, in association with NATO, the European Commission, and several governments. The debate will be open not just to defense experts, but also to non-governmental organizations, development specialists, and anyone with views on where global security thinking should be headed.
The five-day Internet debate will include 10 topics, ranging from human rights to piracy, from crisis preparedness to climate change, and from development to conflict prevention. Discussion will be sparked by on-line appearances by top military, political, and civil-society leaders, who will debate with participants. Anyone interested in taking part can log on from anywhere in the world to pose questions or comment on what is being said, but they need first to sign up at www.securityjam.org .
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